≡ Menu

Our updated guide to help you find the best online broker

Okay, UK investors, after taking the pain of creating a whopping great comparison guide to the UK’s leading online brokers, we’ve once again returned to the battlefield to fully update it.

Eating a bag of rusty nails water would have been more fun, but it would not have produced a quick and easy overview of all the main execution-only investment services.

Fund supermarkets, platforms, discount brokers, call ’em what you will – we’ve stripped ’em down to their undies for you to eyeball over a cup of tea and your favourite tranquilizers.

Online brokers laid bare in our comparison table

Who’s the best broker?

It’s impossible to say. There are too many subtle differences in the offers. The UK’s brokers occupy more niches than the mammal family, and while I know which one is best for me, I can’t know which one is right for you.

What I have done is laser focus the comparison onto the most important factor in play: Cost.

An execution-only broker is not on this Earth to hold anyone’s hand. Yes, we want their website to work, we’d prefer them to not screw us over, go bust or send us to the seventh circle of call centre hell… These things we take for granted.

So customer service metrics are not included in this table. It’s purely a bare-knuckle contest of brute cost for services rendered.

Why should investors flay costs as if they were the tattooed agents of darkness? Because if – as the FCA predicted – you will see an annual after-inflation return of 2.5% on your portfolio for the next decade, then the last thing you need is to leak another 1% in portfolio management charges.

This makes picking the best value broker a key battleground for all investors.

Using the table

I’ve decided the main UK brokers fall into three main camps. These are:

  • Fixed fee brokers – Charge one price for platform services regardless of the size of your assets. In other words, they might charge you £100 per year whether your portfolio is worth £1,000 or £1 million. Generally, if you’ve got more than £25,000 stashed away then you definitely want to look at this end of the market. Bear in mind that fixed fee doesn’t mean you won’t also be tapped up for dealing monies and a laundry list of other charges.
  • Percentage fee brokers – This is where the wealthy need to be careful. These guys charge a percentage of your assets, say 0.3% per year. For a portfolio of £1,000 that would amount to a fee of £3. On £1 million you’d be paying £3,000. Small investors should generally use percentage fee brokers, but even surprisingly moderate rollers are better off with fixed fees. Many percentage fee brokers use fee caps and tiered charges to limit the damage but the price advantage still favours the fixed fee outfits in most cases.
  • Share dealing platforms – Platforms that suit investors who want to deal solely in shares and ETFs. Sites like X-O and friends fill this brief.

Choosing the right broker needn’t be any more painful than ensuring it offers the investments you want and then running a few numbers on your portfolio.

The final point you need to know is that this table’s vitality relies on crowd-sourcing. I review the whole thing every three months, but it can be permanently up-to-date if you contact us or leave a comment every time you find an inaccuracy, fresh information, or a platform you think should be added.

Thanks to your efforts as much as ours, our broker comparison table has become an invaluable resource for UK investors.

Take it steady,

The Accumulator

{ 271 comments }

Weekend reading: First they came for the capital gains…

Weekend reading logo

What caught my eye this week.

This week we’ve been served notice that serious hikes to capital gains tax could be coming.

The Guardian reports:

A tax raid on buy-to-let properties and other forms of wealth could raise up to £14bn to help repair the government’s battered finances, after a report commissioned by the chancellor recommended a major overhaul of capital gains tax.

Flagging a tax squeeze on the well-off to help pay for coronavirus, the maximum capital gains tax (CGT) rate of 28% could be raised by Rishi Sunak closer to income tax rates, where the top rates are 40% and 45% in England and Wales.

Under the proposals, there could also be deep cuts in the profits that share investors can make without paying tax, and other technical adjustments that could, in effect, push up inheritance tax bills.

For more on the specifics of the report by the Office for Tax Simplification – which cynics might argue is starting to sound like Orwell’s Ministry of Peace –  check out the deep article over at ThisIsMoney. It goes into many of the potential impacts to capital gains tax rates, inheritance taxes, and more.

Gain stage

It’s the nature of tax hikes that people tend to think they’re fine if they believe they’ll never be hit by them.

Whereas of course those tax changes that paint a target on their backs are seen as grossly unfair…

And I am only human.

A little over a decade ago now, I exited a startup company that I’d co-founded. We had some disagreements about its future direction, and I left with roughly the money I’d put in – a few tens of thousands of pounds.

Sounds like a nice lump sum but keep in mind I was mostly just getting the big proportion of my savings that I’d invested (and risked) back, with any additional money hardly covering the income I’d forgone for two years.

