When making household purchases over $1,000, 63 percent of investors surveyed believe it is extremely important to find the best price. A large majority (82 percent) say they do extensive research before making a buying decision, with 88 percent saying they collect three or more prices for comparison, and 65 percent saying their research spans a few days or even weeks.
Barbecues vs. Bonds: A Dichotomy
Despite their bargain hunter ways, our survey indicates that investors aren’t as likely to search for the best deal when it comes to financial products. The contrast is particularly striking when it comes to buying bonds. Fifty-five percent of study respondents say they are extremely likely to shop around for mortgages, 48 percent and 39 percent say the same about credit cards and auto insurance, respectively; yet only 17 percent are extremely likely to shop around for bonds.
“Fewer than one in five investors shop around for bonds, which we think has less to do with investor behavior and more to do with industry barriers that get in the way of investors’ interests,” said Crawford. “There is no industry standard for how bond prices are marked up, and as a result investors are unclear about how much bonds cost and uncertain about how to shop for the best prices.”
How Much is That Bond in the Window?
According to a July 2013 Patpatia & Associates, Inc. study on fixed income marketing, pricing and support practices
, bond investors can pay mark-ups of up to $21 per bond at some brokerage firms, compared to just $1 per bond transaction cost for most on-line secondary trades at Schwab. Hypothetically, this $20 price difference would reduce the yield earned on a 4%, semi-annual paying, 10-year bond by .25%.
“Every basis point counts,” said Crawford. “By getting the lowest price on a given bond, investors can increase their yield.”