Funds Isas: How to pick the best platform for you

Recent months have brought major changes to how most of us pay for investing in funds via online brokers and fund supermarkets. The Financial Conduct Authority, Britain’s investment regulator, is banning the ‘trail commission’ payments most fund managers used to make to these companies. So most brokers are now introducing new charges for buying and holding funds to replace this commission.

The change is long overdue. Since trail commission came out of your investments via the annual management charge (AMC) the fund manager deducts from the fund, you were paying your broker to hold your funds all along – it’s just the charge was indirect and opaque.

Now brokers have to bill you openly for their services and fund managers are cutting AMCs to reflect the fact they no longer pay trail commission. This should make investors more aware of costs and hopefully lead to tougher competition on prices throughout the industry.

Still, it does mean that picking a provider to hold your funds Isa this year may take a bit longer than usual. In the past, a cost-conscious investor just had to check how much trail commission the Isa provider was handing back to clients, and pick the one with the biggest rebate. But with brokers now experimenting with a range of charging structures to see what the market will bear, the firm you used last time may no longer be the best deal for you, while the flurry of unfamiliar fees can make comparing alternatives seem rather daunting.

Keep it simple

However, picking an Isa to hold your funds can still be fairly simple if you go about it the right way. There are dozens of platforms, but only a handful are likely to offer the best deal for most investors, so drawing up a shortlist is fairly easy. A few questions about your investing habits will help you to narrow it down.

1. How large is your portfolio?

This is the key question for many investors, as it determines whether you are best off with a broker charging a flat-rate annual fee (generally best for large portfolios) or a percentage of the total value of your portfolio (best for small portfolios). If a broker charges a percentage fee, check whether there is a minimum or maximum charge per year, and whether this would apply to your portfolio.

2. How will you trade?

Some brokers make no further charge for buying and selling funds on top of the account fee. Others will levy a commission per trade. If you plan to switch funds frequently, a broker with low or no trading fees may be more cost-effective than one with a lower headline account fee but higher trading costs.

3. Will you invest regularly?

If you invest on a regular basis, the rates for investing in pre-selected funds can be much lower than standard trading rates at some brokers. This can make them more competitive for investors who plan to drip-feed money into the market.

4. What do you plan to hold?

Most brokers give access to most major funds, but specialist products or those from smaller fund managers are not available on all platforms. Most investors hold a small number of mainstream funds, but if your needs are more unusual, check if a broker can meet them before signing up.

Calculating your costs

Once you’ve answered these questions, you can work out how much a broker is likely to cost. Say you have a £25,000 portfolio and plan to trade ten times a year. A broker charging a flat fee of £150 and £10 a trade will cost £250 a year – 1% of your total portfolio. Based on current fees, even the smallest investor should be able to get total annual costs down to about 0.25%. So you could almost certainly beat this deal by shopping around. Exactly which broker is most cost-effective will depend on how you invest, but the table on the left lists some that appear to offer good value for certain portfolio sizes. These fees apply to holding funds in Isas only – rates for trading shares and for other account types such as Sipps will be different.  Full details of charges are here.

Where to find the cheapest fund Isas

Portfolio size Brokers to consider
Less than
£25,000
Cavendish Online
(www.cavendishonline.co.uk)
Charles Stanley Direct
(www.charles-stanley-direct.co.uk)
£25,000
to £50,000
Cavendish Online,
Charles Stanley Direct,
Interactive Investor
(at upper end of range, www.iii.co.uk),
iWeb Share Dealing
(www.iweb-sharedealing.co.uk)
£50,000
to £100,000
Alliance Trust Savings
(at upper end of range,
www.alliancetrustsavings.co.uk),
AJ Bell Youinvest
(www.youinvest.co.uk),
Cavendish Online,
Charles Stanley Direct,
Clubfinance (www.clubfinance.co.uk),
Interactive Investor,
iWeb Share Dealing,
The Share Centre
(at upper end – see www.share.com)
£100,000+ Alliance Trust Savings,
AJ Bell Youinvest,
Cavendish Online (at lower end of range),
Charles Stanley Direct (at lower end),
Interactive Investor,
iWeb Share Dealing,
The Share Centre

 

See also:

• Isas make sense – so act quickly
• Cash Isas: Get a better rate on your savings
• Stocks & shares Isas: It pays to compare brokers
• Now you can pop Aim shares into your Isa too
• Adventurous investing: Spice up your Isa with exotic investments
• Sipps: Take control of your pension

See our full Isa coverage here

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+


MoneyWeek magazine

Latest issue:

Magazine cover
Faster and faster...

The frenzied pace of the high-tech revolution

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.