Investors who feel locked in by high fees to switch their DIY investing platform are to get help from the City watchdog.
The Financial Conduct Authority is proposing a package of measures it believes are necessary to tackle a lack of competition in Britain’s £500billion investment platform market.
The watchdog said that while competition is ‘working well for most consumers’, it is concerned about how platforms compete for particular groups of investors.
These include customers who want to switch platform, those who use model portfolios or direct-to-consumer platforms, people with large cash balances and ‘orphan clients’ – customers who previously had a financial adviser but no longer do.
The City watchdog headed up by Andrew Bailey wants to improve life for DIY investors
So-called ‘switching fees’ have long been an area of concern for DIY investors and it appears the FCA has run out of patience on the issue.
Other key concerns the watchdog wants tackled are the pricing transparency of DIY investing platforms, and the appropriateness of the risk level descriptions used by ‘model portfolio’ providers.
Popular investment platforms include Hargreaves Lansdown, Interactive Investor, AJ Bell Youinvest, The Share Centre, Tilney Bestinvest, Charles Stanley Direct and Fidelity.
Shares in the UK’s biggest DIY investing platform Hargreaves Lansdown fell by 4.2 per cent this morning, after the report was published.
As part of its wide-ranging examination, the FCA today proposed several areas it wants to see industry-lead change.
It pledged to help strengthen how platforms drive competition between fund management firms, introduce measures to make it easier for investors and advisers to switch platforms, tackle price discrimination between orphan and existing clients, and bring in a requirement to alert customers who have large cash balances sitting on a platform generating them no returns.
The FCA said will assess industry progress in these areas over the coming months before deciding whether it should introduce additional remedies.
The Investment Platforms Market Study was kicked off by the FCA in mid 2017 and is due to complete in early 2019.
It is seeking feedback on the findings and proposals announced today before publishing its final conclusions.
Christopher Woolard, executive director of strategy and competition at the FCA, said: ‘This is a market that has seen significant growth in the past five years, with more customers than ever deciding to use a platform to manage their money.’
‘We know that competition is working well for many but it is important that the problems we have identified are addressed so that consumers don’t lose out.’
‘We have outlined a package of measures today to address the issues we have found, but we also want to see the industry step up, making it easier for consumers to transfer from one platform to another.’
How to choose the best DIY investing platform
DIY investing platforms act as a place to buy, sell and hold all your investments and a tax-efficient wrapper around them if you choose to invest in an Isa.
When weighing up the right one for you, it’s important to to look at the service that it offers, along with administration charges and dealing fees, plus any other extra costs.
For more information and to compare platform costs, read our guide on on how to choose the best (and cheapest) DIY investing Isa.