Holly Black: 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.
Mark Polson: Hello.
Black: 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?
Polson: 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.
Black: 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?
Polson: 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.
Black: Yeah.
Polson: 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.
Black: 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?
Polson: 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?
Black: Yes, that's fair.
Polson: 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.
Black: You have to turn up in person…
Polson: You better believe that you're phoning up or turning up if you want to withdraw.
Black: 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.
Polson: 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.
Black: Well, thank you so much for your time. And thanks for joining us.
