Take control with a self-select Isa

Become your own fund manager and save yourself a fortune in management fees. Here's what you need to know about picking the best self-select Isa for you.

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It's no secret that fund managers get paid a lot of money. What's perhaps less widely understood is how few deserve it. In January, financial advisers Bestinvest brought out their latest Spot the Dog' report on Britain's worst-performing investment funds.

The report found 153 funds with £23bn under management that have consistently underperformed the market in each of the last three years. But while investors in these funds may have lost out, the managers did just fine, taking in £1bn in fees.

Which raises the question: if you're just paying someone else to underperform the market, why not stop and pick your own shares? That's where self-select Isas come in. Rather than opting to buy a fund for your Isa, these let you pick from a wide range of individual investments. In short, they put you in charge.

First, you'll need to find the best one. Most brokers offer some sort of self-select Isa. We've featured some of the better options in the box below. As you can see, they vary quite a bit so take some time to choose the deal that suits you best. Self-select Isas usually come with an annual management fee.

This will either be a fixed amount normally between £20 and £50 per year or a percentage of the total investment. What works best for you depends on how much you're planning to put in. The next charge to consider is the dealing fee that brokers levy every time you buy or sell a share. If you plan to buy and hold', this won't be so important.

But if you constantly tinker with your portfolio, you might consider an active trader account. These charge lower fees per trade, or in some cases cut your annual charge, if you make a certain number of trades per quarter. However, bear in mind that over-trading (thus incurring high costs) is one of the most common errors private investors make. So if you find yourself opting for an active trader account, you may want to reconsider your strategy.

Also look out for extra charges applied for closing your account or reinvesting dividends. And remember, you can reinvest dividends within a self-select account, even if doing so takes you over that year's Isa limit. Indeed we'd strongly recommend that you do, because in the long term, reinvesting dividends will give your portfolio a powerful boost.

Next you should consider what type of broker you want. There are two types: execution-only brokers and full service', or advisory' brokers. Execution-only brokers simply provide you with the internet trading platform and let you get on with it. Consequently, they charge the lowest fees.

Full service or advisory brokers, on the other hand, give their clients advice on what to put into an Isa and, as a result, they're more expensive. Given that the whole point of a self-select Isa is to avoid paying too many fees to the finance industry, we'd generally avoid this type of broker because you can do most of the research legwork yourself.

Once you've chosen a broker, you then have to decide what to put in your Isa. There are restrictions some foreign stock exchanges are off limits, as are bonds with less than five years before maturity. Another no-go' area is shares and investment trusts listed solely on the London Aim market for smaller companies. But by and large, the world is your oyster. So what are you waiting for?

Ten of the best self-select Isas

Swipe to scroll horizontally
Hargreaves Lansdown0117-900 9000www.hl.co.uk£5.95/£11.950.5% per year (capped at £45)
Alliance Trust Savings01382-573737www.alliancetrustsavings.co.uk£12.50£10 + VAT per quarter
NatWest Stockbrokers0808-208 4400www.natweststockbrokers.com£15£25 + VAT for portfolios of less than £10,000
Charles Stanley0131-550 1234www.charles-stanley-direct.co.uk£100.25% (min £20 max £150)
TD Waterhouse0845-607 6002www.tddirectinvesting.co.ukStarts from £5.95Starts from £30 + VAT
Barclays Stockbrokers0845-601 7788www.stockbrokers.barclays.co.ukStarts from £6.95Starts from £30 + VAT
Selftrade0845-070 0720www.selftrade.co.uk£12.50£10.50 per quarter of trading inactivity
Fidelity0808-252 8994www.fidelity.co.uk£9£5.10 per month
The Share Centre01296-414141www.share.com1% (min £7.50)£12.50 per quarter + VAT
Halifax Share Dealing08457-225525www.halifax.co.uk/sharedealing£11.950.05% per month + VAT (min. £2.16; max. £8.33)