Most Americans Think Financial Products Are Free

And of those who think they pay for these products, many have no idea how much.

Most Americans believe they pay nothing for their financial products or have no idea what they pay, according to a study by Hearts & Wallets, “Wants & Pricing: What Investors Buy & Competitive Ratings.”

About one-third (31%) say don’t know what they pay for their financial products, an increase of four percentage point in one year. Less than one-third (28%) say for certain they are charged a fee by a retail financial “store,” which Hearts & Wallets defines as retail and defined contribution providers that work directly with investors. Of the 41% who say they pay their financial store “nothing” and instead pay through actual products, 72% say they pay nothing for the product.

“Everyone knows nothing is free in life,” says Laura Varas, founder and CEO of Hearts & Wallets. “When you add together the Americans who say they don’t know what they pay for their financial products, and the high number of people who say they pay nothing for products that they obtain through their retail financial stores, we have a major problem. Consumers should know what they pay.”

Varas adds that the industry has a responsibility to price clearly and should lay out the different choices available to consumers. Understanding how a firm earns money is the No. 1 trust driver within the control of a financial services firm, Hearts & Wallets says. Only one in five consumers has a clear understanding of the incentives of their providers, a figure that has not improved year to year. “Competition will force traditional financial services firms to confront the pricing issue,” Varas says. “Robo-advisers and other new fintech entrants are explaining pricing clearly and pushing others in the marketplace to do the same.”

NEXT: What investors want
The study also ranked U.S. households’ top 10 “wants” in their financial services providers and found that all income groups and life stages are becoming more demanding. The top three most important attributes are “fees clear and understandable” (56%), “is unbiased, puts my interests first” (54%) and “explains things in understandable terms” (54%). About half of investors are highly price-sensitive and want providers to have “low fees” (54%) or at least “fees that are reasonable for the service provided” (53%).

“To differentiate services, providers should determine which distinct market segments they want to address,” Varas says. “For example, people close to retirement are more anxious, so the reliability service dimension of ‘is unbiased, puts my interests first’ is much higher than for a Millennial.”