April 18, 2016
|By Consulting Group|
The price comparison industry has changed the way that people choose utilities and insurance, with 30 million Britons using price comparison sites each year.
Although the broker market has historically been neglected by major comparison sites, niche providers such as brokercompare.info show that broker comparison is possible, and the major sites will enter the market in the near future as they look to investment / fintech products as their next source of growth.
Customers appreciate the simple and accessible way in which price comparison sites present complex information, which is ideal for the complex pricing of the broker market. According to an FCA study of comparison sites, consumers believe that,
“they make a potentially boring and difficult job relatively painless”
In the 2014/15 tax year 10.2 million people invested in a cash ISA, compared with 2.8 million investing in a stocks and shares ISA. According to the Platforum, just 15% of UK adults hold risk-based investments, compared with 48% of US adults.1
There is an enormous untapped market for share and fund dealing services, and price comparison websites can help brokers address it. A good price comparison site can give an investor a very good idea of how much they will pay to use different brokers, based on their individual investing behaviour. On top of this, they have an existing market of 30 million users.2
Most brokers are not ready for their customers’ choices to be determined by price comparison sites, but the changes which will be necessary will not automatically lead to a race to the bottom for pricing.
There are three basic pricing structures brokers can follow:
|Fixed fee for all trades|
|Charge for each service|
Each of them can come out at the top of a comparison table for different types of customer.
The challenge for brokers is to offer a pricing structure which performs well for its target customer across multiple channels including price comparison sites.
A broker should be able to analyse how its prices perform for new customers on a price comparison tool, understand the impact of possible new structures for both current and future customers and then ensure its product meets the needs of its future customer base.
Black Swan Partners
Black Swan Partners is a specialist retail finance consultancy with a deep understanding of pricing and price structures within the broker market. We perform strategic analysis of existing customer bases for leading brokers, help to deliver significant cost savings and develop market leading products such as our customer facing comparison tool Broker Compare. Should you wish to discuss any of the topics raised in this paper, please contact us
2Mintel, Web Aggregators in Financial Services, June 2013
December 16, 2015
|By Consulting Group|
Why is it so difficult to compare the cost of share dealing, ISA or SIPP accounts? Technological advancements have given consumers the freedom to shop around for financial products, driven by companies such as MoneySuperMarket, CompareTheMarket, uSwitch and Confused.com. However, while this has proved successful for borrowing, TV and utilities, investments are significantly underrepresented.
Why is this?
In a word – complexity. Current fee structures are so complex that not even the price comparison sites, let alone the consumers can easily determine how much holding a trading and investment account will actually cost. Now bear with us:
The majority of providers offer three accounts: share dealing, ISA’s and SIPPs but the fee structures vary greatly. Take Hargreaves Lansdown (HL) as an example. HL charges a percentage-based annual management fee on assets held in funds (not individual equities), capped at a not insignificant £4,000 per year. For ISA and SIPP accounts there are additional percentage fees, this time charged on the total value of the assets, capped at £45 and £200 respectively. This is in addition to tiered trading costs that decrease in relation to trading activity in the previous month, charged for trades in individual equities (but not fund trades, which are free). Halifax on the other hand charges a flat, annual admin fee for an ISA but a percentage, quarterly admin fee for a SIPP, as well as flat trading costs.
Enough said, and those are just two providers. With over 30 different brokers consumers are faced with fees for platform use, funds, transfers, inactivity, exit costs, telephone trades, dividend reinvestment and an array of other additional fees.
This complexity is not a new issue; Holly Mackay’s ‘Boring Money’s Guide to Online Investment Services’ described Barclays Stockbroking charges as ‘hellishly complex to work out if you have both shares and funds,’ and ‘one of the most complex pricing structures around.’ It also described TD Direct’s pricing as being ‘too complex for our liking,’ and TheShareCentre’s as ‘really hard to work out.’
What is Black Swan Partners doing about it?
With a great deal of experience working alongside broker platforms, Black Swan Partners knows that complex pricing is not a necessary evil. Whilst the industry has services such as ComPeer it is time more effort was put into ensuring consumers get the information they deserve. We have developed The Black Swan Partners BrokerCompare tool, that allows consumers to calculate the projected cost of a bundle of investments across a selection of share-dealing providers.
Whilst taking into consideration a number of listed assumptions, the tool calculates the annual and 1st year cost of the service. It also provides a breakdown of the charges including platform fee, fund, total trading, ISA, SIPP, regular investment and exit fee costs. Providers are ranked from cheapest to most expensive. More experienced investors can input a mixture of shares and funds, add to their investments monthly or annually, use tax wrappers such as SIPPS and ISAs and specify how they will trade across the year.
It is early days, but the result is an easy to understand tool that clearly outlines how much a user will be expected to pay for their investments over a given period. The tool is currently limited to Interactive Investor, Hargreaves Lansdown, SVS Securities, Halifax, Fidelity, BestInvest, TD Direct, Alliance Trust and AJ Bell, with new providers being added regularly, but also on request.
We pride ourselves on helping companies ensure their clients achieve better financial outcomes and we believe this tool is a step in the right direction for the sector.
If you have any comments, questions or suggestions or are a provider that would like to be included, please feel free to tweet us @BlackSwanBSP or email us at firstname.lastname@example.org.