Are you with the wrong Isa manager?
Picking the wrong Isa firm can mean paying ten times too much, finds Charlotte Gifford
One of the simplest ways to improve your investment returns is to reduce the amount you pay in fees. The trouble is, it can be difficult to work out exactly what you pay in charges – and if you could get a better deal elsewhere.
The platform fee is the amount your platform charges to hold custody of your money, usually expressed as a percentage or fixed sum. Investing £5,000 with the most expensive platform on the market would see you pay £120 in platform fees each year, as opposed to £13 with the cheapest, according to the consultancy, the lang cat (see table, above).
However, the most expensive platform for one investor will not necessarily be the same for another. It all depends on how big your portfolio is. iweb’s flat fee of £120 makes it the most expensive platform for small portfolios but extremely cost-effective for those with portfolios upwards of £100,000. Meanwhile, Charles Stanley Direct, like most stockbrokers, charges a percentage fee that is tiered depending on the size of the portfolio, which means it costs just £53 a year for an investor with £15,000 but £875 for someone with £250,000 – more than seven times what iweb charges.
Ian Millward of adviser Candid Financial Advice said it is easy to see why so many people unwittingly pay excessive charges. “Percentages of 0.3pc or 0.45pc sound perfectly reasonable but can amount to hundreds or even thousands of pounds when you consider the amount people often save in.”
The other key question that will affect how much you pay, besides how big your portfolio is, is what you want to invest in. Most platforms will charge dealing fees when you buy or sell shares. Some also charge you to buy and sell funds, although this is more unusual.
If you are an active trader, it makes sense to go for a platform with smaller dealing charges. Note that some platforms will reduce this fee depending on how many trades you make per month. For example, Hargreaves Lansdown charges £11.95 when buying or selling a share, which falls to £5.95 per transaction if you made 20 or more deals in the previous month. By comparison, Charles Stanley charges £11.50 a time no matter how many trades you make whereas Interactive Investor’s dealing charges are capped at £5.99. If you just want to buy and sell shares, a commission-free trading platform like Freetrade may be worth considering – although note there is still a platform fee of £4.99 a month and the service is limited.
Roger Perry, 58, from Trowbridge, is currently investing free of charge, as are his wife and two kids, thanks to a savvy switch to Interactive Investor.
By moving his family to the platform, Mr Perry has not only earned himself a £200 referral fee but also secured free subscriptions for each of his family members as part of Interactive Investor’s “Friends and Family” plans, at an extra cost of £5 a month. Even with this additional fee, the move has still made him £140 this year. This is before taking into account the savings he made moving over from an insurance copmany: “The fees were a percentage so I was paying £1,100 a year for my Isa alone. Now the charge will be just £120 a year,” he said.
Hargreaves Lansdown may be the most expensive platform for those with bigger portfolios – but it also offers access to over 4,000 funds as well as plenty of market research, share tips and fund shortlists. If you want to invest for as little as possible, you should be prepared to get a more basic backpage. For example, Vanguard and AJ Bell Dodl charge a mere 0.15pc – working out at just £15 a year for a £10,000 portfolio – however, you will be limited in what you can buy. In addition to platform fees, you will also pay fees on the funds you invest in. The average index tracker charges 0.11pc whereas active funds usually charge upwards of 0.7pc. If you invest through a financial adviser, then this will add another layer of charges to your investment. St James’s Place for example charges 0.5pc for ongoing advice on top of the platform and fund fees. Some would say the charge is worth it for the peace of mind and for the guidance you will get on other aspects of your finances, such as wills and power of attorney. But if all your adviser does is manage a straightforward portfolio, you may want to consider cutting out the middleman and investing yourself.
‘I was paying £1,100 a year for my Isa alone – now the charge will just be £120 a year’