Investment platforms, or "fund supermarkets" have been mainstream for about a decade now.
They do for your pension and investments what John Lewis did for your household goods. Gather leading brands under one online roof and deliver the one stop shop, offering ease, convenience and choice at competitive prices.
As technological developments kick in and even the most dinosaur-like brands get digital, competition steps up which is healthy. Less welcome can be the ‘paradox of choice’ – we demand choice and a variety of flavours, but it can also create a massive head-ache for those of us with decision fatigue.
With over 25 mainstream online providers offering investor solutions which look largely similar from the glossy sites and slick ads, how should you choose the right service for you?
I’ve been researching online investment platforms for nearly 20 years and have about 25 personal accounts so I can really look underneath the bonnet. Based on this independent overview (and no, I don’t work for any of them!) here’s what I think investors need to consider.
Competition has brought costs down and you should now expect to pay about 0.25pc to 0.4pc a year for the administration of your money.
Any funds you buy will have extra costs which are for the investment management – a ballpark figure for this is about 0.75pc.
Our tables show the illustrative costs for the main online ISA providers out there. The precise costs for each will depend largely on what investments you buy (shares or funds), how often you trade and how large your total sum is.
Assumptions: costs include the investment platform's administration fee and the management charges of a comparable underlying fund. Portfolios are assumed to be lump-sum investments with no monthly savings plan. The £10k portfolios include four transactions per year of £1000 each. The £100k portfolios include eight transactions per year of £3000 each. The £250k portfolios include fourteen transactions per year of £6000 each.
If you have a balance of more than about £75,000, consider a provider such as Interactive Investor which charges on a flat pounds and pence basis, not as a percentage. Conversely if you have quite a small amount, go for a percentage model.
Charles Stanley is typically low-cost with an administration fee of 0.25pc. Vanguard is also a credible cheap option, but you’re limited to their own investment products and don’t get any choice.
If you trade a lot, then consider picking a platform with no fees for buying and selling funds and low costs for trading shares. For example, Bestinvest charges just £7.50 per trade to buy and sell shares and has no fees for trading funds.
Halifax’s iWeb is even cheaper but I can’t bring myself to use it because I’m impatient and it’s like I imagine a service in 1980s East Germany would have been, barren and utilitarian!
My experience is that there is often – although not always – a correlation between price and service. Hargreaves Lansdown is pricey but its customers are largely aware of this and have made the decision to pay for the undoubtedly excellent service.
What price do you put on your time? Recent testing had me on hold for an average over nearly 20 minutes with Selftrade and over 7 minutes with Interactive Investor (yawn), whereas Hargreaves Lansdown had a lightning fast average of 5 seconds.
How confident are you?
One thing which helps the decision making about where to buy your ISA is your level of confidence.
These services used to be entirely directed at the confident ‘hobbyist’ who would happily pore over research reports and enjoy a chat down the pub about a share portfolio. Things can now be easier.
If you don’t really know what you’re doing, or choose not to allocate brain space to the finer details, then have a look at a "robo advisor" which does all the leg work for you. Check out Moneyfarm, Nutmeg or Wealthify (which supports investments from just £1 which should mollify the most hesitant of new starters).
Equally if you are savvy, understand the concept of "value at risk" but are time poor or restricted in trading by your job, look up Scalable Capital. Answer a simple questionnaire and they’ll get you up and running.
At the other end of the confidence spectrum are those customers who want access to a wide array of investments, picking and blending their own portfolios.
Hargreaves Lansdown has broad reach which should satisfy most enthusiasts. Interactive Investor offers access to more markets than most will want and has plenty of discussion bulletins to support all investment geeks. AJ Bell Youinvest also offers a wide array of investments and has an evident stockbroking heritage and rich content.
One important consideration is whether you want to use a few of the six ISA options available (such as Junior Isas and Lifetime Isas) along with a DIY pension, and have these all in one place.
The Lifetime Isa, only available to those under 40 and a good option to investigate for first-time home buyers, is offered by AJ Bell, Hargreaves Lansdown and Nutmeg. As for the kids, in my opinion Fidelity and Hargreaves have the best options for Junior Isa savers.
When it comes to DIY pensions, these can be relatively simple in the saving up phase (and in fact look like any other investment account) but become hellishly complex at the point of retirement.
If you are in your 50s and starting to think about retirement on the horizon, you’re most likely to get solid service and help from the experts at AJ Bell Youinvest and Hargreaves Lansdown who have pensions in their blood.
Features and service
As these services all evolve, I see key points of differentiation in the online and mobile experiences. If you want to manage investments on the go then you’ll be in the market for a decent app.
Of all the mainstream guys AJ Bell and Hargreaves dominate the field, with Fidelity also offering a solid app. Nutmeg and Moneyfarm also offer good, simplified online experiences.
When it comes to the help available, less confident investors might prefer a ready-made portfolio and some plain English projections about how much your investment might make.
I find that very new service Moo.la and the more established Nutmeg tackle the thorny issue of potential gains and associated risks in the most effective way for the less confident. It’s a good starting point even if you progress to invest with more established brands.
As for customer service, that varies quite dramatically. Our tables pick out how current customers rate their services, as well as our independent view at Boring Money.
This is a final thing which I think is increasingly important. How we evidence strong risk management here is tricky.
Having gone through the process of account establishment and also the process of trading, it is my view that there is weight to the argument that the bigger guys simply have spent more money on IT as well as more time thinking about risk management.
Fidelity, Hargreaves Lansdown, HSBC and Santander all feel solid, as you’d expect from global brands and members of the FTSE 100.