Choosing an investment platform can feel like a bit of a minefield. The decision is often not helped by the varying terminology and different fee structures each platform uses. Educating yourself can help simplify your options and make sure you pick the right one for your needs, which will change over time.
Fundamentally, simply starting to invest and taking action is the single most important decision. So whilst choosing the perfect investment platform isn’t the be-all and end-all, it can make a big impact on how quickly you achieve your goals. And finally, remember, your needs will change over time, so be prepared to review your platform choices every year or two to ensure the platform is still suitable for your needs.
This article covers investing. Investments can go down as well as up. If you are just starting out, we recommend you read our beginners guide to investing. This will also cover off the steps to take before you start investing and will help you work out if it’s for you. And remember, do your own due diligence and seek professional advice.
Investing carries risk, however research points to investing having a greater chance of increasing your wealth over the long term versus a savings account.
According to Barclays, over the nine-year period from January 2010 to December 2018, holding cash would have produced very different returns compared with investing in shares or bonds. Source
What do I need to do before investing?
Yes, it’s exciting and the rewards alluring. However, there are some fundamentals to have in place before you venture into investing.
1.Emergency Fund. Before you start investing, make sure you have an Emergency Fund in place. An Emergency Fund is cash that is easily and quickly accessible and is typically held in an easy access savings account or Premium Bonds. It is not recommended that you hold your Emergency Fund in investments as you don’t want to be forced to sell these when the time is not right or the market is down.
2. Clear consumer debt. It’s also extremely wise to clear any credit card or loan debt before you begin investing. Debt usually carries high-interest rates which end up eroding your wealth over time. (This doesn’t include your mortgage or student loan, so you can leave these in places).
3.Create a budget. We know, we know, budget’s aren’t sexy. But they are important. Make sure you’re covering your essential bills and fundamentally have more coming in than going out. This will create your ‘gap’ and will help set your investing budget.
Make sure your finances are in shape before you start investing. If you are not sure you’re ready to invest, then check out the financial fitness programme we have created. It’s been designed to get your personal finances in good shape and create a solid foundation for your financial future. Part one is free, so check it out here.
Which investment platform is right for me?
Investment platforms come in two main forms; DIY and Robo. You can find the key differences between the two below.
When choosing a platform you should consider the following points:
- Usability – new investors may prefer an intuitive app-based platform, whereas experienced investors may be used to traditional platforms
- Fees – cost can slowly destroy your profits over time, so keeping costs low is key. Lower cost providers might not have apps or access to the full market.
- Investing options – new investors may not know how to start or what to invest in, whereas experienced investors might want to pick specific, individual companies.
What is a DIY investment platform?
- Typically lower fees
- Often less user friendly
- Additional financial advice available
- more experienced investors
- specific stocks/funds
- higher net-worth
DIY investment platforms allow you to choose specific investments. You can choose if you want to invest in individual companies, funds or a mix of both. With this type of platform, you create your own portfolio. If you have specific stocks of an individual company (eg, Amazon or Tesla) that you would like to invest in, then this is the platform for you.
Because of this, DIY platforms are usually for more experienced investors who know what they want to buy. Some of the DIY platforms have very basic websites and no apps. However, there are DIY providers such as Hargreaves Lansdown that provides a friendly app and easy to use website.
The exception to this is if you know a specific fund you want to invest in, such as Vanguard’s Life Strategy series. A fund is a pool of money you are sharing with other investors and the fund manager invests in to what they think on your behalf. This is also a common route for beginners and if that’s the case, then a DIY platform may be a good option for you as fees are generally lower.
You can always change in future
A platform that is easy to use is usually one of the top priorities for novice investors. However, as your knowledge increases and confidence grows, you may want to start getting more involved in which stocks you are invested in. In which case, a DIY platform is what you need.
Crucially, as your wealth grows, fees become more increasingly more important for preserving your wealth. Therefore, DIY platforms are often a good choice as they carry lower fees. This is because you’re doing the thinking rather than them. They are simply providing the mechanism through which you can invest.
Furthermore, DIY investment platforms will typically come with options to get financial advice from the platform provider. This is a value-added service, however, it is not free.
