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 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.
Our last 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 our parent company interactive investor to the fore – 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.
Having discovered that I could save several hundreds of pounds if I switched platforms for my SIPP and ISA, I was horrified to learn that it could be up to four weeks before I had say over my investments again. Given the volatility of markets, this was a risk that I was not prepared to take and I am, therefore effectively locked in to my current platform. The combination of an inefficient market infrastructure, that leads to snail-like timing for in specie transfers, and platforms that have little incentive to improve the process, is a significant barrier.
I’m tempted to switch platforms, but it seems a lot more than “daunting “ to do so, for all the reasons stated in the article. It’s not in the best interests of platforms to make it easy to switch. In my experience of even switching a utility, something always goes wrong! I’ll give it some more thought.
discounted fund fees
Whilst the fund platform charge may be less it's difficult to compare overall because some platforms have deals with fund managers - a comparison site where you can easily compare both to ascertain an overall saving would be useful!