One of essentially the most frequent questions I get on Twitter/X is: “Which funding platform do you utilize?”
I don’t actually know why folks ask this in a world the place the wonderful Monevator comparability desk exists.
Disclosure: Hyperlinks to platforms could also be affiliate hyperlinks, the place we could earn a small fee. It doesn’t have an effect on the worth you pay nor how we choose the brokers.
Nonetheless there are a number of real-world points which can be out-of-scope for the desk’s aggregated roundup.
So immediately I’m going to deal with you to a tour of each funding platform (or ‘dealer’) that I take advantage of and why.
Disclaimer: I shall be stating my opinion based mostly on expertise. I do acknowledge although that I could have made errors, been misled, or that I may very well be confused about issues. I’m blissful to be corrected within the feedback. None of this text is a advice to make use of (or a advice to not use) any specific funding platform. Brokers are additionally welcome to DM me for clarification. Particularly if it means they’ll kind out among the issues I’m complaining about.
Behind the scenes on the Finumus household workplace
First off, why can we use multiple platform?
There are a few causes:
- Nobody platform does every thing we wish
- We don’t need all our eggs in a single basket:
- Sure, I do know, there’s the FSCS. However it’s capped at an solely reasonably helpful £85,000
- Yeah, I do know, belongings are held in segregated consumer accounts Effectively, sorry – I used to work on this trade and I don’t belief it
I’ll solely be discussing platforms that I’ve direct expertise of utilizing on a reasonably frequent foundation. These are:
Sure, that’s various platforms. There was once much more! Platforms we’ve beforehand used however that we not do embrace:
- iDealing
- Barclays
- Charles Stanley
I’ll let the reader draw their very own conclusions from my change of coronary heart.
Lastly, after I say “we” I imply the Finumus ‘micro household workplace’. This can be a portfolio of ISAs, SIPPs, and so forth that I nominally handle holistically throughout three generations of our household, together with our Household Funding Firm (‘FIC’).
Household linkage
Our micro household workplace set-up raises the primary characteristic we wish to see – some form of ‘household linkage’ functionality.
Each Hargreaves Lansdown and AJ Bell make an inexpensive go at this. Account holders can nominate one other account holder to handle the investments of their account. The managing account can then log in as themselves and flip to the opposite individual’s account – while not having to share credentials – and with out entry to cost capabilities.
That is very helpful to me for taking care of the accounts of oldsters and kids in a safe method.
Good as it’s although, the household linkage is barely hobbled. A main instance is that you may’t take any of the so-called Appropriateness Checks for issues like complicated merchandise by proxy. Which is especially annoying once you’re attempting to rebalance into one thing that the funding platform has arbitrarily determined is ‘complicated’.
You’re left having to cellphone Grandma to speak her by way of the check. If she’s on a six-week cruise on the time you possibly can overlook about it.
Nonetheless, even when hobbled, these choices are a lot preferable to these funding platforms that don’t provide this facility in any respect – which is each different one on my checklist.
Regardless of the platforms’ reasoning for the shortage of any household linkage, in the actual world it leaves you having to insecurely share credentials – which is way from supreme – and in some circumstances having to name members of the family for a 2FA code each time you wish to login.
Funding platform prices
We’re much less bothered about annual platform prices than we’re that they need to not scale with our AUM.
So we like fastened or capped prices.
All our accounts are already over the worth the place the cap is kicking in. For instance, Hargreaves Lansdown fees 0.45%, capped at £45 p.a. whereas AJ Bell fees 0.25% capped at £42 p.a. (so long as you don’t maintain funds). That’s simply £45 and £42 respectively fastened, so far as we’re involved.
All instructed, our annual platform prices vary from £0 (XO, IWeb) to a few hundred kilos (at Interactive Investor – however that’s for an ISA and SIPP) per platform, per individual.
I don’t have the rest so as to add on this topic past what you’ll discover over on the Monevator comparability desk.