Robo investment platforms
- Can be expensive
- User friendly
- Intuitive apps
- Quick and easy to set up
- Novices / just starting out
- ‘Set and forget’ investing
Robo investing platforms are useful for investors who are unsure of how to invest or are just starting out. You typically answer a few questions about your tolerance for risk and your goals, then the platform software will choose a suitable set of investments for you.
Robo investing platforms typically have slick apps and are easy to use. You can apply for most platforms directly from the app and you can be set up in minutes with small amounts of money. This makes Robo platforms a good starting point for beginners.
For example, one of the Eat.Sleep.Money team started out investing with Moneybox. The initial small investments helped introduce them to investing and ignited a passion from that point forward.
One of the drawbacks with Robo platforms is that they can be expensive when compared to some of DIY platforms. We have some examples below for comparison.
If ease and usability are your primary requirements, then Robo platforms are going to be worth investigating.
Examples of Robo investment platforms include Moneybox, Nutmeg and Wealthify.
What type of investment account should I set up?
Investors looking to invest a monthly sum from their paycheque typically opt for a Stocks and Shares ISA. This is an investment account that protects any gains from being taxed. You can put a maximum of £20,000 per year into a Stocks & Shares ISA which is enough for most investors needs.
Please read our Complete ISA Guide for more details and to make sure you are adhering to the tax rules.
Most platforms will offer a range of accounts that might also include a General Investment Account (GIA), LISA (Lifetime ISA) or a SIPP (Self Invested Personal Pension).
- GIA (General Investment Account) – No maximum amount you can invest. Gains will be subject to tax. However, loses could also offset capital gains. Usually, investors will max out their ISA allowance before opening a GIA.
- LISA (Lifetime ISA) – Typically used for first-time buyers or as a retirement account. For retirement saving, a SIPP may be a better option (read more here). If using for a house purchase investing in stocks and shares is not generally recommended, so opt for a Cash LISA.
- SIPP (Self-invested Personal Pension) – This is a retirement account that has restrictions on when you can withdraw your cash but also great tax benefits.
If you are considering more than one investment platform or if you already have a platform open, be aware that you are only allowed to contribute to one Stocks and Shares ISA per financial year. However, you can transfer your existing platform to another provider and then pay into your new providers account during the same year. Your old account must be closed as part of this process.
Costs and Fees
When starting out on your investment journey, more emphasis should be placed on how much you can regularly invest, rather than fees. But they should be a consideration and as your wealth grows, they will become an increasing priority for you when it comes to selecting the most cost effective platform.
Unlike a savings account, the buying, holding and selling of investments cost money. At best, fees slow your investment growth and at worse, they could wipe out any gains you have made.
The reason that understanding the fees is so important is that they can seriously erode your wealth. Every pound you spend in fees is a pound less in your pocket and it’s compounding potential over years and decades.
The challenge is that some platform fees are not that easy to find nor understand. In addition, the fee structure used varies between different platforms.
Here are the main ones that most investors will encounter:
- Platform fees – the cost to hold your investments & cash, charged by the platform through which you invest. This is typically a static cost.
- Transaction fees – charges for buying and selling investments. The more active you are (that is, the more frequently you and buy and sell), the more these fees become relevant. If you plan on buying and selling regularly, you’ll want to keep these as low as possible or look for a ‘cap’.
- Fund fees – a fund charges you for investing in their product and is linked to how much you are investing with them.
- Exit fees – the charges you pay to close or move your investments from one platform to another.
DIY Investment Platform Cost Comparison
Humanity disclaimer: These fees were correct at the time of publication. Certain providers cap fees or share fees across different products (ie if you hold an ISA and a SIPP) so please check out the providers’ fees first.
DIY Investment Platforms come in two flavours; flat fee brokers and percentage fee brokers.
- Flat Fee Brokers – as the name suggests, these platforms charge a flat fee, no matter how much money you invest. These typically work well for investors with portfolios over £50,000.
- Percentage fee – charges are based on a percentage of the total amount of your investment. These usually work well for portfolios under £25,000.
What if I have between £25,000 and £50,000?
