Key Consumer Findings From the Investment Platform Market Study

Platforms now dominate UK retail advised flows, and we discussed in this recent Citylogue the benefits for consumers and advisers. But are consumers actually satisfied?

A study undertaken by NMG for the FCA’s Investment Platform Market Study shows the majority of platform investors are in fact satisfied with their experiences in choosing and using investment platforms, and that platforms are broadly delivering on the factors most important to them.

Satisfaction is particularly notable amongst DIY investors who value the greater control, access and convenience that platform-based investing delivers compared to traditional channels. There is a positive cost/benefit analysis for most respondents.

Satisfaction translates to a high level of consumer commitment to their existing platform, meaning that incumbent relationships are hard to disturb. Our analysis shows it is satisfaction, rather than exit barriers, that results in the prevailing low levels of switching – just 10% have switched all or most of their money on a self-directed basis in the past three years (although there is a small proportion that have tried and failed to switch, finding the process too long and complex).

Satisfaction is driven by a number of factors, the most important of which are shown below:

Satisfaction With Factors Important To Non-Advised Respondents

(Most important factors shown at top of chart)

Base: Non-advised respondents ranking each factor in their top 3 for importance (Varies by factor-see chart) S5DGQ3 Thinking about your experience using [platform], how satisfied or dissatisfied are you with the way it is delivering on each of these?

So how do advised consumers compare?

• Advised consumers show similar levels of satisfaction.
• Advised consumers have lower engagement with their platform, both at point of purchase and ongoing.
• Having delegated decisions such as choice of platform and underlying investments to their adviser, advised consumers are also less involved ongoing. Their involvement is typically limited to checking the value and performance of their assets, and to this extent they are satisfied that platforms are delivering to their needs.

Only 12% of our sample were dissatisfied with one or more aspect of their platform. But while users report high levels of satisfaction, it can be asked whether consumers are equipped to compare and choose between platforms in order to make informed choices.

Consumers believe they can do this – to the extent that they want to. But most choose not to perform much research prior to choosing a platform for the first time, although there is variation by segment, including:

• Advised consumers delegate research to advisers where trust is high.
• Less engaged, non-advised, respondents use shortcuts in their decision making, trusting positive references and brands to simplify their decision. For this group, platform choice is actually a second-order decision compared to underlying product and investment choice.

More engaged, non-advised, consumers investigate key features and actively compare 2-3 platforms. For this group, investment choices and charges are stated as most important, although our analysis shows that brands tend to be understated as a driver of platform selection, and charges tend to be over-stated.

In considering the role of price, there is often an assumption that price should be important, but only around 25% of the decision is based around cost. This means there is a limit to how much time consumers will invest thinking about it. Comparing costs is time consuming and not always easy to do as structures and expressions vary, and consumers assume (with some justification) that market forces have brought platforms into rough price parity.

As a result awareness and understanding of platform charges amongst consumers can be low (for example ~20% don’t even know if they are paying a specific platform charge).

In terms of desired improvements, there are issues around visibility and understanding of charges, and consumers would like to be able to more easily compare key features – including but not only charges – when choosing a platform. Charges have the lowest satisfaction rating of factors tested (but most consumers are still satisfied) which appears to be more about transparency and comparability than the amounts being paid.

Overall though consumers are not actively seeking lower platform prices, as value-for-money assessment is positive, and other quality attributes (brand, investments, user experience) drive most of the decision. Consumers at the end of the day are more interested in other aspects of their platform choice – fundamentally for them it’s about positive investment experience. This does of course have implications for the inevitable point in the future when investment experience turns negative.

Research note:

Today the FCA published its interim report on the Investment Platform Market Study. For this study, NMG undertook an in-depth investigation in to the demand-side dynamics of the market to understand what retail investors, both advised and non-advised, really think of investment platforms throughout the purchase journey and beyond. Are they able to understand what they are buying and at what price? Are they able to compare, choose and potentially switch platforms effectively?

We engaged with over 3,000 users of 20 of the largest platforms in the UK that represent around 90% of the UK platform market based on assets under administration. Through both qualitative and quantitative methods, we have been able to provide a highly robust view of the platform market through the lens of the group that matters the most – the end customer.

For the full NMG IPMS Consumer Research report, please click here

For more information, contact:

Andrew Baker, Partner (London; [email protected])

Jane Craig, Partner (London; [email protected])