Does your funding platform cost further for funds?
Maybe as a result of the regulator banned kick-backs from the fund managers to the platforms, among the latter appear to have determined it’s okay to switch the income by charging prospects larger charges for funds.
Right here’s HL, for instance:
Supply: Hargreaves Lansdown
Proper… Proudly owning £2m of an ETF prices me £45 a 12 months, however proudly owning £2m of the identical fund in an OEIC (Open-Ended Funding Firm) prices me £4,000 a 12 months.
What further work is Hargreaves Lansdown doing to earn that £4,000? Completely nothing so far as I can inform – as evidenced by the truth that platforms like IWeb and Interactive Investor cost zero to carry that very same fund.
Supply: Dilbert
As a result of we don’t actually imagine in lively administration and there are equivalent-cost ETFs for practically every thing we wish, we solely personal one OEIC kind fund.
And – duh – clearly we maintain it throughout the funding platforms that don’t cost further for it.
Notice that not one of the above applies to ETFs. Though they’ve ‘fund’ within the identify, ETFs are handled as shares on platforms that cost excessive charges for funds.
Dealing prices
We don’t commerce notably continuously, so we’re not very delicate to dealing prices.
That stated, Hargreaves Lansdown charging £12 a deal doesn’t really feel very 2024 to be sincere.
The £5 that IWeb fees appears extra affordable. It’s notable too that AJ Bell is decreasing its dealing charges from £10 to £5 in April 2024.
Once more, see the Monevator comparability desk to remain throughout all this.
International trade (FX) charges
For those who’re not cautious, FX charges can actually price you.
Right here’s IWeb on the topic:
Supply: IWeb
The instance on IWeb’s web site contains a notably sub-sized £1,000 commerce. Maybe as a result of 1.5% on a extra smart £5,000 – £75 versus £15 – would appear like quite a bit?
A disgrace, as a result of IWeb is such good worth on each different vector.
For example how a lot of an issue excessive FX charges may be, let’s change £100,000 price of Microsoft inventory into Apple. A commerce which – given the liquidity of US markets – you’d count on to price a number of foundation factors.
Right here’s the deal:
Generously, the platform doesn’t cost fee. So the change will price me a mere £2,977 – or 298 bps of the notional.
Perhaps let’s not trouble doing the commerce in any case, eh?
Pricey international adventures
There are two issues with excessive prices for international trade.
One is when the FX charges are excessive, clearly.
The opposite is when it’s a must to settle every thing into GBP. Our instance change above noticed two rounds of FX ache, as a result of we are able to solely maintain GBP money within the account.
Now, within the case of ISAs, this isn’t the platforms’s fault. It’s what the ISA guidelines mandate.
However nonetheless, a platform doesn’t must cost an FX unfold you could possibly drive a bus by way of.
In distinction, right here’s the FX price over at Interactive Brokers:
Supply: Interactive Brokers
Interactive Brokers is a full 50 occasions cheaper than IWeb in terms of FX charges.
Let’s math out that very same change in an Interactive Brokers ISA:
The commerce prices us £63 (6.3 bps). Rather a lot lower than £2,977.
Naturally, it’s nonetheless not adequate for me although. What I actually wish to do is hold the proceeds within the base forex of the instrument traded, often USD. That method I don’t have to pay any FX charges after I change between belongings in the identical forex. Why ought to I?
Outdoors of an ISA you are able to do precisely this with a number of platforms. However a grand whole of two brokers in my checklist allow you to do that in a SIPP: Interactive Investor and Interactive Brokers.
Listed below are the present money balances in my Interactive Investor SIPP:
See all these beautiful laborious currencies?
It’s one thing of a contented coincidence, as a result of US shares are finest held in a SIPP. So this manner you would not have to pay any dividend withholding tax in your US dividends, at the very least not with smart platforms.
(In concept the withholding tax exemption also needs to apply to Canadian shares. In follow it doesn’t.)