If your portfolio is between £25,000 and £50,000 then the cheapest platform is a little trickier to work out. Ultimately, it boils down to what you invest in, how often you trade and how quickly you will reach the £50,000 general rule of thumb. If this will be fairly quickly, then it may be worth moving to a flat-fee broker sooner rather than later. But if it’s going to be several more years, maybe a percentage-fee broker with £0 exit costs is fine for the interim.
Flat Fee Brokers
|Platform||Annual Charge||Dealing Fee||Regular Investing|
|Interactive Investor||£119.88 |
(£9.99 per month)
|1 free trade per month||Free|
(£25 to open an account)
|Lloyds Bank||£40 |
(£20 every 6 months)
|£11 per trade, |
£1.50 for funds
Percentage fee brokers
|Platform||Annual Charge||Dealing Fee||Regular Investing|
|AJ Bell||0.25%||£9.95 (Funds £1.50)||£1.50|
(£45 per year minimum)
|£10 per trade, free for funds||£1.50 |
(free for funds)
|Hargreaves Lansdown||0.45% |
|£11.95 per trade, free for funds||£1.50 |
(free for funds)
|£0.00 for daily trading or £7.50 for live trading||Free|
*A Regular Saving Plan is used where you set up a regular payment for a specific stock or fund (for example, £100 to Tesco every month). The platform then makes one large, regular purchase from the pool of money from everyone buying that stock or fund and therefore there are economies of scale. This regular investing cost then replaces the dealing fee.
**Vanguard only offer access to Vanguard funds – so no stock picking with this one!
Comparing Broker Platform Costs
The chart below shows how the costs stack up between brokers. The simulation is based on an investor looking to make one fund purchase per month. If you were to add shares or additional funds, then the table would look very different, so please use this comparison cautiously and for illustrative purposes only.
As you can see from the comparison, it’s not until you get to around the 20k portfolio size that the gap in fees starts to widen. Some brokers, such as Hargreaves Lansdown, allow you to transfer your Stocks and Shares ISA to another provider for free. Therefore, you could easily start with one provider and then migrate to another as your portfolio grows.
To work out the fees you will pay, you must first understand what you will be buying each month and roughly how big your portfolio will be. You can then use the tables above to help make your comparison. Please be aware this is only a sample of common platform providers, not an exhaustive list of UK brokers.
Flat fee vs percentage fee brokers
The cost you will pay for your broker’s platform will be unique to your investment requirements. For example, an investor starting off with a £1,000 portfolio investing in a fund would only pay around £4.50 in platform fees for a Hargreaves Lansdown ISA. If they went for a flat fee broker, like Lloyds, they would be paying over 10 times that amount in platform fees.
Comparatively, someone with a £40,000 portfolio would pay around £180 in Hargreaves Lansdown platform fees, whereas they would only pay around £60 with Lloyds. The £40,000 investor would pay the same in platform fees as the £1,000 investor with Lloyds!
Unfortunately, as we now know, it’s not as simple as just looking at the platform fees. You must also take into account what you plan to buy with your investment cash and how many times per year you invest.
Investing mainly in funds
Platforms like Hargreaves Lansdown and Vanguard don’t charge you for investing in funds. So if you only plan to invest in funds, then platform fees are the most important costs to consider. But if you plan to buy individual shares and buy and sell throughout the year, then dealing costs can add up.
Buying mainly shares
Buying shares with Hargreaves Lansdown costs £11.95 per trade, whereas with iWeb trades only cost £5.00. If you are buying and selling shares then iWeb ends up cheaper, but if you invested in funds and purchased one a month for a year, then Hargreaves Lansdown wouldn’t cost you anything whereas iWeb would cost £60.
For investors looking to buy shares, a little more and effort should be put into calculating the lowest cost platform. For investors looking for Vanguard funds only, then the Vanguard Investor platform will usually be the most cost-effective up to around £25,000. After this point, it is worth reviewing a move to a flat fee broker.
We have not discussed fund fees in the costs above. To clarify, if you buy a fund, that fund will carry an annual fee. This is detailed in the fund prospectus. If you buy shares you don’t pay an annual fee. The percentage platform fees are charged as a percentage of the total amount of money held in your portfolio.
