Here's a recent example of my own. This bank holiday weekend I undertook a small DIY project which required a dozen hollow-wall anchors. I could have bought them in B&Q (part of DIY group Kingfisher) for £17 (they're a tenner per pack of 10, and £7 for the additional 5-pack I'd need). Instead, I headed to trade-specialist Toolstation, just a minute up the road on the same trading estate, where I could pay £7 for 50. No prizes for guessing which I opted for.
'What has this got to do with investing?' you may ask. The answer, it occurred to me, is that buying financial products has certain similarities to buying DIY products. For starters, both are frequently approached with trepidation and general lack of knowledge. That's how B&Q can get away with charging 8 times more than Toolstation, because many people don't know how much a hollow-wall fixing should cost (and why should they?). And it's a state of mind that the financial services industry has also been able to take considerable advantage of.
Like hollow-wall bolts, the problem is that not many of us really know how much we should pay for a financial product, either. I am often staggered at how uncompetitive the financial products my own bank offers - and have often wondered how on earth they manage to sell them, just as I have wondered how B&Q manages to sell its low-quality ironmongery at premium prices.
The answer is simple: bigger providers - the B&Qs of financial services - can get away with charging you more because they know that because you aren't sure how to assess either the cost or the quality, you'll happily stump up for the apparent safety of their brand. And just as some people may not really be sure what they need to put up a gigantic noticeboard on a plasterboard wall, so many people don't really know what financial product they should be buying anyway either - which is why they'll head to the expensive generalist rather than the reasonably-priced specialist.
We have sometimes heard readers say that they are unconcerned by high costs, because they are justified by greater convenience and better customer service. That's not a view we take - the value in customer services is intangible, whereas the damage high costs can inflict upon your returns is very real. And apparently good customer service is something that can be easily substituted by doing your own research - it's amazing how much information is out there (including, of course, our own comprehensive coverage), and how much money a little knowledge can save you. And paying less might get you a better product, too.
