Breakdancing 1980s cartoon villains, moustachioed opera singers and eastern European meerkats. No, this is not the start of an awful ‘three men walk into a bar’ joke but the twirling, warbling world of price comparison sites and their ubiquitous mascots that dominate our airwaves.
Such is the power of these marketing gimmicks, I’m sure most people – financially savvy or not – would know what businesses these characters represent, and what their websites offer. In my view, this is largely a good thing. On the whole, price comparison sites have empowered consumers over the past decade or so, helping to reduce the cost of the products and services consumers need and enabling them to vote with their feet to get the best deals.
With the millions of visitors these sites attract, they force financial product providers to compete, using this huge footfall as leverage to secure exclusive and cheaper deals for their users.
In some sectors, this has had a transformative effect – with both benefits and drawbacks. With insurance, for example, consumers can instantly arm themselves with hundreds of quotes to negotiate directly with their existing insurer to get a better premium, or quite easily walk away to a cheaper deal.
The downside, of course, is that insurers often sell their products at a loss to hit the top of the tables and ramp up their premiums in subsequent years, hurting loyal customers.
Comparison sites for investments fly much more under the radar, but in this market, the ability to compare and self-select products online has had a similarly disruptive impact. Fund supermarkets, or ‘platforms’ – the online shops that allow you to buy and sell investments in trading accounts, pensions and Isas of all shapes and size, without any advice – have grown stratospherically in the past decade, now holding £170 billion worth of private investors’ savings.
Since 2014, a change in regulations has better aligned platforms with the interest of consumers. They’ve been banned from taking commission from the investment products they offer, instead charging a separate fee for their services and removing the temptation to heavily plug products that pay them the biggest cut.
And some of the largest fund supermarkets have used their clout to negotiate reductions on annual fund fees. These are all good steps to help customers get a better deal on their savings.
But at a time when the responsibility for saving for the future has been thrust firmly into the hands of the consumer, the UK’s financial watchdog is now making a forensic investigation into the platform market to see if it can work harder for people.
It wants to know if consumers are getting value for money from the fees they pay to these platforms, and whether they’re using enough of their bargaining power to secure the best deals.
And increasingly, the regulator says, platforms are manufacturing their own products that give investors a diversified one-stop shop based on their investment objectives (growth or income, for example), or their attitude to risk. But they can be expensive, and platforms tend to skim off a large chunk of the annual charges in addition to their service fees. The regulator will investigate whether or not these ‘multi-manager’ solutions truly are beneficial for investors – or a rip-off.
I generally believe that investment platforms are a force for good, but the Financial Conduct Authority is right to challenge whether or not the growing number of users are getting the best deal.
The companies running investment platforms may not be household names – and perhaps won’t be employing Skeletor to thrust his hips at you to sell their services any time soon – but in the current low-interest world they’re becoming an increasingly important part of our financial prosperity. It’s vital that they operate in the consumer’s best interests.
Gareth Shaw is head of Which? Money Online