Regulator wants platforms to move customers' money into an alternative share class if their current one is not available, rather than forcing holdings to be sold
(Morningstar) Investors must be able to switch their assets to a new provider more easily, the FCA has said.
The Financial Conduct Authority has said that consumers must be able to transfer their investments between different fund supermarkets, also known as platforms, more easily so they can access better value services.
In a policy statement, the regulator says platforms must allow so-called in-specie transfers – this is where a customer’s money is moved while it is still invested. Often investors are forced to sell their holdings into cash to move to a different Isa or pension provider and rebuy their investments again with their new provider.
One reason often given for this is the number of different share classes available to investors. These are indicated by the letter after a fund name such as “A” or “X”. In many cases a platform will not have access to all the available share classes, and some may have exclusive access to a particular share class, perhaps at a discounted rate.
The FCA wants platforms to offer share class conversion, where customers' money is moved into an appropriate alternative share class if their current one is not available rather than being forced to sell their holding. It also wants customers to be given the option to convert to discounted share classes with lower fees where these are available.
Richard Wilson, chief executive at interactive investor, explains: “A very real barrier with transfers is share classes that aren’t universally available. There’s nothing wrong with investors looking to get the best possible price but the ‘alphabet soup’ of different share classes can be extremely confusing. A lack of transparency is perpetuated by exclusive share classes, because consumers find it difficult to make like-for-like cost comparisons between platforms.”
But some experts believe the FCA has not gone far enough. Andy Bell, chief executive at AJ Bell, says the complexity of multiple share classes is a major barrier to investors switching providers because not all platforms can hold all share classes. He thinks cash rebates should be introduced: “This would enable there to be a single retail share class for each fund with platforms able to negotiate discounts for their customers in the form of cash rebates that are paid into to customer accounts on the platform.”
The regulator has previously raised concerns about the time and costs involved in transferring assets from one provider to another, and how this can make it difficult for customers to switch. It has been consulting on how to make investment transfers simpler and asked for feedback to its consultation in March. Its latest policy statement sets out its final position after receiving feedback from the industry, with changes to be introduced in July 2020.
The FCA is still consulting on exit fees – where platforms charge customers to move to a new provider – and clarification on this is expected early next year.