I couldn’t put all this into ISAs at once due to the annual allowance. Pensions were different in those days, and looked unattractive to me.

Perhaps I should have spent it all on wine, women, and song? Or put it all into buying a home to live in where it would grow untroubled by the taxman for life.

That’s something nearly everyone with any money thinks is fair, incidentally, but which makes it even harder to keep up if you’re not a homeowner…

In the end I decided to risk investing it in a bunch of share picks outside of tax shelters. This compounded a paperwork issue I already had from previous investments outside of ISAs, but I thought it was worth the hassle and risk if I could hold for the long-term.

This tranche of investments did very well. We’re talking multi-bagging gains in just a few years. Outside of tax shelters.

I’ve managed to carefully defuse some of the gains over the years, but other holdings have continued to grow.

The result is I still have six-figures in capital gains, should I have to sell.

My plan had been to use my annual CGT allowance every year. The money raised would go towards my ISA allowance. I am not and mostly never have been a super high earner. And since I bought my flat I’ve never been over-blessed with free cash to top my ISA up with.

Obviously my plan may have to change if the CGT allowance is reduced or scrapped altogether, or if the rate is hiked.

Zero logic

Now many of you will say “so what?” This wasn’t money I earned by the sweat of my brow.

That’s a coherent argument.

However it’s not an argument that many people seem to apply to the giant windfalls people get when they inherit.

I do and would hike inheritance tax to the max, because the recipient literally did nothing to earn it. They didn’t even forego consumption or take a risk.

But no need to reply in anger. I know most of you disagree!

Proponents of CGT hikes also tend to muddle different things together. So they will talk about a high-earner with cunningly structured finances paying a far lower tax rate then their cleaner, 10% say, and then argue in the same breath that CGT rates should be hiked and the ‘distorting’ annual allowance should be scrapped.

But that 10% tax rate is due to entrepreneur’s relief, not standard CGT. And enabling somebody to realize a little over £12,000 in capital gains from their investments (which may have taken many years to build up) is hardly what enables the big swinging dicks of Canary Wharf to bring home their millions at a lower tax rate, if that’s the complaint.

As for distorting behaviour – the mooted changes will only make this worse. People will hang on to assets that they might otherwise have disposed of, simply to avoid the tax charge.

Perhaps you believe this is all good if you see longer-term ownership as a virtue in itself (I’m unconvinced) but it’s undeniable that it stops people freely juggling their assets to suit their circumstances, or their views about valuation.

Scrapping CGT altogether – for a 0% capital gains tax rate, as enjoyed by radical countries such as New Zealand and Switzerland1 – would surely make more sense from a simplification perspective.

Finally, you might say I don’t deserve my six-figure capital gain because it doesn’t amount to any social good.

But if that’s true (I’d debate it) then that’s true of all our investments.

What’s more, is a CEO on several million pounds a year contributing to the social good?

Heck, is a software engineer perfecting ever more pernicious Internet advertising doing so?

Why not increase tax rates on all incomes we consider socially useless?

Why not indeed.2

You can pay your own way

There’s no doubt that the Covid-19 pandemic and to some extent our chosen response to it has left the State’s finances in a hole.

(I believe it also means we can expect the low interest rates that make that debt manageable to last for years. Probably decades.)

I’ve been warning about this growing bill from day one, even as some others have retorted that we should lockdown and lockdown again, with apparently scant concern for the consequences, financial or otherwise. (Any debate on Covid over on this thread only please.)

But regardless, the mooted £14bn is neither here nor there in the grand scheme of things – assuming it is even recoverable without people changing their behaviour.

If we are going to reform taxes, let’s do it properly.

It’s high time we created a tax system that makes logical sense across the board. We should scrap fiddly income tax bands and cliffs, get rid of tons of exemptions, simplify and massively expand inheritance taxes (I’d do this by taxing recipients rather than the estate) and much more.

In practice though I’m sure we’ll do what we’ve mostly always done – which is whatever politicians can get through the Overton Window.

Okay, the cat has seen the pigeons. Let’s hear what you think, enjoy the links, and have a great weekend!

[continue reading…]

  1. Essentially. Obviously there’s realms of tax minutia here as everywhere with tax. []
  2. Plenty of reasons! I am just extending the logic here. []
{ 104 comments }

Are retail share dealing platforms fit for purpose?

Collection of images of platform outage messages

Another bout of massive stock market volatility. Another day of frustrated private investors glaring at their frozen screens like horny teenagers trying to download a low-res porn MPEG on a dial-up modem in 1994.

