February 9, 2016
|By Consulting Group|
Across the stockbroking industry consumers are faced with complex charging structures, which has made it difficult to calculate the expected cost of an individual’s investment activity.
One specific charge, often tucked away in the ‘additional fees’ section, is the ‘transfer out’ or ‘exit fee’ cost. This levy was traditionally implemented to reflect the cost of manually transferring and re-registering stock, however, as highlighted in the FT article ‘Digital transfers increase pressure over platform exits’ technological advancements have rendered this fee almost redundant. In 2015 tech provider Altus claimed that eight of the biggest direct-to-consumer providers carry out live electronic transfers (up from 2 at the end of 2013).
Instead of the providers reducing or removing transfer fees, they remain ever-present and can have a significant impact on the cost of trading. With most providers charging a fixed fee per holding transferred, it costs a typical investor, holding eight assets, up to £280 to transfer an ISA to another provider. This practice effectively ‘locks’ in a user and acts as a major barrier to switching. Out of the 19 execution-only stockbrokers researched only Fidelity, IG and TD Direct offer free transfers out.
Large numbers of potential equity investors are deterred from investing due to a lack of knowledge and understanding, exacerbated by complex pricing and ‘hidden’ charges such as exit fees.
Better tools to compare broker charges, such as our BrokerCompare product need to include the transfer out costs to help people understand the impact these additional charges can have.
Of course, there has been good work on simplifying fund charges and these still make up a large percentage of costs, but removing the initial layers will help make investing less complex and even trigger its growth. Unravelling fees will allow traditional stockbrokers to compete with alternative investing methods such as algo investors which leverage themselves on transparency and cost.
The table below demonstrates the cost of transferring an ISA account across providers
|Company||ISA Transfer Cost
(Per Holding unless stated)
|Alliance Trust||£100 + VAT (flat rate)|
|Halifax||£25 (max £125)|
|Bank of Scotland||£25 (max £125)|
|iWeb||£25 (max £125)|
*Interactive Investor waives transfer-out charges for up to ten lines of stock (£15 per line of stock after that), if you choose to leave within a year of opening your account.
If you are interested in understanding how your business can improve its pricing, product proposition or consider how algo can be included in your business proposition, then contact us at firstname.lastname@example.org