Research reveals platforms are failing to help their customers understand what they are paying for.
Platforms are not doing nearly as much as they could to ensure investors know what they are paying for their investments – and as a consequence only 30% of Isa investors have ever moved to a new platform, according to new research from platform consultancy the lang cat.
The research found that only 54% of respondents across all age groups even know what they are paying to hold their investments on their chosen platform, though those aged 55 plus are almost twice as likely to be aware of charges as those aged 18 to 24.
However, it also found that more than half would consider moving to a new Isa provider if they understood they would be saving money on charges by doing so.
The size of potential savings on offer makes a significant difference to people’s enthusiasm for switching.
Perhaps surprisingly, people are much more likely to say they’ll switch for annual savings of under £250 – 75% of those surveyed say they would consider doing so if they saved between £10 and £250, compared with 11% who would switch for savings of £250 plus.
The lang cat says this indicates that investors are “taking a realistic view of the potential savings on offer”.
Money Observer’s (our sister publication) surveys of the differentials in charges between platforms for different portfolio sizes highlight the fact that investors can save hundreds or even thousands of pounds by moving to the most cost-effective platform for their portfolio value.
Money Observer's Isa survey in September 2018, found that for a self-directed investor with a £100,000 portfolio, annual charges could vary between 0.02% (£20) and 0.45% (£450) – a saving of £430.
For a £1 million portfolio, the differential is considerably bigger, ranging from around £3,000 at the pricey end to around £100 at the cheap end of the spectrum.
Yet, while consumers are increasingly willing to switch utility providers or even bank accounts, this research suggests that that does not hold true for investors. The lang cat suggests that this is because they are not making their decisions on the basis of cost-cutting alone.
Other possible factors include the fact that switching could seem like a short-term measure in the long-term game of investing; that cost comparisons between platforms are complex and very difficult to make; and that moving from one provider to another is not a swift or straightforward process.
Mark Polson, principal of the lang cat, makes the point that brokers and platforms could do a great deal more than they currently do to make the whole process easier and less scary for customers, but that at present they are more inclined to nurture the status quo.
He says: “What is clear to us is the industry has no vested interest in helping investors understand what’s going on and in fact has had to be repeatedly encouraged by consumer champions in the media and by its regulator to improve matters. That’s simply not good enough.”
The recent move by most brokers – with Moneywise's parent company interactive investor included – to do away with exit fees is a step in the right direction towards a more transparent and open market.
Clearly, however, there is a very long way still to go towards a more transparent and competitive market in which investors actually vote with their feet, and the journey is almost bound to involve the industry regulator.
This article first appeared on our sister website Money Observer
And few client know why on earth they need one!! Is it to facilitate the adviser's fees? If not, then what does a platform provide that is adding value to a client commensurate with the fees they pay for it??
No free lunch
Chasing lower fees is not a painless process. I've switched my main ISA to various brokers several times in recent years and I can say fatigue sets in after a while because it's seldom plain sailing.
Post RDR many brokers have changed their fee structures and pricing to adjust their appeal to the target market which often makes the process feel like a frying pan & fire situation.
Some brokers still gouge a flat fee per line of stock which is very difficult to justify imo.
However even when that's not the case there can still be problems at the receiving broker with fund and stock unavailability and even misalignments alongside seemingly interminable delays.
Then there is the not insignificant factor of only getting what you pay for. Some brokers are not quite the cheapest but their customer service and problem solving competence is noticably superior.
It gets to a point where the cost savings just aren't worth the hassle. Perhaps if I had millions it would be...