WWhich investment platform is best for you? Which online broker most accurately fits your needs? These are simple-sounding questions, but they twist the antennae of many readers.
That’s because the net platform/broker market is a quagmire of pricing confusion – as a take a look at our platform comparison table shows.
Find out which platform is the most cost effective
Luckily, you will discover out which platform is best for you by following just a few easy steps…
Step 1 – Preparation
First, note crucial aspects that affect your calculation:
- The size of your portfolio.
- The account types you would like – SIPP, ISA or General Investment Account (GIA).
- The products you would like – funds, ETFs, mutual funds, stocks, bonds, etc.
- How often you’ll buy and sell – chances are you’ll not know exactly, so estimate based on past patterns or future intentions.
Note that the variety of products you own doesn’t matter. No platform will charge you more for owning, say, nine ETFs as an alternative of 5. (However, note that some brokers charge conversion fees based on the variety of holdings you’ve. This only becomes relevant in case you resolve to maneuver your small business.)
Next, add up all of the fees you’d incur with essentially the most competitive one Flat rate platforms. (See our table at the highest of our platform comparison page.)
Make sure you have in mind all annual platform fees, trading costs and other relevant fees listed within the platform’s table or price list. Remember so as to add up the prices of multiple accounts if you’ve them.
You now have a base price for the investment services you would like.
From here we are able to compare these costs with one of the best percentage fee platforms. The winner might be the most cost effective offer for you.
Percentage fee platforms are generally best suited to individuals with small portfolios, while platforms with competitive flat fees are frequently higher for portfolios with greater than £20,000 in ISAs.
Note: The problem with percentage fee platforms As your portfolio grows, costs may proceed to rise. In the acute case – say, a £1m portfolio invested entirely in funds – this cost vampire could devour greater than £3,000 a yr, somewhat than simply £200 for a similar portfolio held with a flat-rate platform. So bear in mind that the platform that’s best for chances are you’ll change over time.
Step 2 – The Money Shot
To compare the flat fee to the share fee, perform the next calculation:
Total annual cost of platform A divided by Percentage of Platform B
= breakeven point
For example, in case your fixed price on Platform A is £80 and you might be comparing with a 0.25% tariff on Platform B:
£80 / 0.0025 = £32,000
The breakeven point – £32,000 in this instance – pertains to your account Portfolio size. At this point, your costs might be the identical on each platforms.
In the instance above, we’re higher off with Platform A if our portfolio is value greater than £32,000. Any less and we must always sleep on platform B.
Just a few things to remember:
- Subtract any additional fixed costs charged by Platform B from Platform A’s fixed costs before performing the calculation to realize a good comparison.
- Check whether cheaper regular investment deals can be found for the products you would like.
- Add the continued fee (OCF) to your portfolio to match platform options that do not carry the very same products or that provide discounts on certain fund managers’ fees.
- Be aware of percentage fee caps, which may make a broker more competitive in certain situations. For example, AJ Bell, Fidelity and Hargreaves Lansdown put a cap on the fees you pay for ETFs, stocks, mutual funds and bonds.
Step 3 – What about zero commission brokers?
Some platforms have eliminated the essential sources of brokerage revenue: platform fees and trading fees. For this act of generosity they earned the nickname Zero commission broker. Sounds like a terrific deal!
But wait, how do they pay their salaries, app development, servers, shiny offices… and make a profit?
Zero commission brokers should not a scam, but they must earn a living, so do not be fooled into pondering they’re free.
We have written an article about zero commission brokers where we take a look at their various revenue streams corresponding to spreads, premium services, currency conversion fees, interest arbitrage, etc. Read through the knowledge after which make a more informed decision when considering this route.
Ultimately, zero commission brokers are like all freemium service. You are spared the effort of shelling out upfront fees, but they have to cover the price of your sales order in other ways, a few of which is probably not obvious.
It’s value repeating that zero commission brokers should not inherently shady. Some of them have been operating successfully for over a decade.
But it’s idea to grasp how they earn a living. Then you’ll be able to select the one who just isn’t willing to profit excessively out of your investment behavior.
Step 4 – What happens next?
If your selection of broker will depend on the dimensions of your portfolio, it’s best to consider how quickly your assets are growing or shrinking when deciding which platform is most cost-effective.
Are you stacking money within the pot? Or sell out faster than an old rocker being knighted?
If you expect to interrupt even inside a yr or two, it might be value selecting the platform that is best for you foreseeable future.
Also watch out for switching fever – the unbearable pressure to take motion simply because your platform is suboptimal.
In our example above, the fee difference would only be £20 per yr if the portfolio grew to £40,000. Difficulty switching could make locking the door an exercise in self-harm each time your platform falls off the Best Buy spot.
When changing brokers, concentrate to entry and exit fees – see our table. Some readers have reported that they managed to request a waiver of redemption fees from their platform.
Also remember that switching brokers could be a (too) lengthy process and in case you are forced to money out your positions before switching, chances are you’ll be locked out of the marketplace for a while.
For more information, see our guides on transferring an ISA and transferring a pension.
Protect your portfolio – Remember that if the worst happens to your agent, compensation is restricted. You can subsequently select to make use of two or more brokers to spread your risk. See this Compensation system for financial services for more information.
Some savvy readers plan their switch to make the most of temporary cashback offers.
We would not advise you to let such antics derail your once-a-decade effort to get your funds so as. But in case you’re into it – the sort who checks the comments on the broker’s table before opening your email – then it could possibly be a strategy to grab some free swag along the way in which.
Be calm,