When markets get super congested like they did on Monday, retail platforms fall over. It doesn’t matter whether we’re in the midst of a crash like we saw back in March or if shares are going gangbusters as with this week’s vaccine rally. If you’re a private investor trying to buy or sell shares, you’ll be lucky if you can log into your broker, let alone trade.

You’d hope headlines like these would focus minds at the platforms:

  • Investors rage as market surge crashes trading platformsCityWire
  • Hargreaves Lansdown suffers system outage amid record trading volumesFT
  • Retail trading hits snags as vaccine news sparks stock scrambleReuters

But this problem is hardly new, so maybe their strategy is just to grin and bear it…

…until the next day of pandemonium rolls around.

Musical shares

If you’re a dedicated passive investor – good for you – then you may say “so what?” to this kerfuffle.

Passive investors don’t trade like hyperactive card sharps. Passive players buy, sell, and rebalance their holdings according to their long-term plan. Ideally they automate the whole process. They would then be oblivious to the disruption their active brethren endured earlier this week.

At Monevator, we certainly believe most such investors who use broad index funds will do better than those who try to beat the market.

They’ll also sleep better at night!

I tried to tell a friend about Monday’s market mania. My friend has learned his passive investing habits on this very website, from my passively pure co-blogger. My friend was bemused, because his portfolio just appeared to have gently risen a couple of percent since the weekend. And he’d only looked at it because I asked him to.

To prove I wasn’t an overly sensitive soul, I sent him some commentary on the market rally, such as this snippet quoted by Bloomberg:

Based on historical data, the book-to-market [factor] enjoyed a 12x standard deviation rally, while price momentum and short-term growth factors suffered from 20x and 25x sigma sell-offs, respectively, on November 9.

That’s a lot of sigmas.

Most of the indices just marched higher. But I own technology shares that fell 20-25% over Monday and Tuesday, as well as value stocks that gained that much and more.

This churn is what market wonks (guilty as charged) call ‘internal rotation’.

Partly it’s reflective of a change in sentiment among investors about the earnings outlook for different sectors.

This time around we saw ‘stay at home’ tech stocks made less appealing by the positive vaccine news, and concurrently more appetite for burned-out ‘physical economy’ firms that need boots on the ground to make money.

Yields on safe government bonds ticked higher, too. If that continues it would be bad for high-multiple shares priced on their long-term earning potential, as I explained a few years ago. At the same time certain beaten-up value shares such as banks could profit from higher rate expectations.

Yet another driver of internal rotation is when traders sell one sector as a source of funds to buy shares in another.

Even if an investor has spare cash, using it to buy the suddenly more appealing airlines, hotels, and cinema chains would mean increasing overall equity risk. Whereas selling other shares at the same time tamps down your overall exposure.

Well, it does if you’re actually able to access the market via your platform.

Going for broke

I use multiple brokers and they nearly all gave me trouble on Monday.

For a while I couldn’t even log into one. Others would let me in, but then they wouldn’t let me trade.

For example, I got into Freetrade instantly with my thumbprint and it showed me my holdings without breaking a sweat. I was all set to sing the praises of its shiny modern tech stack – until I tried to actually buy some shares. Multiple attempts left me waiting for a buy confirmation that never came – the trades were never executed.

Other brokers appeared to execute my live trades but then, after a long timeout, they admitted that really they couldn’t even get a quote from the market.

Far worse, there are reports of investors on some platforms buying more shares with phantom cash that was never deducted from their balances after earlier trades executed, and even of big negative cash balances once the dust had settled.

The platforms should have been able to uncross all this – but not without infuriating customers, and possibly dinging their potential profits.

Interactive Investor appears to have held up best among the major platforms, judging from social media. That’s interesting given it has not always received the most sparkling marks for customer service. Perhaps it’s been investing in technical capacity instead of phone lines?

Price sensitive punters

Should we care that so many platforms fell over when the market went crazy? Should we be angry customers?

I think you can be miffed about it while still acknowledging the platforms have a difficult job.

People always say that Internet-enabled businesses should be more ready for any sudden surge in demand – online grocers, video aggregators, and share platforms alike.

And of course they mostly are prepared. But what level of extraordinary extra demand is it reasonable to cater for?

You can be ready for a market that’s 10-times busier than average. But then it will be the 11-times busier market that will get you every time.

