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Choosing an investment platform: A nuts and bolts guide

The act of buying your first index tracker is a big leap of faith (in yourself) and requires considerable courage.

I’ve known a fair few would-be lion hearts who were all set to make the leap into DIY passive investing, only to back away because they weren’t sure how to implement their strategy in the real world.

By the real world, of course, I mean the virtual world of execution-only online investment platforms – because this is where DIY investors do our shopping.

Read the first post in this series for a guide on how to buy index trackers.

Once you know where to go and have a shortlist of online brokers or fund supermarkets to choose from, the most important considerations are:

  1. Range
  2. Cost
  3. Picking the right account
  4. Service

How to narrow down your choices

Range: What’s in stock

With thousands of funds available, not every investment platform will stock all the funds you want.

If your heart’s set on a particular fund, then check your preferred platform carries it before signing up. Just grab the fund’s ISIN code from the fund provider’s website (you’ll find it on the fund fact sheet) and stick it into the platform’s search engine to be sure they have it.

UK online stockbrokers will usually offer most or all of the ETFs listed on the London Stock Exchange. If you want to trade say, US-listed ETFs, then call the broker directly to check availability.

Keep fees low

Other than fund choice, the main point of difference between execution-only investment platforms is the amount of fees they can dream up.

Naturally, passive investors like to cut prices like Wembley groundsmen like to cut grass, so be aware of:

  • Platform charges
  • ISA annual management charge*
  • SIPP annual management charge
  • Inactivity fees* (paid if you haven’t traded in a while)
  • Dealing fees
  • Dividend reinvestment fees
  • Fund switching fees (moving out of one fund to another)
  • Fund transfer fees (moving your funds to another platform)
  • Cash withdrawal fees*

I’ve asterisked the fees that you shouldn’t have to pay because there are good platforms out there that don’t levy those charges.

Dealing fees will apply to ETFs, but they are easily avoided for index funds. If you’re an investors with less than £20,000 in assets and like to make monthly investment contributions, then choose a broker who charges a percentage platform fee but doesn’t charge dealing fees for funds.

A few other wrinkles to look out for:

  • Some brokers will offer a batch of commission-free trades that may make their charges worth paying, if you’re active enough.
  • Check that your platform’s list of charges includes VAT. Some do, some don’t.
  • If you’re assets amount to more than £20,000, then it’s usually better to pay low-ish flat-fees than a percentage nibble of your assets that’ll grow into an almighty chomp as your investments grow over the years.

Choose the right account

Most execution-only platforms offer several different flavours of investment account. It’s worth taking some time to select the right one for your needs.

Ignoring the siren calls of no-go attractions like spreadbetting, the typical choices for passive investors to consider are:

  • Dealing or trading account – To hold investments held out of an ISA or SIPP tax shelter.
  • Regular investing accounts – Put your contributions on auto-pilot with a monthly direct debit. If you’re buying index funds then you shouldn’t have to pay dealing charges, but do look out for the minimum contribution required per fund. £25 is very good, £50 is standard. If you’re into ETFs then you can’t do better than regular dealing charges of £1.50 per purchase.
  • ISA accounts – Wrap up your money in an ISA tax repellent! You’ll typically want an ISA dealing account for long-term investing, but the new Lifetime ISA that’s on its way could be worth considering if you’re young enough to qualify. There are Junior ISAs for children, too.
  • SIPP accounts – Choose your own pension funds.

Note: The actual account terminology may differ, depending on the provider and the range of services they offer. Don’t be bamboozled.

Once you’ve plumped for an account, it only remains to register it online, hook it up to a bank account, and prime it with cash for your first investment. Debit card payments, direct debits and BACS transfers are the standard ways of doing this.

Are you being serviced?

Service is important, of course. But I don’t sweat it for a few reasons.

There is little to choose between the different platforms in my experience when it comes to service, from the perspective of a hands-off passive investor. Pick any company and you can always find horror stories from ‘Outraged of the Forum’ but that way can lie analysis-paralysis.

I’d have a look at the Motley Fool broker board for the peace of mind that I’m not going with a complete cowboy. You can also check out the hundreds of comments beneath our broker comparison table for any recent talk of problems.