Each Hargreaves Lansdown and AJ Bell are huge behemoths. They’ve the wherewithal to assist a number of forex balances and settle trades within the instrument’s underlying forex inside their SIPPs.
But they select to not. I can’t think about why?
Supply: Hargreaves Lansdown
And for completeness:
Supply: AJ Bell
Whose cash is it anyway?
One solution to keep away from sneaky FX charges is to solely purchase ETFs for abroad publicity, and to at all times purchase the GBP share class.
This fashion, your FX trade occurs contained in the ETF wrapper at a significantly better price / decrease unfold.
Because the underlying forex of most ETFs is of course not Sterling, you can purchase the Accumulation models to additional cut back FX friction. In any other case your dividends shall be paid out in USD, which is able to then be FX-d into GBP on the platform’s unfold and so bleed out one other few bps of price.
For example, let’s say we wished to trace the MSCI World. We may purchase the iShares Core MSCI World UCITS ETF USD (Acc) – whose base forex is USD – and particularly the GBP share class to keep away from egregious FX charges:
Supply: JustETF
Beware: a crafty trick generally deployed by platforms is to behave just like the GBP share class doesn’t exist.
You search for the ETF in its interface, you’ll solely discover the USD share class.
And once you complain, it’ll provide you with some blather about liquidity, or inform you that it “can solely carry one share class of every ETF” – presumably as a result of some numpty determined to make use of ISIN because the Major Key within the funding platform’s product database.
Cock-up or conspiracy, limiting selection like this leaves you paying the platform’s FX charges.
Funding platform says “no”
Which devices every platform lets you commerce and beneath what circumstances is each extremely variable between platforms, inconsistent throughout time, and laborious to foretell upfront.
One thing you got yesterday, for instance, may not be available for purchase immediately. Likewise, one thing that was beforehand not deemed ‘complicated’ now could be. This changeability could make rebalancing very messy.
Let’s say you personal some Blackstone Mortgage Financing (Ticker: BGLP.L) in your IWeb ISA, and also you wish to purchase some extra with the spare money in there.
Dangerous luck:
Supply: IWeb
Now what do you do? Effectively, you could possibly promote a unique inventory in one other ISA on one other platform and purchase again that very same inventory on IWeb. This fashion you unlock money within the different ISA to purchase extra BGLP with – however at the price of you paying two a number of transaction prices and slippage en-route.
In concept you could possibly switch the money from IWeb to the opposite platform, whereas sending the opposite inventory throughout to IWeb (maybe for those who have been nervous about total platform publicity). However in follow this takes weeks and may price cash so it isn’t actually an choice.
Rule modifications may depart you in a bizarre state of affairs the place you personal this inventory, however for those who promote it, you gained’t be allowed to purchase it once more – making a random hysteresis perform in your rebalancing choices.
Low no-go
Arbitrary restrictions abound within the weeds on the funding platforms.
One other widespread one is to easily not assist the bottom price ETFs in a class.
Need to enhance your Japan weighting just a little? A reasonably regular course of could be to go to JustETF, filter by ‘Japan’, kind by TER, after which purchase the most cost effective one:
Trackers gonna monitor, so the ETF we wish is clearly the most cost effective 5bps one from Amundi. But most brokers don’t carry it, and if I ask them so as to add it they gained’t.
Therefore I find yourself paying practically twice as a lot (9bps) for the Xtrackers’ one.
Name me old style, however on the very least anybody who holds themselves out as any form of stockbroker ought to supply dealing in any London listed safety, at a naked minimal.
One other troublesome space is leveraged ETFs, which many platforms simply gained’t go close to.
And all that is earlier than we even get to the shit present which can be the laws round Packaged Retail and Insurance coverage-based Funding Merchandise (PRIIPs):
Supply: AJ Bell
The KIIDs aren’t alright
Briefly, PRIIPs is an EU rule that claims you possibly can’t purchase US-listed ETFs.
