Choosing a stocks and shares ISA platform
Last week I looked at the basic differences between stocks, shares, and investment funds. This is relevant when it comes to selecting an investment platform, as charging structures between platforms vary based on which types of investments you plan to buy, and how often you plan to buy and sell.
I’ve still to decide which funds I’ll invest in, but have taken the first step in choosing a platform.
So what exactly is an investment platform, what do you need to consider, and how do you go about picking the one that’s right for you?
What is an investment platform?
If you’ve decided you want to invest in the stock market, because you’re looking for better long-term growth than you can get from a bank account, one option is to go to a financial adviser or stockbroker. An investment platform is another option if you prefer to do it yourself.
A fund platform, sometimes called a fund supermarket, is a website that allows you to buy and sell funds offered by different investment companies. Most platforms allow you to invest in investments other than unit trusts or OEICs, for example exchange traded funds, or individual company shares. The basic concept of a platform is that you can manage all of your investments in one place rather than having to deal with multiple investment companies.
Say, for example, you want to invest in a fund offered by Legal & General. You could go direct to Legal & General, hand over your money, and they’ll invest it in the fund you’ve chosen. If you also wanted to invest in an AXA fund, you could then go to AXA and do the same thing. You’d have to deal with both providers if you wanted to change your holdings, and would get valuations from both providers.
By using a third-party investment platform which offers funds from both Legal & General and AXA, you hand over your cash to the platform provider instead, who then invests it on your behalf into as many funds as you wish. The platform provider does not actually manage the money, but handles the logistics of placing it with the fund managers you choose. You can buy, manage and sell through the one platform, and can view all of your holdings in one place.
Difference between your ISA and your platform
In the current tax year, you can hold up to £15,240 within an ISA. An ISA is not an investment in itself, rather it’s a tax-efficient wrapper that sits around the investments you choose. This could be a cash ISA (a bank account), or a stocks and shares ISA (stock market investment), or a combination of the two. You can pay into a cash ISA and a stocks and shares ISA in any one tax year, but cannot pay into two cash ISAs, or two stocks and shares ISAs, in any one tax year.
Using our example above, if you decide to purchase a stocks and shares ISA direct from Legal & General, you cannot then buy a stocks and shares ISA direct from AXA in the same year. However, if you opened a stocks and shares ISA via a platform, you could invest your ISA in funds from both companies if you wished. You could also hold other investments outside of the ISA wrapper with the same platform provider.
What do you need to consider?
Types of investments – A small number of platforms only offer access to investment funds, so are not suited to investors also looking to hold individual company shares. I’m only planning to invest in funds, but like the idea of keeping my options open in case I should change my mind. Some also offer a wider range of funds than others, so if you are specifically interested in investing in the funds of a particular company, you’ll need to check on which platforms they are available. Remember that platforms just offer a way of accessing an investment, rather than being an investment in itself.
Cost – A platform will charge you a fee for using their service, which is in addition to the fee you will be charged by the fund manager for investing in their fund. Fees typically include annual or quarterly administration fees (some a flat fee, some a percentage of amount invested), dealing fees (charged every time you buy and sell an investment), and potentially other charges such as for dividend reinvestments, or transfers in or out of the platform. Many don’t charge for buying and selling funds, but will charge for buying and selling shares and investment trusts. Picking the platform that has the best charging structure for the type of investing you plan to do is important, as lower costs will mean higher investment returns for you.
The comparison tables on the links below have a good overview of the charges by platform.
Other – Customer service, ease of use of the website, research, and tools to help you decide where to invest, vary by platform. Hargreaves Lansdown seems to have a good reputation, and there are reviews on the web of all platforms. Having yet to get going with my investment, I can’t add my personal experience to the comments on the links below…
What did I pick?
I picked Charles Stanley as it has a low annual admin charge of 0.25% per year on amounts up to £250,000, and there is no charge for buying and selling funds. It offers a wide range of funds by companies I recognise, and also gives me the option to invest into other types of investments should I change my mind at a later date. I’ll report back on customer service, and ease of use, once I actually get going….!
You can do worse than start with some of the links below!
- I’ve found the Monevator website useful for all things investing, and it has a nice up-to-date comparison of UK online brokers and investment platforms.
- Thisismoney.co.uk article (Mail Online) from May 16 on picking the best and cheapest ISA investment platforms
- Moneysavingexpert.com introduction to stocks and shares ISAs and platforms
- Moneytothemasses.com article Aug 2015 gives a straight-forward overview of fund platforms and stocks and shares ISAs
- The Candid Money website allows you to input the amount of any lump sum investment, regular monthly savings, and also the number of trades you are likely to make, and calculates those platforms that will be the most cost-effective for you.
- The Lang Cat write research on platforms, and in addition to reports for purchase they have an excellent free report with an overview of the main platforms.