How do we keep Britain investing? ii publishes discussion paper

interactive investor today publishes a discussion paper, ‘Fair charging and value for money: how do we keep Britain investing?’

• Research lays bare just how subjective the issue of ‘value for money’ is, with investors considering £25 per month on average a fair price for non-pension investing
• Meanwhile, 13% of people with money invested outside their pension believe they are paying nothing in investment charges to use investment platform technology
• There is clear interest among investors (67%) for investment firms to switch to a fixed subscription fee - or at the very least they are receptive to the idea
• Around a quarter believe fixed subscriptions are a fairer way to charge, or think it’s a simpler method, or find it more appealing, while 16% also think this is a more transparent way to charge.

With consumer duty on the horizon, good consumer outcomes will be enshrined in financial services, giving people greater clarity of what they are getting for their money, so they can plan properly.

But new research from interactive investor, the UK’s second-largest investment platform for private investors and number one flat fee provider, suggests that there is a long road ahead. 

• Learn more: Low Cost Investment Platform | Interactive investor Offers | General Investing with ii

That’s because the concept of what ‘good value’ looks like is a tough nut to crack, even though half of investors (52%) put fair costs as their top criterion when choosing who to invest with. interactive investor today publishes a discussion paper, ‘Fair charging and value for money: how do we keep Britain investing?’

This paper reveals what we discovered – some of it surprising, some anticipated, but all interesting. We would like to see this paper as part of an industry discussion around fairness and trust.

The research was conducted by Opinium Research between 15 and 20 December 2022, questioning 1,000 UK adults with money invested outside a pension from across the UK.

The research identifies a lack of awareness among investors over both how much they are paying in fees, but also what good value looks like, which could lead to a lifetime of unnecessarily high charges for many people. 

At a time when certainty of cost has arguably never been more important, interactive investor suggests a need for a pricing rethink in financial services to give investors greater clarity around what they are paying and make it easier for them to understand how this will impact their long-term wealth. 

interactive investor believe people should have more options to pay for their investment services in the same easy and modern way they do the usual subscription services that dominate the wider consumer landscape. 

Richard Wilson, CEO, interactive investor, says: “As the regulator transforms the principles of Treating Customers Fairly with enforceable rules under Consumer Duty, pinning down what type and level of investment charges are in the best interests of investors has never been more urgent.

“What we think comes through loud and clear through our own research is a need for a pricing rethink in financial services. Consumers are ever more mindful of their finances, and securing value for money is the top priority. In too many cases, they aren’t getting it, and we see a lack of clarity on what good value looks like. How can prices be fair if they aren’t clear? 

“If ever there was a time for the industry to really listen to consumers and what they want, it is now. Investing for a financially resilient future with an investment platform should be as simple as choosing an online streaming package, but much more rewarding.”

A fair price to pay?

Half of investors (52%) put fair costs as their top criterion when choosing who to invest with. This is followed by provider reputation (39%) and financial strength (36%). And fair costs and charges become significantly more important as people get older. One third (34%) of 18–34-year-olds said fair costs were top of their list in choosing an investment, increasing to 49% of 35–54-year-olds and a staggering 78% of those respondents over age 55.

Value for money is highly subjective but it is still surprising to see that outside pensions, but when asked what they consider a fair price to pay, investors on average consider £25 per month to be a fair price to pay investment companies to use their trading technology – a cost that interactive investor would consider expensive, with its most popular Investor plan £9.99 per month and its entry level price plan, Investor Essentials, £4.99 per month. 

Averages involve extremes. At one end of the scale some 9% of respondents don’t expect to pay any charges at all, while 4% consider more than £100 per month fair. Overall, this shows a clear need for greater consumer awareness about and understanding of charges.

But how much are you actually paying?

There is considerable overlap between what investors consider fair and what they believe they are paying their provider. Our sample think they are paying an average of £26 per month. Here, too, there are extremes with 13% who don’t believe they pay anything at all, while 4% report paying over £100 per month. New investors believe they are paying £30, exactly the figure they consider fair, falling to £22 per month for those who have been investing for more than 10 years. Investors aged 55 and above think they pay an average of £17 per month, compared to £31 per month for those aged 35-54.

Monthly subscription pricing – what do investors think?

Our research found that people have 5.3 subscription services on average including entertainment (Netflix, Amazon Prime, Spotify), utilities such as mobile phones, and services such as gym and groceries, e.g., Gusto, Eat and Fresh. Men have more subscriptions (5.6) than women (4.8), and young adults aged 18-34 have more (6.3) than those aged 35-54 (5.5) and the 55+ cohort (3.4). 

Perceptions around subscription services are also largely positive, with 29% stating they help to manage outgoings, 22% that they are good value for money, and 19% that subscription charges create more flexibility.

When asked if investment firms should charge a fixed subscription fee, two thirds (67%) of investors agreed or were at the very least receptive to the idea. Around a quarter each believe fixed subscriptions are a fairer way to charge, think it’s a simpler method, or find it more appealing, while 16% also think this is a more transparent way to charge.

Only 15% prefer investment charges to be on a variable percentage basis. And while 29% of those aged 55 and above are less likely to prefer subscription fees to percentage charges, only 24% in this age group would prefer variable charges.

Find the full paper linked here.