Despite a significant rise in the number of affluent investors, the wealth management industry’s track record of keeping its customers happy is still poor. One of the key problems affecting customers of execution-only brokers, for example, is the cost and complexity of transferring investment products between providers. It seems likely that the wealth industry regulators will follow retail banking in making switching rules quick and simple for their customers. Are wealth managers doing their bit in making this happen?
Recent reports from the UK’s Financial Ombudsman Service reveal a 32% increase in complaints in stockbroking and portfolio management during the past year. This contrasts with complaints relating to retail banking. The Financial Conduct Authority (FCA) reports that complaints about banking products fell by 27% between 2012 and 2013 whereas those relating to investments increased by 4%.
At present, it can cost anywhere between £25 and £100 for an in-specie transfer out of a holding. Often, these transfer-out fees are capped – however, the cap is often still high enough to dissuade customers from switching. This set-up results in an uncompetitive environment, dis-incentivising improvements to the handling of transfers out as well as limiting customer choice. The contrast with retail banking is remarkable – switching between current accounts is free and since September 2013 only takes 7 days.
Even when they are willing to pay these fees, some customers are still not allowed to switch between execution-only brokers. Investors Chronicle reports that a number of customers who switched from one broker to another in November and December 2013 were still waiting for transfers to complete in April 2014.
This particular delay was perceived as extraordinary, and the broker in question apologized for it, but the average time frame has not improved by much since. Customers are often given an estimate of six to eight weeks for their transfer to complete, despite the FCA suggesting that a transfer should take only a week. As a result, investments remain in limbo where they can neither be traded nor sold until after their transfer has been completed.
Only a matter of time before the regulator steps in
Again, the parallel situation in retail banking is well ahead. The Current Account Switch Service guarantees that direct debits and standing orders will be transferred within seven days. The Payments Council reports that the Current Account Switch has led to an increase of 11% of current accounts switches between 2012 and 2013.
It seems likely that regulation of the wealth industry will follow in retail banks’ footsteps with the imposition of rules to make switching simpler and easier for the customer. It is only a matter of time before the regulator steps in to remove fees and enforce the one week transfer time. However, execution-only brokers should be proactive and start fixing the problem now.
What can brokers do themselves?
What does this mean for the affected brokerage firms? At present, the lack of consistency means that brokers have to do a lot of chasing of the other side. If a one week service level were enforced throughout the industry, this time spent chasing when receiving a transfer would be reduced, thus improving operational efficiency across the industry.
Several online brokers have already signed up to a new, faster payments initiative that will move products in six days by removing some legal obstacles associated with transfers. This initiative is being led by the Tax Incentivised Savings Association (TISA). However, TISA reports that many firms who have signed up for the electronic facilities enabling this initiative, have not yet adopted the appropriate service standard. Adding a level of enforceability to these initiatives would improve their outcomes and prevent firms from taking on the technology without passing on benefits to the customer.
Execution-only brokers should encourage initiatives to improve transfer times. At present, some delays can be attributed to a lack of compatibility between different brokers’ systems. Additionally, even when an electronic transfer can be made, companies often fail to offer it and only use it when specifically requested by a customer. Initiatives to enhance compatibility and use of electronic transfers without prompting would also be welcomed.
An execution-only broker that promises no transfer- out fees and guarantees a one week transfer Service Level Agreement (SLA) is an appealing prospect. Guaranteeing these standards would reduce customer reservations before sign-up and improve the account management experience, thus enhancing customer propositions.
In short, improving the customer experience is rapidly rising up the agenda for wealth managers. The industry seems to be aware of the transfer issues but has been slow to respond. Wealth managers should lead change themselves rather than wait for the strong arm of the FCA or competitors to act first.
This is the first in a series of blogs that will explore the wealth management customer’s experience. Customer outcomes should be a priority in order to address the rise in industry-wide complaints and increased scrutiny from regulators.
References
- http://www.financial-ombudsman.org.uk/publications/ar13/about.html
- http://www.investorschronicle.co.uk/2014/04/14/your-money/investors-switching-brokers-face-wait-of-up-to-five-months-gm7ejw9yfKm9gJElHgkj5I/article.html
- http://www.investmentweek.co.uk/investment-week/news/2298613/fca-launches-review-into-execution-only-market
- http://www.moneymarketing.co.uk/Journals/2013/02/07/t/n/w/CB_240113.pdf
- http://www.paymentscouncil.org.uk/switch_service/resources/current_account_switch_service_switching_data/
- http://www.financial-ombudsman.org.uk/publications/ar13/about.html#a13
- http://www.fca.org.uk/firms/systems-reporting/complaints-data
Comments