Robo Investment Platform Cost Comparison
The comparison below is provided as a guide. Providers can change fees at any time, so please review the fees during any sign-up process to ensure you are happy. The fees below apply to accounts under £100,000. Above this, some providers apply discounts to reduce the platform fees.
|Platform||Annual Fee||Fund Fee||Min Deposit|
|Plum||£12 (£1 per month) + 0.15%||0.08-0.9%* (0.22% Average)||£1|
|Moneybox||£12 (£1 per month) + 0.45%||0.12-0.3%* (0.23% Average)||£1|
|Nutmeg**||0.45% up to £100k||0.23%||£500|
|Wealthify||0.60%||0.14-1.00%* (0.22% Average)||£1|
** Nutmeg Fixed Allocation (other options with different charges are available)
Watch out for fees. Robo investment platforms often quote average costs so the actual cost you pay may be higher. For example, Plum says they have an average monthly fee of 0.53%. However, if you invest in the Clean & Green (0.90%) fund you will be charged ten times as much compared to investing in the Best of British fund (0.08%)!
Some platforms such as Plum and Moneybox, charge a monthly fee of £1 for suing their service. Whilst this may feel small-change, when investing small sums and then comparing to other platforms, the costs really add up. If you are investing £50 per month, then a £1 monthly fee is the equivalent of losing 2% of your monthly investment. In this scenario, a percentage only fee may be better.
Green and ethical fund fees
If you are considering investing in green or ethical funds, be prepared to pay a higher fee. Wealthify charge up to 1% per year for their ethical funds and similarly Plum charge up to 0.9%. We feel these fees are very high and almost exploitative for investors seeking socially responsible funds.
Robo investment platform cost comparison
By using the average fund costs we can draw a cost comparison between Robo investment platforms. Please be aware that your choice of fund may mean your costs vary from those below. Do your own research and ensure you are happy with the fees you will pay before signing up.
From the table above, it’s clear that Plum’s low annual fee of just 0.15% makes it the cheapest once your account balance heads towards £10,000. However, for investors starting out with £1,000, Plum’s (and Moneybox’s) £1 per month fee makes it twice as expensive as Nutmeg.
That being said, we need to keep things in perspective. Plum would only cost £15.70 per year for a £1,000 portfolio. This is high percentage-wise for a broker platform but it’s not going to have a significant impact if you are adding money to your account each month and building your wealth.
Is your investment platform protected?
Investment platforms should be authorised and regulated by the Financial Conduct Authority. However, not all are protected by the Financial Services Compensation Scheme. This scheme is designed to protect you in the event that your platform provider falls into financial difficulty.
It’s important to point out that your investment choices are not protected. If you invest in a company and that company goes bust, then you could lose your original investment.
Before investing in a provider, make sure you are happy with the security and compliance your chosen platform provides.
We have selected a few brokers on the market, not the entire market. These are used for example only to give you an idea of the platforms and charging structures on the market. Please review the charges with the platform directly before signing up.
DIY platforms vs Robo investors – conclusion
The choice of platform provider doesn’t have to be difficult for those looking to start their investing journey. If you start small and get used to investing a monthly sum, you will soon be able to assess your appetite for risk and how you handle the ups and downs of the stock market.
Investing isn’t for everyone. After investing small sums to being with, you might find that you don’t enjoy the journey or you find it stressful. If this is the case, then you can always withdraw your money and stick with savings accounts and premium bonds. And that is totally fine. It’s got to be what’s right for you.
However, based on past performance (which is not a prediction of future performance), investing has consistently outperformed savings account when accounting for inflation. As the saying goes, “past performance is not a guarantee of future results”. Investing is for the long term and so should be entered into with your eyes wide open for those starting out.
Make sure you have your finances in good shape before starting and don’t risk more than you are willing to lose. If you are just starting out then perhaps choose a platform that’s easy to use, even if it costs slightly more.
Finally, after a year of investing automatically each month, review your requirements and check the original choice is still right for you. It’s better to get started than to keep thinking about it.
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EatSleepMoney.co.uk does not offer financial advice and is intended for reference/information only. Remember, you should always carry out your own research and/or take specific professional advice before choosing any financial products or services or undertaking any business or financial venture. Investments may go up as well as down and you may get back less than you put in.