FCA plans for a new consumer duty

Time to put exit fees back on the agenda, and tackle alphabet soup of share classes, says interactive investor.

interactive investor, the UK’s second-largest DIY investment platform, welcomes the FCA’s plans for a new consumer duty. But it notes the irony, coming one year after the FCA disappointingly abandoned its work on investment platform exit fees.

Moira O’Neill, Head of Personal Finance, interactive investor, says: “Little over a year since the FCA dropped its work on investment platform exit fees, it seems they are now back on the radar – and not before time.That said, we’re alarmed to see the regulator single out ‘unreasonable’ exit fees – all exit fees are unreasonable. It’s a privilege, not a right, to administer customer money, and they should be allowed to leave without penalty.

“Exit fees are a recipe for rip-offs and should never have been taken off the table. While we’ve led on removing the stain of exit fees from the sector, some still charge them. And where there’s scope to charge them, there’s scope for the direction of travel to change.

“We are also pleased to see today’s consultation raise the issue of different unit classes and difficulties in switching. A year ago, we called on the FCAto examinewhat can be done to help non-advised retail customers navigate different fund share classes and ensure that they purchase the correct fund and the correct share class of that fund.

“When it comes to discounted share classes, the underlying fundamental question which needs to be examined is whether discounted share classes are in the best interests of consumers. We think they should be scrapped. Platforms should compete with one another based on the services they offer and the platform cost. From a consumer perspective, the inequality inherent in discounted share classes represents, at best, a subsidising of the marketing effort of the fund (for the benefit of the chosen platform); and, at worst, a systematic disadvantage to every investor who chooses to use a platform of their own choosing.

“We welcome the consultations focus on tackling opaque charging structures, and would like to see the issue of transparency looked at more widely, including some pension schemes, where our research suggests too many consumers struggle to understand their risk levels, or whether they are being de-risked.”

Becky O’Connor, Head of Pensions and Savings, interactive investor, says: “It’s absolutely right and should be self-evident that consumers should get a good level of care and have their needs and wants met by financial services, including with investments and pensions. The FCA shouldn’t really have to spell it out.

“People’s financial well-being depends not just on the price they are paying, but accessing what they need when they need it. There is more to the suitability of a financial product than price: service is massively important but so is making sure that people are accessing the right products for their individual needs and are able to act if a product isn’t right.

“This is especially important for ‘big ticket’ financial products, like pensions, which by their nature can be with you for decades and for which you can pay a lot, over the years, whether you are getting a good standard of service, or the right kind of pension product for you, or not.

“The long-term nature of pensions and customer inertia, as with current accounts, means there could be a tendency among the businesses managing them to become complacent and take customers for granted.

“While a focus on customer care is very important, so is an individual’s ability to act if they aren’t getting the service they want or need. There will always be variances in specialisms between firms, with some aspects of service being more suited to some individuals than to others. Greasing the wheels of competition to enable movement according to needs and wants, as well as raising service standards across the industry, is key.”