Their success has created a new breed of DIY investor, comfortable with trading inside a stocks and shares Isa or self-invested personal pension (Sipp). It’s a far cry from the days when private investors had to ring a stockbroker or sit down with a financial adviser to discuss their investments, and pay their hefty fees.
However, platforms charge fees of their own so you need to keep a close eye on what you are paying because they roll up over the years.
Last week, City regulator the Financial Conduct Authority (FCA) accused them of giving savers poor value so are they still a good platform for your money?
When platforms first popped up in the late 1990s they were a breath of fresh air.
Previously, if somebody wanted an actively managed fund, they would buy directly from the manager, who would swallow 5.25 percent of their money upfront plus a further 1.5 percent a year.
The impact was brutal and got worse over time.
If somebody invested a £10,000 lump sum and it grew at an average seven percent a year, 20 years later it would be worth £38,697 before charges, but just £28,986 afterwards. That’s a staggering £9,711 less.
Platforms saved the day by scrapping all initial charges on the funds they sold and offering rebates on annual management charges too. Yet their fees are complex and hard to compare, with monthly fees and charges every time you trade, plus underlying fund charges.
To find the cheapest, we used CompareFundPlatforms.co.uk to check rates for someone investing £100,000 across 15 different Isa funds, plus a £1,000 regular monthly sum.
Interactive Investor (II) was cheapest with a total first-year charge of £254. Fidelity was pricier at £372 while a Bestinvest customer paid £425 rising to £479 with Hargreaves Lansdown (HL).
Over 10 years, II was still cheapest with total charges of £3,001, rising to £7,836 with Fidelity, £9,662 with AJ Bell and £11,770 with HL.
The good news is that whichever platform they chose, the investor will still be comfortably ahead. If the funds grew at an annual seven percent a year, the II customer would have £365,732 after 10 years, while the HL customer would still have £356,963.
However, these figures exclude underlying fund charges, which will reduce this total for every platform.
Andrew Hagger, financial expert at MoneyComms.co.uk, said the variation in costs is “quite staggering” so shop around before signing up. “HL looks expensive charging 0.45 percent a year on a £250,000 portfolio, costing £1,125 a year. Fidelity charges 0.35 percent at a cost of £875, while AJ Bell charges 0.25 percent costing £625.”
He added: “Share dealing fees also vary with II charging £3.99, Fidelity charging £10 and Hargreaves between £5.95 and £11.95, depending on the plan.”
A spokesperson for II said its flat fees “are low, predictable, and controllable” and benefit customers over time as their money compounds.
Hargreaves Lansdown is the UK’s most popular platform with 1.8million clients, admired for its service levels. It made founders Peter Hargreaves and Stephen Lansdown billionaires.
Its spokesperson said it recently scrapped charges for regular savings and dividend reinvestment, and has no exit fees leaving customers free to move on. “Our clients value our security, quality of service access and expertise.”
READ MORE: ‘I missed out on £330,000 because I didn’t pay into my pension for 9 years’
While waiting to buy shares or funds, investors park money in cash, and this is where a new controversy has sprung up.
The FCA surveyed 42 firms and found most platforms retain some of the interest earned on these cash balances, while charging a fee for holding it, which it called “double dipping”.
FCA executive director of consumers and competition Sheldon Mills said rising savings rates have increased losses and platforms must show they offer fair value by the end of February. “If they cannot make that case, they need to make changes. If they don’t, we’ll intervene.”
Shares in AJ Bell and HL plunged almost 10 percent on the news.
AJ Bell moved quickly to state that it was already working on plans to cut charges in a move that will save customers £14 million, including cutting trading fees from £9.95 to £5. The HL spokesperson denied double dipping: “On cash, we pay up to 4.55 percent, which is very competitive.”
Financial planner Justin Modray, founder of CompareFundPlatforms, said it is wrong that platforms should profit from holding cash and charge an account fee. “Whilst the FCA arguably should have clamped down on this long ago, better late than never.”
In an ideal world, platforms would refund customers the profits they’ve made from cash over the last couple of years, Modray added.
Fund platforms have brought huge benefits but if you feel you could get better value, move your money.
