Hargreaves, AJ Bell tumble as FCA warns on 'double dipping'

12th Dec 2023 08:27

(Sharecast News) - AJ Bell announced a package of pricing changes on Tuesday which it said will benefit its customers by around £14m a year.

Just hours after the Financial Conduct Authority said it had concerns about the way in which investment platforms and SIPP operators deal with interest earned on customers' cash balances, AJ Bell said it had been working on the package "for some time".

Chief executive Michael Summersgill said: "It is clear platforms are able to use cross subsidies where they do so to deliver fair value to customers across their entire proposition. So, as well as improving the competitive rates of interest we pay, we are also reducing our dealing charges for D2C customers and reducing the custody charges advised customers pay.

"The financial impact is fully factored into the guidance we provided in our annual results last week and our enhanced competitive position puts us in a great place to continue to grow our market share."

As part of the changes, the costs customers pay to buy and sell exchange-traded investments via the AJ Bell D2C platform are being cut from £9.95 to £5.00 per trade. The dealing charges for frequent traders will reduce from £4.95 to £3.50 per trade.

AJ Bell also said that cash held on the D2C platform is readily available for customers to invest or withdraw and in most cases represents a short-term position while customers wait for investment opportunities.

"This can differ for pensions, particularly where customers are approaching or in retirement, as they will often hold larger cash balances to fund short to medium term income withdrawals," it said.

As a result, the company is introducing higher rates of interest on cash held in pension drawdown, ranging from 3.45% for balances below £10,000 to 4.45% for balances over £100,000. It is also introducing higher rates of interest paid on large cash balances held in both ISAs and pensions in accumulation of 2.70% and 3.95% respectively.

The statement from AJ Bell came after the FCA said it had written to investment platforms and SIPP operators about its concerns.

The regulator noted that the amount of interest earned by some firms has increased as rates have risen. Having recently surveyed 42 firms, the FCA found the majority retain some of the interest earned on these cash balances. "This may not reasonably reflect the cost to firms of managing the cash," it said.

It also pointed out that many of them charge a fee to customers for the cash they hold, a practice known as "double dipping".

The "FCA is concerned these practices may not be providing fair value to customers and may not be understood by consumers or properly disclosed," it said.

"The practice of double dipping has raised concerns with the regulator and firms have been told to cease this."

Sheldon Mills, executive director of Consumers and Competition at the FCA, said: "Rising rates mean greater returns on cash. Investment platforms and SIPP operators need now to ensure how much of the interest they retain and, for those who are double dipping, how much they're charging customers holding cash, results in fair value. If they cannot make that case, they need to make changes."

Firms have until 29 February 2024 to make any changes or the FCA will intervene.

At 1500 GMT, HL shares were down 7.1% at 710.80p and AJ Bell shares were 3.7% lower at 299.94, well off earlier lows.