The charges are made when a customer wants to close an account. In the final report of its Investment Platforms Market study, the Financial Conduct Authority (FCA) said people should be allowed to move their money freely and it was therefore in their interests to restrict exit fees.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “While the market is working well for most of its consumers, the package we’ve announced today should make it less expensive and time-consuming for investors to shop around and move to the platform that best meets their needs. As part of that, we believe it is right that we restrict exit fees, so people can move their money freely.”

In a surprise move, the FCA also said it would extend the ban to wealth managers as well, adding: “this remedy should apply to platforms and firms offering comparable services.” This could affect groups such as St. James’s Place who levy exit charges.

“Recipe for rip offs”

Platforms who don’t charge exit fees welcomed the move. Richard Wilson, chief executive of interactive investor said: “We wholeheartedly agree with an outright ban on exit fees. Capping them doesn’t solve the issues because it’s a recipe for rip offs.

“Exit fees inhibit freedom of choice and transparency. Other firms are charging excessive exit fees. Nearly all consumers are not aware they will be charged to exit at the point when they sign up.

Stuart Welch, head of Fidelity Personal Investing,said the move was good news for long-term savers and investors: “The FCA has decided against the half-hearted measure of introducing a cap to exit fees and has proposed an outright ban will be more effective. We don’t believe in hidden fees for the consumer and as such, we do not charge exit fees.

“These fees have always served as a barrier for customers to exit and choosing the best investment platform for their needs and this move will go some way towards creating a more level playing field. Hitting customers with additional charges can make a significant dent in their investment pot for the long term and we welcome this recommendation from the FCA.”

Level playing field

Some groups made a distinction between exit fees charged to cover the cost of switching and those designed to make profit. Andy Bell, chief executive at investment platform AJ Bell, said: “Switching between platforms is definitely an area we’d like to see improved and the FCA is right to extend this beyond the boundaries of platforms to comparable services. Any measures to improve transfers between providers should be industry wide and include non-platform products to create a level playing field.

“Platform exit fees are generally intended to cover the reasonable costs involved in switching customers to a different platform. Exit fees in other parts of the market look to recoup acquisition expenses and are far more punitive than platform exit fees and hence more of a barrier to switching products.”