We’d have left the EU however – fully unsurprisingly – the one single EU rule that was a private inconvenience to me has not been repealed, and therefore most UK buyers nonetheless can’t purchase US listed ETFs.
This can be a disgrace, as a result of for US markets, US-listed ETFs are cheaper, higher, extra modern, and (if held in a SIPP) extremely tax-efficient.
In concept, in case you are a high-net price or skilled investor you possibly can choose out of PRIIPs after which be allowed to purchase US-listed ETFs. That is your ‘MiFID standing’ within the parlance.
In follow, the one dealer that really permits that is Interactive Brokers. (IG says it does however, in my expertise anyway, it doesn’t work, in that it nonetheless gained’t allow you to purchase US-listed ETFs, at the very least not in an ISA).
As a result of the PRIIPs guidelines require the platform to have a KIIDs on file for each fund you wish to purchase this may even hobble shopping for London-listed stuff, if the dealer doesn’t have its methods correctly sorted.
There’s additionally some uncertainty as to what counts as a ‘fund’.
AJ Bell and Interactive Buyers allow you to purchase fully totally different units of US-listed Enterprise Improvement Firms (BDCS) as a result of they’ve every made fully totally different choices about which of them are funds beneath PRIIPs.
Which appears a bit… random.
Margin lending
Our Household Funding Firm’s account is held at Interactive Brokers. The most important benefit of which may be very aggressive margin lending charges:
Supply: Interactive Brokers
Since curiosity is tax-deductible for a FIC, we focus most of our leverage there.
The opposite brokers don’t assist leveraged buying and selling, apart from some white-labeled CFD providing maybe.
IG clearly has CFD / unfold betting. However given its excessive financing spreads, that’s probably not an providing that appeals to me.
Versatile ISA
Why don’t extra platforms provide versatile ISAs? IG is the one one (on my checklist) that does.
In consequence I find yourself carrying larger balances with IG than I’d in any other case wish to, from a platform danger perspective.
Pet peeve #1: Interactive Investor
It’s a small factor, however a particular groan for Interactive Investor for not with the ability to take SIPP platform fees immediately out of your SIPP, however relatively making you pay them individually out of your checking account.
Doing so probably will increase your efficient post-tax platform price by between 25-67%, since you’re paying charges from exterior the SIPP with post-tax cash, relatively than from inside with pre-tax cash.
I’ve complained to the platform a number of occasions. Perhaps a few of you could possibly complain too? It will price Interactive Investor nothing and it could save us all a number of quid from the tax man.
Pet peeve #2: Interactive Brokers
I’ve a little bit of a gentle spot for Interactive Brokers. It’s nice worth and I’ve a SIPP, ISA, Normal Funding account and the FIC account over there.
The platform stands out for providing MIFID skilled standing, low FX charges, multi-currency accounts, and with the ability to commerce Choices (long-only within the SIPP) and futures (in a normal buying and selling account).
Nonetheless, it isn’t all sweetness and light-weight.
To begin with, Interactive Brokers’ interface is one thing solely a grizzled institutional equities dealer from the Nineteen Nineties may love. Your Nan gained’t be utilizing it to purchase a number of hundred shares of M&S. The educational curve is steep.
The opposite factor to notice – for individuals who commerce UK shares – is that Interactive Brokers doesn’t have any Retail Service Suppliers (RSPs).
RSPs are the institutional merchants who get you these ‘contained in the unfold’ and ‘value enchancment’ costs that you just see with different platforms.
Interactive Brokers principally solely affords Direct Market Entry (DMA). For those who commerce UK shares, notably mid caps, this can be an issue for you.
My total view of the funding platforms
Supply: Finumus ‘Vibes’, based mostly on private expertise.
Proper, tell us what you assume within the feedback beneath. And do try the high quality print within the Monevator dealer comparability desk for extra on every platform.
For those who loved this, you possibly can comply with Finumus on Twitter or learn his different articles for Monevator.