I do think these platforms are different from other sites that fail with demand surges, though. It doesn’t really matter if you order your granola from an online supermarket with a 15-minute delay. In contrast share prices change constantly, and access to those prices is exactly what you’re paying for.

You could also argue a very active stock market is clearly one that many investors want to be, by definition, given all the activity. So if a platform fails to enable you to get involved, is it even fit for purpose?

To reiterate, at Monevator we think most people should be passive investors. They should turn off their PCs and smartphones on a day like Monday and go for a walk. Try to pick short-term winners and losers during such a feeding frenzy and you’re liable to lose a limb. Or at least a few quid.

Even so, it’s not very credible to argue that a platform failing on a very busy day is protecting small investors from themselves.

You could equally well say a wine producer watering down its alcohol or a cigarette maker stuffing its fags with parsley is doing consumers a favour.

Good luck getting that past Trading Standards!

Play to play

Set against all this moaning, owning a DIY portfolio has never been cheaper or easier. Low-cost platforms are a huge reason why.

We might clamour for a quant-fund’s fat pipe plugged into a market that’s gurning like a clubber in 1980s Ibiza, but would we pay for it?

The very biggest platforms are making decent profits, so you might argue they can afford to upgrade their infrastructure.

But it’s also true that the last time the regulator looked deeply into this sector a few years ago, the rest of the platforms were making diddly-squat.

There’s been consolidation since then, so the situation may have improved. But it would be counter to investors’ interests if pressure for bombproof platforms – perhaps even from the authorities – led to more mergers, less competition, and with that higher prices. Be careful what you wish for!

Did you try to buy or sell shares earlier this week? How did you get on?

Note: We both get a free share if you sign-up via my link to Freetrade. The Interactive Investor link is an affiliate link, too. The author owns shares in Hargreaves Lansdown.

{ 36 comments }

Stress management

Stress management post image

While in the midst of biting my nails over the election result, a friend said:

‘Watching the results coming in was like putting our books and magazines down to concentrate when the plane takes off.’

As if the power of our minds could somehow help the pilot get the bird up in the air.

My friend decided it was all too much. She needed to detach. She needed to accept the outcome was beyond her control.   

Chastened, I looked at myself sitting in a nest of devices. Refreshing my feeds like a burns patient on a morphine drip.

Unshaven, short of sleep, exerting no control whatsoever…

What had I become? 

This isn’t me

I manage stock market alarmism by checking my portfolio about as often as King George III heard from the colonies. 

Why was I trying to deal with election stress by reading about every ballot drop in US counties I didn’t even know existed until last week?

The difference lies in my understanding of the rules of the game.

The Investor has rightly called out stock market analysts astrologers who invent a new story to explain every fit and cough of the market. 

Those ‘insights’ are typically about as useful as reading the omens for victory from the flight of swallows. 

The value added is clear: the analyst is a performance artist, the media is an impresario, and the audience is entertained. 

What it’s not is useful information, except for reminding me that no quantity of BS helps. 

The election analysis was different. The Red Mirage effect helped me understand why Trump’s early 700,000 vote lead in Pennsylvania was not game over. 

But my ape brain was still easily rattled by every plot twist.

I was deeply emotionally invested in the outcome because I believe this election had more riding on it than any other in my lifetime. The risk of the world superpower sliding into authoritarianism is not one I take lightly.  

Then I found the election quants.

Digging beneath the headlines, these people crunched the numbers and properly contextualised the state of the race. Their sober-minded reports – as informed and agenda-free as any I could find – helped me through the critical hours. 

This doesn’t work in the markets

As a small everyday saver I cannot tap into an equivalent real-time resource during a stock market crisis

I do believe that some players can beat the market. They usually reinforce incredible skill with banks of PhDs, super-computers, and machine-learning algorithms.

Crucially:

  • They don’t need my money.
  • They don’t share their knowledge with the internet.
  • Their process does not rely on transparency. 

This is a very different environment to the election. 

I can’t expect to navigate a market meltdown in the company of a friendly insider. 

Stress management in this domain depends on fortifying my mind in advance.

I need to recognise my psychological enemies so I can reflexively avoid them, or shoot them down as they spawn like videogame baddies. 

By cultivating the right behaviours and keeping the faith when all hell breaks loose, you can pull through with minor cuts and bruises…

Let’s divide up the risks we need to manage as a small investor as we navigate a drama in the markets.

Pre-crisis

Overconfidence – Loading up my portfolio with too much risk after a market run-up leaves me thinking I’m the King Midas of investing. 