In practice, online investment platforms offer about the same level of service, diversity, and complexity you might expect from an online bank account. If you can operate one of those and you understand the principles of investing, then you’re in business.

Bear in mind that we passive investors are relatively low maintenance and have little need for the gold-plated services demanded by the more shrill voices online.

It’s ultimately a matter of priorities. One company with a superior reputation for customer service is Hargreaves Lansdown – but it’s far from the cheapest option.

If you feel you truly need that reassurance then go for it, but remember that small costs really add up over the long-term when investing.

Take it steady,

The Accumulator

Series NavigationHow to buy your first index trackersPicking an index tracker out of the investing swamp

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{ 57 comments… add one }
  • 51 The Investor April 29, 2016, 8:46 pm

    Anticipating the weekend readings post, there’s a decent piece in the FT on a gloomy MGI study of future stock returns.

    Much as I’m sub-enamored with how this conversation has drifted off the subject of choosing investment platforms into day-to-day market chat I am *cough cough* quite keen on seeing this piece, if someone has a link? 🙂 Because I can’t find it, and it’d be relevant to tomorrow’s WR. Thanks!

  • 52 HK Expat April 30, 2016, 5:38 am

    Off topic, but for MyName Eccles/John if you are properly UK non resident you generally don’t need to pay UK tax on UK Dividends received or unit trust income unless you have substantial other UK income- they are “disregarded income” for the purposes of calculating tax liability. So if you have limited other Uk income (such as rent) you pay tax on that- without the benefit of a personal allowance- but not the dividend income. No other income then no tax on Uk dividends other than the tax credit which now no longer exists!
    See the hs300-non-residents-and-investment income guidance note issued by the UK gov.

  • 53 MyNamesEccles April 30, 2016, 9:42 am

    HK Expat,
    Thanks. Interesting. I have always gone the optional use of the personal allowance route as it ends up we pay no tax at all in the UK. In addition to a UK rent we have my wife’s small taxable civil service pension and our dividends all of which is
    geared to avoid tax under the old dividend system by keeping within the allowances and basic rate. The rest is offshore. In the last 5 years our combined world tax bill has been HKD 375!, and my wife still works part time in Hong Kong. (For those UK tax payers reading this and eating their hearts out, it’s not quite the bed of roses it seems. The real tax we pay in Hong Kong is through the government manipulated property market where we either pay huge rents for very modest accommodation or lock up large sums in the purchase of tiny flats.)

  • 54 Old_eyes April 30, 2016, 11:22 am
  • 55 Mr Ripley May 1, 2016, 8:03 pm

    Back to the topic, I’m looking for a decent platform that has a good user friendly interface. Currently use Fidelity which gives useful analysis tools but doesn’t show in an easy way your losses or gains. Charles Stanley Direct does that but doesn’t offer the portfolio analysis Fidelity does.

    I currently add all funds to Morningstar but can’t get the charges set up automatically. I rather use this directly through a platform interface.

    Suggestions anyone?

  • 56 The Accumulator May 2, 2016, 2:20 pm

    @ Paul Jackson – £1.50 per month to regularly invest into ETFs with brokers that offer that facility. You can get the same deal for funds or even enjoy zero cost fund trades with some.

    @ Mr Ripley – haven’t come across anything that isn’t flawed in some way. Try taking a butchers at Youinvest which is decent bundles in a lot of Morningstar analysis tools. Hargreaves Lansdown is generally considered to be the best for user interface. Like you, I track everything separately on Morningstar. Partly cos I want to have an independent tally. Then there’s my spreadsheet. Double redundancy. Think I may have trust issues…

  • 57 ivanopinion May 2, 2016, 3:58 pm

    @Vince
    If you are French resident for tax purposes, I would have thought you would be liable for French income tax on all investment income, including dividends from UK investments. I’m not an expert on French tax, so if you know of an exemption that applies to you then fine, but otherwise I suspect there might not be much point trying to eliminate UK tax on the dividends, because this would be offsettable against the French tax on the same income.

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