‘Clear fees’ cited as most important for financial services firms

Americans cite “clear and understandable fees” as the No. 1 thing they want from financial services firms, with a higher importance placed on pricing considerations than at any time since 2010.

This is according to Hearts &Wallets’ Wants & Pricing 2023: Growing Demand for Access, the Allure of “Free” and Top Performer Firms study, which examines the importance of wants, customer satisfaction and pricing.

Top 10 wants for U.S. households

U.S. households ranked their top 10 “wants” from financial services firms using a scale of 1-10:

1. “Fees are clear and understandable.”  (60%)
2. “Explains things in understandable terms.”  (56%)
3. “Is unbiased, puts my interests first.”  (54%)
4. “Provides clear, useful statements.”  (53%)
5. “Has made me money.”  (52%)
6. “Has well-trained staff”  (50%)
7. “Is easily reachable by phone” (48%)
8. “Quality of internet account access”  (46%)
9. “Investment ideas are knowledgeable, timely and tactical.”  (45%)
10. “Is proactive when market changes/when I'm losing money.”  (43%)

Financial services firms' pricing still murky

The pricing of financial service firms continues to be murky for many consumers, the survey said. In 36% of saving and investing relationships with their financial service firms, customers do not know how they pay. Twenty percent of relationships are reported as free.

Flat fees are now nearly as common as basis points pricing, with flat fees being 15% of relationships, and basis points being 16%. Use of flat fees is growing over time, while use of basis points declined for the first year since 2010, the survey noted. Flat fees, bps and even commissions lead to greater misunderstanding of pricing mechanisms than free offerings.

“Free is clear on the surface and helpful for trial, but can leave customers wondering how your firm earns money,” Laura Varas, CEO and founder of Hearts & Wallets, said.

“Only 1 in 4 (27%) customers understands “very well” what their providers do to earn money, with little improvement over time. An understanding of how providers earn money is strongly linked to trust.”

Growing need for clear, understandable fees

So why has the need for understandable financial service fees become important to so many Americans? According to Varas, part of the reason is inflation. The other part, she added, is that consumers want to understand how their firm earns money and what they are paying.

For lower-asset households, especially for those with under $100,000 in investable assets, fees that are low and reasonable are perceived as basically the same. But for wealthier households, those with $500,000 or more, fees that are reasonable are more important.

“Often, advice experiences don’t explain pricing, especially in workplace programs, which may not explain fees paid by the employer or within the funds, as we see in our benchmarking of advice and guidance experiences,” said Varas. ”Only about 12% of experiences explain the pricing – the best practice. There are lots of opportunities for firms to enhance clarity around pricing.”

'Top Performer' firms

The survey also noted that Ameriprise, Edward Jones and Robinhood achieved one or more of Hearts & Wallets’ Top Performer designations in the latest national customer buying and satisfaction ratings for brokers, banks and retirement platforms. Ameriprise and Edward Jones were also Top Performers in multiple categories for customer satisfaction.

Top Performers (firms with ratings that are distinctively higher than those of other firms) for selected attributes include the following financial services firms:

• “Investment ideas knowledgeable, timely and tactical” – Ameriprise, Edward Jones
• “Explains things in understandable terms” – Ameriprise, Edward Jones

“Focused value propositions help firms achieve high satisfaction results with their target customers,“ Beth Krettecos, Hearts & Wallets’ subject matter expert and co-author of the report. “Top Performer ratings allow firms to understand customer buying and satisfaction at the company level in the context of the competitive marketplace.”

To be cited as a Top Performer, firms must receive ratings from their customers that are distinctively higher than ratings that customers of other firms gave to their firms.

The most improved providers from the prior year are also rated significantly higher by their customers than they were the prior year. Ratings from specific customer account types, such as brokerage customers, retirement plan participants, or personas such as women who value advice, may differ from national ratings.

This survey report is drawn from the section of the Hearts & Wallets Investor Quantitative™ Database (IQ Database), which analyzes consumer wants, customer satisfaction and pricing. The latest survey wave was fielded from August 15 – September 15, 2022, with 5,993 participants.

 

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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