30th April 2013
Hargreaves Lansdown chief executive Ian Gorham has condemned insurance companies’ transfer charges which he says are as high as six per cent of the value of an investor’s portfolio.
He said the financial watchdog, the Financial Conduct Authority, should place a cap on the exit charges levied by insurance companies when investors transfer their money to another firm.
Gorham was speaking at a press conference at the stock exchange in London this morning.
“We would like to see a cap on charges for transfers. If you look at a life insurance company you can be paying 6 per cent of your portfolio to transfer. Six per cent of your portfolio is phenomenal. We think the regulator has to step in. We are not keen on additional regulation in general because it puts people off investing. In this case we have said to the regulator it has to step in because otherwise there is no motivation for companies to change, he said.
His criticisms also extend to closed insurance companies, firms which are no longer seeking to attract investors’ cash but still manage money they attracted many years ago.
“There are a lot of closed book life companies out there and it is also in their interests to keep that book for as long as possible. They have a counter motivation to not let people transfer out. Market forces are not going to make it easier to transfer people out. That is the scenario where there should be regulatory intervention. The regulator should say this is the timescale you have got, and once you get a request to transfer something out, you have got to transfer it.”
Gorham also says the regulator should outlaw practices such as insurers requiring wet signatures – i.e. a written signature – before transfers can go ahead. He believes such practices are simply a case of financial firms putting barriers in place because they want to retain the money.
“There are other barriers which firms have in place. You have got to have wet signatures with some organisations. There is no way of giving a wet signature when you transfer online. All those things should be swept away.”
Hargreaves allows free transfers in most cases, though it levies a small fee on Sipp transfers.
Gorham also argues that the retail distribution review, the regulatory shake up which bans commission on pensions and investments, does not apply properly to insurers. He says that while complete price transparency is being imposed on fund managers and investment platforms such as HL, insurance firm charges will remain opaque.
Gorham added: “Our view about the industry is there should be a level playing field. One of the frustrations we have about the RDR is that it doesn’t apply to the vast majority of the personal finance industry – namely the life companies. There is £4trn managed by fund firms, but lots of that is through life insurance companies – the RDR doesn’t apply to them – there is still opaque pricing.
“One great thing about any platform is you can go to the website look at their charges and see what you are going to pay. You can’t do that with life insurance companies. There is no playing field.
“You could argue that’s not in our interests to free up transfers, because we are the biggest player. But we don’t believe in that. There should be fair competition. Our job is to give better service than everyone else so everyone wants to transfer to us.”