IG’s view on exit fees: why we charge none
Many investment businesses charge their clients exit fees to transfer their investments to another provider. IG portfolio manager, Oliver Smith, explains why we don’t follow the herd.
What do your fees cover?
IG directly makes money from share dealing, through charging trading commissions, FX fees and custody fees. We have designed these charges to cover all the costs of running our business. These costs are both internal and external, the latter being fees paid to third parties which enable us to do business.
Offering a share dealing service draws on many different areas: our internal costs include employing personnel in marketing, IT, legal, compliance, settlements, corporate actions, dealing, emails, and content, alongside valuable 24-hour support from a global client services team.
External costs include data licenses, UK regulatory levies, third party tax statements and using an internationally recognised custodian to safeguard your assets. The custodian charges for every settlement (buy or sell), alongside a fee which is linked to the total value of our assets under administration.
Taking into consideration all the above, there are clear fixed costs of running the business alongside variable costs related to the number of account holders. We introduced a custody fee earlier this year (which is offset against trading commissions) to ensure that everyone pays their fair share – no one segment of our client base subsidises another. By structuring our charges in this way, everyone pays a minimum fee while ensuring that we can keep commissions low for those who want to trade stocks.
Why we dislike exit fees
Most platforms and investment firms charge their clients to transfer stock (say £25 per line) to another provider, and some also charge a further administrative fee to close the account. We think this is wrong, and we want to explain why.
It is our view that charging should be simple and transparent. We don’t charge for tax statements, corporate actions, or transferring stock in, so why would we charge for transferring stock out?
Exit fees are often cynically structured to stop clients from switching to another investment provider. If your trading commission of £15 makes a firm money, paying £25 to switch out doesn’t seem fair.
Operationally, we have the same cost for transferring in a client’s assets – which everyone does for free – as we do for transferring out. This is the man-hour used to process the transfer, plus our settlement costs per line of stock.
How do we see a perfect world? The switching process for household utilities, whereby in a few minutes you can go online and switch your provider at no cost, is a good benchmark. However, even if exit fees are banned, as regulators are suggesting, we might not get there! Energy provider switching can be done with a digital signature, but many UK investment firms still insist on receiving a signed paper form, which, again, deliberately adds pain and friction to the process.
While your provider may still charge you to move your investments from their business, we are confident that our investment offering, with low commissions and FX fees of just 0.3%, is still worth taking the time and effort to make that journey.