A recent headline in the Wall Street Journal – “easier to pay, easier to spend” – caught my eye the other day. Yulia Chernova, writing about automatic bill pay, cited a study showing that utility customers switching to automatic bill pay increased their consumption by about four percent when compared to similarly situated customers who did not switch. Factors contributing to this increase were thought to be focused on the convenience of automatic billing and the lack of a need for a consumer to actually read the statement each month.
This glimpse of consumer behavior naturally led me to think about the financial industry and how it handles payment by customers. As is the case for utility customers, most customers of brokers and investment advisers or investors in employer sponsored qualified retirement plans receive periodic statements that include information about fees and charges to their accounts. The payment is automatic – the customer will not have to write a check – and the statement is not conducive to light reading, often including many pages of detail and data that may be required but is not likely read by anyone but the compiler and the compliance person.
It is very likely that most consumers of investment services look at only one thing when they receive their statement and that is their current account balance or perhaps the change in value of the account as reflected by the current balance. If the customer’s lack of attention for their usage of utility services is an indication, the customers of the financial industry services may likewise be missing an opportunity to control those expenses and protect more of their investment.
When you do not pay attention to the statements, you may find yourself the victim of practices such as the implementation of a trading program in your brokerage account, executing dozens of trades and resulting in turnover rates of 200 or even 300 percent in a year. Or you might not pay attention to the addition of new fees, increased expense ratios, more proprietary products and all the other measures by which your account is trimmed.
The takeaway should be for you to start paying attention to all the items you pay even if you do not directly write a check or choose to make a transfer online to pay that bill.