By Catherine Thomas-Humphreys (www.thefinfluencer.co.uk)
Think of an investing platform simply like a financial supermarket.
In the same way you go to Tesco to buy all your food, you go to a platform to buy your investment account and then the investments within that account.
It’s an online service that an investor can use in order to access different types of investment accounts, also called tax wrappers or products. These products include Pensions, Self-Invested Personal Pensions, Adult ISAs, Junior ISAs, Lifetime ISAs, General Investment.
Nowadays most investors buy, sell and hold their investments via a platform.
Once you’ve registered with a platform you can select your new investment product and then access a range of funds or assets to invest in within these wrappers.
It’s then easy to add money or set up a standing order or regular payment to the platform to add that cash to your investment. You use that cash to “buy” or invest into the funds or assets of your choice.
With a platform, you can also transfer in existing ISAs and Pensions from other providers if you so wish. Advice should be taken when considering a Pension transfer to make sure you aren’t giving up any valuable future pension benefits. (see downsides of platforms below)
What to consider when choosing a platform
Platforms vary enormously: some only offer funds while others give you access to investment trusts, or individual shares, corporate bonds and government debt. Some have a a combination of pensions and ISA types, while others have only one product type (commonly ISAs). So, it’s well worth spending a little time thinking about which investment account you want and how you will be investing before selecting your preferred platform.
Once you’ve selected your platform and your investment account, you then select the funds or assets you want to invest into. Platforms usually offer a wide range of information and tools to research each investment, including how it has performed in the past, what risk level it is and how much it costs. When making an investment they have to provide a Key Investor Document giving you the key information including fund costs, performance and main underlying assets.
Types of Platform
Broadly speaking, there are 3 types of platform: advisor platforms, DIY platforms and robo-advisor platforms.
These are accessed and adjusted by your financial advisor or planner, and you’ll be able to view your account to see how it’s doing. The investments themselves and any changes to the account will be handled by your financial advisor firm. They will have completed research that evaluates the costs, options and benefits of the chosen platform, and make a recommendation for the product and investments most suited to your needs.
This type of platform can give you access to all investment products and most peace of mind knowing there is a trusted expert working with and for you and completing ongoing reviews of your investments. Of course, you will need to be working with a financial advisor or planner in order to use this service. This comes with some expense.
Do it Yourself platforms
These have the same options as advisor platforms but you access the products and investments directly yourself. Simply register, decide which product you need and then browse the wide range of funds and investments available. Then select which one(s) you want to invest in. You are able to view the balance and performance, and top up, withdraw or change funds whenever you want to. Most DIY platforms offer self-invested pensions, ISAs and thousands of funds to choose from to make the process of investing straightforward. However, you will need to be able to make your own decisions and choose what you think is the best path. This may require some investing know-how.
Rather than doing it yourself or receiving tailored specific advice, you could consider a robo-advice platform. A robo-advisor is an investment service that has a pre-selected portfolio of funds and, based on your answers to an initial set of questions, it will make an investment suggestion for you. It is an automated service that matches your goals and feelings toward risk with its suggested portfolio using algorithms.
Not all robo-advice platforms have pensions or children’s/junior ISAs available, and some have minimum investment amounts so compare first depending on your purpose for investing. You won’t be able to access individual funds or investments of your choosing unlike with a DIY option.
Benefits of Platforms
Investing with a platform puts all of your investments in one place, meaning it’s much easier to keep track of your investments, monitor everything online and watch your capital grow (be mindful they can and will also fall at times).
- They have a wide range of funds to choose from and multiple products and tax-wrappers
- May be more cost effective than multiple ISAs, pensions and other investments with varying providers
- Easy to use
- Can set up regular payments into platform to go into your investments
- Can invest lump sums
- Can usually access money within 2-3 weeks if invested in shares, bonds or funds.
Downsides of Platforms
Having a wide range of funds available may be a benefit but it can also feel overwhelming. In this case, seeking an advisor or pre-created robo-advice portfolio may be a more appealing choice.
Whilst you can transfer in other ISAs and Pensions from other providers, consolidating all of your pensions into one on a platform should be done with careful consideration. Pensions in particular sometimes have special guarantees, such as guaranteed income levels or a higher than normal amount of tax free cash. These benefits will be lost if transferred. Speak to a specialist advisor before transferring existing pensions.
Some platforms have exit, entry or transaction costs so review carefully. Use a comparison site such as Compare the Platform and think about how you intend to invest. Small, regular amounts could be hit hard by higher transaction costs, whereas a lump sum would not be.
There are a number of costs and charges associated with investing via a platform and their varying charging structures can make them difficult to compare.
Some of the likely ones are
- Fund charges: The cost of the fund(s) you selected to invest in.
- Platform Annual Management Charge: An additional cost to access the platform. Sometimes charged as a flat fee and other times a percentage of your investment value. This could be taken monthly, quarterly or annually.
- Some providers combine the platform and fund charges together.
If using a financial advisor you may also have an Advisor Initial Fee for the recommendation and set up and then an ongoing fee for managing your investments and completing at least one review with you per year. Your advisor should be 100% transparent about these in their initial report.
Other potential costs to look out for are:
- Costs to transfer in or out
- Exit charges
- Dealing charges to buy into funds
Don’t be put off by these charges as they do provide you with access to investing and over the long term, investments have historically outperformed cash even with these costs. However, be mindful of them when making your platform and fund choices.
A comparison website allows you to input the type of investments you want and the value to help you work out which platform might give you the best deal depending on your requirements.
Cost Calculator: https://comparetheplatform.com/simplified-calculator/