Dealing with it – Adopt a more conservative asset allocation than I think I need. Read about risk tolerance. Read about stock market history and the worst that’s happened

Chasing returns – Over-concentrating my portfolio into crowded trades is like boarding the gravy train after it has left the station. Think buying crypto after the internet has run rampant with stories of Bitcoin millionaires, or getting into gold after it jumps 20% in price. 

Dealing with it – Other than not doing it, I must abide by strong rules of thumb to deal with the temptation. No more than 5% of the portfolio can go into any alternative asset class. No more than I can afford to lose if I must invest in the hot new thing. 

Pennies in front of steamrollers – Some trades make you feel like you’ve joined the big leagues, but they can backfire spectacularly. Trading on margin, spread betting, contracts for difference, inverse leveraged ETFs – high-risk investing can be as intoxicating as driving a Formula One car. Right up until you smash into the pit wall.  

Dealing with it – Don’t trade in things you don’t fully understand. If you’re on an app that feels as exciting as a casino, then it is a casino

Mid-crisis

Panicking – Your portfolio is down 30% or worse. Everyone is freaked out. The herd stampedes. In the media, the End Of The World Is Nigh. You sell. But somehow… the market rallies? Yes, while you’re on the sidelines in cash. Loss crystallized. But in an alternative universe, you snooze through the whole thing and are absolutely fine.  

Dealing with it – Just don’t do it. Do not sell. The only plug you should pull is the one connecting you to the panic. Get off the internet. Do not look at your portfolio. Recite your safe word. Read your stock market history again. As long as we’re not losing World War 3 or in the throes of Communist Revolution, then a recovery will (eventually) follow. 

Post-crisis

Traumatised – You’re in your shell, licking your wounds, counting what’s left of your cash. You’re afraid to return to the market. Too shell-shocked to revisit the scene. The market marches on. Your portfolio slowly falls behind like a once-great country that’s lost its way. 

Dealing with it – This is the place we never want to be. It may be too late to restore your shattered confidence, and rational advice is probably misplaced. But if there is a light that can intrude upon the gloom, it is this: there is no better time to invest than when the market is cheap.

Long-term

Paying high-feesCosts are guaranteed, returns are not. 

Dealing with it – Invest in the cheapest index trackers you can, and avoid someone else trousering your profit. 

Constantly changing the plan – Financial engineering changes more often than the fundamentals. City marketing departments fire new magic bullets at us every day: ‘The old way of doing things is dead, only our sexy new product can make you rich.’ 

Dealing with it – Don’t fall for the sales pitch. Have faith in your plan when it’s built on evidence. (A paper from a fund manager is not evidence. It’s marketing.)

Doom-casting – Projecting some negative trend into a huge wall shadow of fear. You know the sort of thing – the hard left will confiscate our pensions, ballooning debt will destroy fiat currency, and so on.  

Dealing with it – Recognise you probably didn’t worry like this until you had something to lose. Success can breed irrational dread of change to the status quo. Franklin D. Roosevelt’s memorable phrase“the only thing we have to fear is…fear itself” – is a useful piece of wisdom to lean upon. 

Comparing yourself to an impossible ideal – Investing-wise, this foible might manifest itself as regularly checking in on an investment you once owned and sold, like you do with an ex on Facebook. (And then being consumed with regret if it thrives without you.)

Dealing with it – Don’t look back. Don’t beat yourself up. Get used to humble pie. The market makes us all eat plenty of it. 

No-risk, guaranteed returns – The surest sign of a scam. Or at the very least small print laced with booby traps that will blow up in your face, sooner or later.

Dealing with it – Run away! Head for the hills! But never forget how easy it is to fall for the dream when you’re desperate. 

Impulse control

The overwhelming complexity of the markets is an environment that few of us are equipped to navigate by instinct.

Our intuitions and gut reactions help us deal with short-term challenges that we’ve experienced many times before.

Barking dogs. Stormy conditions on the drive home.

But investing is a long-term game that confronts us with situations we have very rarely if ever confronted. 

We struggle to calculate the odds, can’t cope with the unpredictability, and draw poor conclusions from scant evidence. 

That’s why, for me, stress management in this alien place is about:

  • Straitjacketing my emotions with evidence.
  • Favouring inaction over action – especially when my blood is up. 
  • Planning what I’m going to do ahead of doing anything. 
  • Detaching from events like I’m floating in space.  

How do you manage your stress? What psychological pitfalls do you think we face as investors and how do you deal with them?

Let us know in the comments below. 

Take it steady,

The Accumulator

{ 9 comments }