Digital transfers increase pressure over exit fees

The number of investment platforms using automated transfers has shot up during the past two years, prompting critics to renew calls for an end to "excessive" exit fees for customers moving their money.

The biggest eight direct-to-consumer fund supermarkets all carry out live electronic transfers, according to research from Altus, a technology provider - up from just two at the end of 2013. Of platforms used by financial advisers, 14 of the top 20 now use electronic transfers.

Transfers and re-registrations need no longer be a cumbersome manual process, thanks to new digital and legal frameworks. But this change has increased pressure on platforms over exit fees, which they insist represent the actual costs involved.

"Most assets are being transferred electronically within a few days, with no paperwork and very little human intervention. Charging £30 per asset line [for this] we think is a bit excessive," said Howard Finnegan, head of sales at Altus.

Steven Nelson, an analyst at the financial consultancy The Lang Cat, said: "Investors should not face unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint.

"The word unreasonable is important here. If a provider absolutely must impose a customer penalty, we think that cost should be in the region of a few pounds, maximum."

New requirements that platforms disclose their prices have led to an increase in customers moving between providers. Transfers involve platforms either converting investors' holdings into cash, which is then moved to the new service, or re-registering funds to the new platform in a process known as "in-specie transfer".

Big platforms that charge no exit fees include Fidelity Personal Investing and Chelsea Financial Services, while newer direct-to-consumer platforms such as Nutmeg and Axa Self Investor have also opted not to put fees in place, according to The Lang Cat.

Brokers including TD Direct and Old Mutual Wealth have scrapped their exit fees over the past year.

However, other platforms charge for each line of stock transferred, for the closure of accounts such as individual savings accounts (Isas), or for both.

Market leader Hargreaves Lansdown charges £25 per line of stock for customers leaving the firm, and £25 plus VAT for account closures.

Tilney Bestinvest charges £25 per line of stock or fund; The Share Centre charges £25 plus VAT for account closure, but nothing for each line of stock, while Barclays Stockbrokers charges £30 per line of stock.

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Closure of self-invested personal pension (Sipp) accounts can incur higher exit fees, while other types of fees charged to investors also vary widely between providers. Transfers in cash are often free.

Many brokers offer to pay back exit fees charged to new customers by their previous platforms.

"The Altus report findings will hopefully drive down some of the more outrageous penalties still kicking around," said Mr Nelson.

The move to electronic transfers follows the development of TeX, a legal framework enabling platforms to interact on shared terms, by The Savings and Investment Association (Tisa), an industry body.

The Financial Conduct Authority, which regulates platforms, now requires transfers to be "timely". Long transfer times can leave investors stuck in cash and missing out on market returns.

David Dalton-Brown, director-general of Tisa, said the rise of digital transfers was "outstanding news".

"Back when the industry started looking at this problem, we saw transfers and re-registrations taking 60 or 100 days to complete. It was very cumbersome and prone to error," he said.

"We were seeing a significant number of complaints from clients across the industry. Now we are seeing some transfers being completed in under two minutes."

Transfers now take an average of six days, according to The Platforum, a research firm.

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