Which is the best platform / broker for you? It’s a simple sounding question, but it twists the antennae of many Monevator readers.
The mass of platforms currently vying for life has created a swamp of confusion pricing – as one look at our platform comparison table [1] will tell you.
Happily, there’s a fairly simple way to work out your cheapest option for yourself…
Step 1 – Preparation
First jot down the key factors that affect your calculation:
- The size of your portfolio.
- The account types you want – SIPP, ISA, or unsheltered investment account.
- The products you want – Funds, ETFs, investment trusts, shares, and so on.
- How often you will buy and sell – You won’t know for sure, so estimate this based on past patterns or future intentions.
Note that the number of products you own doesn’t matter. No platform will currently charge you more for owning 10 funds versus five, for example. (Keep in mind though that the higher the number of funds you have, the higher your likely switching fees will be if you decide to chuck your platform).
Next tot up all the charges you’d incur with the most competitive of the fixed fee platforms. (Hint: They’re the ones near the top of the table [1].)
Make sure you count any annual fees, platform fees, dealing charges, and other relevant costs listed on the Monevator table or the platform’s own price schedule. Remember to add the cost of multiple accounts if you hold them.
You now have a base cost for the investing services [2] you require.
From here we can compare that cost against the best of the percentage fee platforms. The winner will be the cheapest deal for you.
Percentage fee platforms are generally best for people with small portfolios, whereas fixed fee platforms are tops for index tracker [3] portfolios that are fatter than £25,000 in ISAs and around £70,000 in SIPPs.1 [4]
Note: The problem with percentage fee platforms is that many of them don’t cap their fees. So as your portfolio swells, the costs may keep rising, too. In an extreme case – say a £1 million portfolio that’s all invested in funds – this cost vampire could be sucking out more than £3,000 a year versus as little as £200 for the same portfolio held with a fixed fee platform.
Step 2 – The money shot
To compare fixed fee Platform A with percentage fee-based Platform B, make the following calculation:
Total annual costs of platform A2 [5] divided by platform B percentage rate3 [6]
= breakeven point
If for example your fixed rate costs at Platform A = £80 and you’re comparing with a 0.25% rate at Platform B:
£80 / 0.0025 = £32,000
The breakeven point – £32,000 in this example – refers to your portfolio’s size. At this point, your costs will be the same with either platform.
In the example above, we’re better off with platform A if our portfolio is worth more than £32,000. Any less and we should bunk up with platform B.
A few things to remember:
- Subtract any additional fixed rate costs charged by Platform B from Platform A’s fixed costs before making the calculation, so you’re comparing fairly.
- Check if cheaper regular investment trades are available for the products you want.
- Add in your portfolio’s Ongoing Charge Figure [7] (OCF) to compare platform choices that don’t stock exactly the same products, or that offer discounts on certain fund manager’s charges.
Step 3 – What happens next?
Portfolio size is obviously a moveable feast, so you should consider how quickly your assets are growing or shrinking.
Are you piling cash into the pot? Or selling out faster than an old rocker being offered a knighthood?
If you’re likely to smash through the breakeven point within a year or two, it may be worth going with the platform that will suit you in the foreseeable future.
Also watch out for switching fever – the unbearable pressure to take action just because your platform is a smidge less than optimal.
In our example above, the difference in fees would only be £20 per year if the portfolio grew to £40,000 in size. Exit fees and switching hassle [8] can make bolting for the door an exercise in self-harm [9] every time your platform falls off the Best Buy spot.
Are these exit fees a reasonable administrative charge, or a blatant attempt to lock customers in? I think we know how this works by now.
Watch out for both entry and exit charges when you switch brokers – see our table [10]. Some readers have reported success in demanding their platform waives its exit charges.
Also beware that switching brokers can be a (too) lengthy process, and it may leave you out of the market [11] for some time if you’re forced to cash out [8] of your positions before switching.
Some canny Monevator readers time their switching to take advantage of temporary cash back offers. We wouldn’t suggest you let such antics risk derailing a once-a-decade push to sort out your finances. But if you’re on top of this stuff – the sort who checks the comments on the Monevator broker table before you open your email – then it could be a way to pick up some free loot en route!
Take it steady,
The Accumulator
- Or thereabouts: The more you trade, the higher those thresholds will be. [↩ [16]]
- Subtract any fixed costs of platform B including dealing charges. [↩ [17]]
- Note that multiple percentage rates may apply if your portfolio is very large and the platform’s charges are tiered, so you may need to work this out. [↩ [18]]