AJ Bell slashes fees and hikes interest rate after warning from regulator

AJ Bell is set to slash fees on its platform and ramp up the interest rate it offers customers after the regulator fired a warning shot to investment firms today over so-called ‘double dipping’.

In a statement this morning, the City watchdog said it had written to the chiefs of the major retail investment firms over concerns they “may not be providing fair value to customers”.

The regulator found that most retail investment firms retain at least some of the interest earned on customers’ cash balances, while some also charge a fee — known as “double dipping”.

The warning has prompted AJ Bell into action this afternoon as bosses confirmed the firm will cut fees from the 1st of April next year and increase the interest rates paid on cash held by customers.

“We have been planning these latest pricing changes for some time. Now we have clarity from the regulator, we are pleased to confirm another significant package of pricing changes which will benefit our customers to the tune of £14m a year,” said chief Michael Summersgill in a statement.

The changes could deliver savings to the tune of £14m for customers by cutting fees and allowing them to retain more of the money accrued through interest, Summersgill added.

AJ Bell said the pricing changes had already been factored into the guidance it issued to the market at its annual results last week.

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

The firm said it will also roll out higher rates of interest on cash held in pension drawdown, ranging from 3.45 per cent for balances below £10,000 to 4.45 per cent for balances over £100,000.

The move marks a fast reaction to the FCA’s warning this morning, which sent shares in retail investment firms into a spin.

AJ Bell and its main rival Hargreaves Lansdown tumbled beyond eight per cent at times as investors fretted over the impact of the change on the firm’s revenues.

Analysts at Jefferies said they expected a possible negative impact on margins for both firms.

“It is likely that revenue margins on cash balances held in some types of account on platforms such as HL and AJB will be reduced by the amount of the platform fee, while net interest income may fall as well,” Jefferies wrote in a note.