Welcome to the Morningstar series "Ask the Expert." I'm Holly Black. With me is Mark
Polson. He is principal at the lang cat. Hello. Hello.
So, we are talking Isa investing today. And you've done some research and it shows that
70% of people have never changed their provider. So, you want to tell us a bit about what you
found? Yeah, we found it really kind of distressing,
if not surprising, lack of switching. We've kind of learned I think that for bank accounts,
utilities and stuff, that it's worth looking around. I guess, another way of saying that
is that loyalty is not rewarded there. Everyone that's switched their car insurance knows
that right. But when it comes to investing, people just seem to be happy to sit for years
and years and years without ever checking if they could do better elsewhere.
I guess people maybe just assume it doesn't change that much between providers. But what
would the main reason someone is not switching be?
Well, it's hard to know because most people haven't done it and they don't have a good
reason for not having done it. They haven't thought critically about why I'm staying with
X, Y, Z investment provider. But we think most of it has to do with not, you know, formal
fear of missing out. Yeah.
It's not that. It's something we think – I can't even pronounce – it's called fear
of making it worse, FOMIW or something. I don't know how you pronounce it. It's fear
of making a decision that even if it looks good on the surface ends up worse than you
currently are. So, fear of the unknown, I guess. And what that tends to mean is that
big providers keep getting bigger. And the more people are with them, the more people
know them and the less adventurous they get, and it makes it very hard actually for new
providers to break into the market as well, which is sad for them and nice for the big
providers. But mainly, it means that lots and lots and lots of people out there are
probably paying way more than they have to for their investments.
I guess it's that brand security thing there, isn't it, like this is your money and your
future probably your pension. You don't want to try the new kid on the block maybe?
I think that's right. So, financial security is a big a big part of it. And one of the
things that we've noticed over the last few years is the wave, the tidal wave of new providers,
the robo-advisors, the guys that you'll see on the billboards, or on the tube ads, and
all that kind of stuff, haven't really broken through.
They found it very, very hard to get clients, whereas the big providers that everyone's
heard of keep doing fine. But even within those big solid, well-established names, there's
a huge range of, kind of, outcomes that you can expect. And I suspect part of it is because
who wants to move their investment which sounds like hassle, right? Well, who wants to do
it to save 0.2% a year? Yes, that's fair.
It isn't so much fun, right? You got other things I could be doing. I could be watching
Succession or something, I'd be much better. So, why would I do the paperwork for 0.2%.
I wouldn't move my mortgage for a 0.2% better interest rate, right or my savings or whatever
else. So, why would I do this? So, if we do something as simple as convert
that back to pounds that you could save every year, it's hundreds of pounds a year. And
assuming that you keep your investment for lots of years, which most people do, which
is a good thing, you know, thousands and thousands of pounds, you can be better off. And we see
it in the industry quite often, but I don't think it gets out there. And once you get
into the process and look at the barriers that the industry puts up to stop people moving,
frankly – I mean, clean, that's not what they do, but it's absolutely what they do.
They're soft barriers in the main so you can overcome them. But it's all just little psychological
bits. So, many platforms out there you can subscribe online, you can change your investments
online. You have to turn up in person…
You better believe that you're phoning up or turning up if you want to withdraw.
But this is important because we talk about the wonders of compound interest, don't we?
And so, it's you're earning interest on your interest, on your interest. So, your savings
or your investments get boosted over time by that. But the reverse happens when you
pay too much in fees. They eat into it more over time and you then have got a lot less
money. Yeah. And a small – I'm a Scot, right, where
many a mickle makes a muckle is what the Scots say. And that means lots and lots of little
bits add up to a lot. And it's just what your granny told you, right? Look after the pennies,
and the pounds will look after themselves. And that's not totally true. But with this
it really is, for the reasons that you stay. And so, I think the industry could do a lot
more to help. And inside the study, we found some other interesting stuff like a huge gender
split. Women much, much less likely to know what the charges were on their investment,
to know what they had, and to feel confident in phoning up or in transferring or really
engaging with their investments. Something like a 12% or 13% split between men and women.
And there's exactly no reason why that should be the case. So, that's down to the industry,
having to think about how it communicates to different groups of investors.
Well, thank you so much for your time. And thanks for joining us.