The cheapest platforms
Keep the cost of investing as low as possible to bolster returns
With the tax year about to end, you may be thinking about topping up your stocks and shares Isas. You should also be thinking about minimising fees, which can seriously erode your long-term returns.
Every platform has its own set of charges, which may depend on the size of your portfolio and how often you trade (and what you trade). Some charge initial fees, annual fees and/or exit fees.
Most investment platforms charge an annual fee expressed as a percentage of the investor’s portfolio. Some have a tiered scale, so the percentage fee drops the more money you have in your account. It may also vary depending on what you invest in. Some platforms, however, levy flat fees.
We asked the consultancy The Lang Cat to compare the costs of portfolio sizes ranging from £5,000 to £1m. The costs were for investing on the platform for one year, including ongoing platform fees, any additional wrapper charges, opening fees, and the fees for making 12 trades in funds.
For a £5,000 Isa the cheapest platform is Vanguard, with a fee of just £8 a year. Vanguard is also the cheapest platform for a £15,000 Isa (£23 annual fee), a £20,000 Isa (£30) and a £25,000 one (£38).
Vanguard charges a low percentage fee of 0.15%, and there are no charges to buy or sell funds. Moving up to larger investment portfolios, Halifax Share Dealing charges a flat annual fee of £60.
So Halifax is the cheapest platform for portfolios ranging from £50,000 to £1m. In other words, a percentage fee (Vanguard) is cheaper for the smaller Isas, and a flat fee (Halifax) is cheaper for the larger Isas.
Where is the tipping point?
So at what point is a flat fee worth it? The cheapest platforms for the smallest portfolios (£5,000, £10,000 and £20,000) all have percentage fees: Vanguard, Close Brothers, Charles Stanley Direct and Santander. At £25,000, the platforms charging flat fees start to become more competitive.
While Vanguard is still the cheapest (£38), Halifax Share Dealing isn’t much more expensive (£60), and Interactive Investors’ “Essentials” pricing plan has the same £60 price tag. At £50,000, Halifax (which has a flat fee) becomes the cheapest platform. Vanguard (percentage fee) is second cheapest, at £75. At £100,000, the two cheapest are both flat-fee platforms: Halifax and Interactive Investor.
It seems the tipping point where a flat fee becomes more cost-effective is for portfolios between £25,000 and £50,000 in size. Mark Locke at The Lang Cat tells MoneyWeek that flat fees are becoming more competitive, and that with investment pots greater than £100,000, the difference between a cheaper flat-fee structure and a more expensive percentage set-up can run into tens of thousands over the lifetime of the account.
Justin Modray from Candid Financial Advice and the comparison site Compare Fund Platforms says that “fixed-fee platforms are usually much better value for larger portfolios unless you are an avid trader... in general they tend to make sense for Isa portfolios of around £50,000 and above, the level increasing with how often you are likely to buy and sell funds”.
He thinks flat fees are a much fairer way for platforms to charge, “given they’re an administrative service and the work involved doesn’t tend to rise with the value of your portfolio”.
Other factors to consider
While fees are an important factor when picking a platform, they should not be the only consideration. For example, Vanguard may be the cheapest platform for small Isa portfolios, but investors can only choose from Vanguard funds.
If you opt for a slightly more expensive platform, such as Charles Stanley Direct or Halifax Share Dealing, they would give you access to a much wider range of potential investments.
Meanwhile, you may wish to consider other features, such as whether the platform has an app, whether it offers other products, such as a Sipp or a junior Isa, and whether it pays interest on cash balances. Jason Hollands, managing director of Bestinvest (which charges a percentage fee), argues that while investors care about fees, “their real focus is value for money”.
He says investors should look closely at the service they receive for the fees paid. For example, with Bestinvest customers receive free coaching sessions with qualified financial planners and “a wide range of low-cost managed portfolios that are substantially cheaper than many socalled ‘robo-advisers’”.