Over the last few weeks you can’t have failed to notice that The Sunday Times has been giving St James Place a good shoeing. Luxury cruises, opaque fees, leaked phone calls….the hits keep on coming. It’s not been a good month for whoever does SJP’s PR.
One area that has come under criticism (again) is the question of their “exit fees”, or “early withdrawal fees” as they describe them. The Sunday Times (15th September) states “SJP believes the City watchdog wants it to scrap early withdrawal charges on pensions and bonds, and thinks the firm sails “close to the edge” of regulations”.
As luck would have it, the subject of exit fees is something the FCA is currently pondering. The Investment Platform Market Study final report was published earlier this year, with a supporting consultation paper carrying a “discussion chapter” on exit fees. The consultation closed in June, with the paper stating: “For the discussion on exit fees, we will consider responses to the questions and may issue a formal consultation later in the year.”
So, here we are mid-September, everyone is back at work and school, and there isn’t much left of “later in the year”, so what can we expect in response?
Essentially, the FCA has two options:
- It proceeds with a ban on exit fees, or
- It backtracks and decides a ban isn’t necessary.
I think it would be very unusual for the regulator to make a u-turn at this stage of the process, not least since it recently came under Parliamentary scrutiny for lack of action. So I’m going for 1; there will be some sort of ban.
This is where things get interesting for SJP watchers.
The consultation proposes a ban for Platform Service Operators, which means Life Company models such as SJP would not be covered. However, the FCA recognise this, and has asked the following killer questions within the consultation: 1
“If we introduce a ban or cap on exit fees, should it apply to firms offering comparable services? If not, what are the reasons why a ban/cap should or should not apply to particular types of firm or service?”
“If your firm is a product manufacturer as well as a distributor as defined, what exit fees are applied within the products and services you offer to clients? If such fees exist, please provide a rationale for this charging model.”
“How prevalent are cases where product-related exit fees pose a similar or greater barrier to switching in the investment platforms and comparable services market?”
If there is to be a ban on exit fees, then it’s far from certain who it will cover. If it is just for Platform Service Operators the platforms impacted will argue (with some justification) about the unfair playing field this creates. However, if the FCA grasp the nettle and read across to Life Company models, what about other charges that look and quack like an exit fee? For example early encashment fees where an enhanced initial allocation was paid. Market Value Reductions (which of course aren’t exit fees, but have a whiff of them) on With Profits might even come into the spotlight.
This really is a complex area and the best outcome is not clear.
If the FCA’s deadline of responding to the consultation by “the end of the year” is to be believed, the regulator will currently be sifting through the industry responses to those exit-fee killer questions. Those responses, and perhaps the regulator’s choice of Sunday reading, might well define the next chapter in the SJP story.