This article is not one that will end with a list of “best buys”, because there is no way any such list can be valid. Hopefully in a few minutes, you will agree with me!
What is a Platform?
A platform, also commonly called a ‘wrap’ is a piece of software linked to an organisation that is authorised (in the UK) by the Financial Conduct Authority and usually HMRC to issue and maintain investment products. It will not usually own the underlying investments on behalf of clients, istead passing that responsibility to an independent nominee company that will be regulated as well and subject to specific rules designed to protect the ultimate beneficial owners of the securities.
The main function of platforms is to allow lower cost trading, aggregation of deals in bulk to get lower prices from fund issuers and brokers and to provide continuous on-line valuation information. Additionally most platforms provide annual tax reporting data and some performance analysis and research tools.
Some platforms started off as direct broker services. Barclays Stockbrokers offering evolved out of the US based Schwab platform, the first one your writer ever used.
B2B and B2C
These acronyms refer to the terms Business to Business and Business to Customer. Wraps offered as part of the service of a wealth manager or IFA may have been carefully and independently selected as the most suitable, but they may also be owned by the adviser business and a source of profit to the adviser business, so not so independent. This ought to be made clear under the FCA conflict of interest rules, but in my experience it often is not. Some smoke and mirrors in this area! An adviser gains considerably in terms of reduced administration costs if a client uses a wrap of the adviser’s choosing, but the client is paying for the wrap services! In my view advisers ought to explain that if a client uses wrap ‘x” which is very efficient, then the adviser’s fees can be reduced.
Direct to consumer platforms, some of which are very large businesses indeed like Hargreaves Landsown are priced very differently and again the pricing is not always transparent in my opinion. Some are actually very expensive indeed when you get to see the real fees in Pounds Sterling.
If your platform is recommended by your adviser, you are not going to have much say in which one it is, so this article does not seek to comment on adviser platforms. Just remember to find out what the platform fees really are! In case readers are interested, of the independent adviser platforms (those not actually part of the adviser’s own business proposition) Transact is head and shoulders above the competition in the view of NotHarry, as long as you are investing more than about a quarter of a million Pounds.
Price vs service?
It is often true that ‘you get what you pay for” but in the case of trading platforms, there are some obvious inconsistencies. The largest player in the market, a FTSE 100 company to boot, Hargreaves Lansdown, is one of the most expensive platforms and although it is reported to be efficient, its offering is not the most comprehensive. On the other hand, Interactive Investor, another player with a large customer base and a comprehensive service offering, is very cheap indeed if you have reasonable sized portfolio and don’t trade too often. Independent price comparisons (eg Thisismoney.co.uk) suggest the former could be 5 times more expensive than the latter for an average investment and a few trades per annum.
Because platforms charge in different ways – a percentage of assets (possibly with fee discounts as balances go up), a fixed fee, fees for dealing, extra fees for ISAs and SIPPs and so on, it is not possible to make general price comparisons because the actual price you will pay depends on how much you invest and how you operate your portfolio, whether of not you have a pension, if it is drawdown and so on. Each price comparison must be specific and of course the range of services offered will vary quite widely.
The extent to which the platform assists you in selecting investments or is just a tool for research and dealing also varies widely. Nutmeg, for example, offers hand holding (in fact it seems to NotHarry something more like handcuffs!) from the start but other services limit themselves to offering ready filtered fund lists and blogs with ‘expert’ commentary (sorry, the quotation marks have to be there as some of the commentary is far from expert).
There are limited platform comparison tools on the internet, but they have to allow for the factors explained above and you will be guessing at some of the answers you need to give at the input stage. What they will show you is that most of the time flat fee propositions are cheaper than percentage offers, just the same as for advisers!
The ease of use of the software is part of the service, but that may be down to personal preference. I have always found that I know within minutes if a web site is generally understandable and easy to use but I have been using computers virtually every day for over 35 years. If possible, trial your selected platform with a small investment to start with, so you can ‘escape’ easily if you don’t like it!
Security
Although platforms offer users a great deal of security because assets are held by independent nominees, failures of administration can cause headaches and the insolvency of the platform would result in a lack of access to your holdings while the nominee was changed (and of course you make a decision on a new platform to use). Ideally, you want to avoid hassle at all times, so pick a provider with a longish track record and obviously good capital backing. I suggest that the platform should be able to declare customers in the millions and to be administering assets in the tens of billions.
Conclusion
As every potential user has different requirements and assets, there cannot be a “best buy’ list that suits everyone. These should be the main assessment criteria, in NotHarry’s opinion:
- Flat fee vs percentage (flat fee usually better)
- Experience and customer base (several years and in the millions)
- Research tools, watch lists, fund short lists (nice to have, but only if you are going to use them)
- Tax reporting and transaction data on line (essential)
- Full range of tax wrappers (including flexible ISA if you want to take out and reinvest ISA money)
- Internal or outsourced SIPP provider (if outsourced, check scale of supplier operation and experience)
- easy to use software
- free re-registration of assets off the platform if you don’t like it!
Disclosure
NotHarry was a long standing Transact user when he worked as an adviser and now has his money with Interactive Investor.