UK consumers aren’t switching their wealth managers partly due to exit fees

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Over half of 1,600 British investors surveyed by challenger wealth manager Netwealth reported that they’ve never considered switching from their current investment provider, according to the Financial Times. Additionally, 7% said that nothing would make them consider switching, while 10% said they’ve been with their investment provider for over 10 years.

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Exit fees are partly keeping consumers loyal to their providers. Nearly 40% of respondents said that exit fees — also known as termination or cancellation fees — are their reason for not changing providers.

That said, being charged high fees was also cited as one of the major reasons why respondents would like to switch to a lower-cost provider, suggesting that many consumers are in a dilemma about how they should proceed. Respondents also cited it being a hassle or adding additional stress as other reasons for not leaving their investment provider.

However, exit fees may soon be a thing of the past, giving fintechs in the space an opportunity to sell their own services.

The industry is looking toward banning or getting rid of exit fees. The UK’s Financial Conduct Authority (FCA) said last year that it wants to ban or cap exit fees charged by investment platforms, but it has since delayed a consultation on the issue, and it remains unclear whether and when such a rule will be implemented.

Some investment providers still opted to scrap their exit fees, including Hargreaves Lansdown, Fidelity, and Interactive Investor, which suggests that even if a regulation isn’t in place for the time being, the industry may already be moving toward eliminating such fees.

This would enable fintechs to gain new customers looking for cheaper alternatives for their investments. The survey suggests that if the exit-fee barrier is eliminated, more people will start browsing for alternative investment options.

Fintechs in the investment industry are known for their cheap products — with digital wealth manager Wealthsimple charging 0.7% on assets of up to £100,000 ($130,295), for example, and Scalable Capital charging 0.91% per annum, compared with private banks or investment managers typically charging between 1% and 1.5% — which could make them attractive options for consumers.

To make the most of the change within the industry, startups in the space need to double down on marketing efforts to raise awareness for their products and ensure they advertise their pricing models in a transparent way to win over customers.

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