The best value Isa platforms depend on portfolio size and the service you need. Consult our lang cat heatmaps to compare fees.
It’s now 20 years since plans for the Individual Savings Account (Isa) were first laid out, as the government of the time sought to boost the UK savings culture.
The tax wrapper officially launched in April 1999 and quickly became hugely popular with cash savers and investors. It’s over the past 10 years that Isas have really evolved, however. One of the biggest influences has been the emergence of fund supermarkets and platforms, which has fueled a boom in do-it-yourself investing.
This development prompted the Financial Conduct Authority (FCA) to conduct a year-long study of the investment platforms market, which it reported on this summer. At the heart of the study was value for money, reflecting concerns around the transparency and complexity of costs and charges, particularly for investors navigating the platforms landscape without an adviser.
And there’s no doubt that while platforms make it easier than ever to build and manage your own Isa portfolio, it can be a challenging landscape to navigate.
So we asked the lang cat, an Edinburgh financial services consultancy, to provide us with ‘heatmap’ tables showing the charges that Isa investors pay the main direct-to-consumer (D2C) platforms. The heatmap system shows the cheapest in green cells and the most expensive in red cells, with everything in between becoming redder in shade as the cost rises, or greener as it falls.
This approach makes it easier to compare costs by investment size, although it should be stressed that the colours are based on comparison only with the other platforms shown and not with the wider market or any other particular benchmark.
The data shows the main platform administration charges plus annual Isa administration charges, where applicable. Event-driven charges, such as those levied on exit or for re-registration or dealing, are not included. This should be borne in mind when deciding on which platform is best for you, as should considerations unrelated to costs and charges, some of which we’ll have a look at later on. For now, we’ll focus on what different platforms will charge for investing your Isa through them.
Which type of investor are you?
While charges aren’t the be-all and end-all, the impact they can have on long-term investment returns ensures they’re far too important to ignore. To make comparison even easier, we’ve split the market up into three different types of investors, based on the lang cat’s segmentation of D2C platform users:
Do It With Me - investors who are happy to make their own investment decisions but still welcome a bit of guidance, typically be in the form of fund lists, riskbased portfolios and fund options based on investment objectives.
Do It For Me - investors who want services to take them through the full process, from fact-finding and working out a risk-profile to building a suitable portfolio. Some services will give you a personal recommendation (which constitutes fully regulated advice, giving you recourse to the Financial Services Compensation Scheme and the Financial Ombudsman Service should things go wrong), but other will stop short of that, providing guidance rather than actual advice.
Do It Yourself - investors who want to get their hands dirty and make their own decisions. This is for investors with knowledge, experience, a good understanding of their risk appetite, an idea of what they want to get from investing, and a willingness to do their own research.
There are some important differences between the heatmaps. The Do It Yourself table looks at investment in funds and adds in the cost of four ad hoc fund transactions in the year, but it doesn’t include underlying investment costs.
Meanwhile, the Do It For Me and the Do It With Me tables show the ongoing charges figure (OCF) or total expense ratio (TER), in order to reflect the underlying fund management charge (i.e. what you pay the fund manager for their management, usually a percentage of your fund).
This figure is added to the platform and product costs so that you can see the annual total cost of ownership at each of the investment levels. Let’s begin by looking at pricing in the Do It With Me area.
Do It With Me
In this section, many investors will be in funds or portfolios offered to them as a kind of ‘home’ option. These are represented in the table where, for each provider, we’ve opted for a fund or portfolio that is broadly middle-of-the-road in terms of risk profile.
The impact of the fund management costs is clear. The average OCF/TER has edged up since our last look at this market (October 2017), from 0.77 per cent to 0.83 per cent, with several platforms reducing costs – including The Share Centre, Aviva and HSBC – and Charles Stanley Direct and Barclays among those to have increased them.
Naturally, where the underlying fund management charges are high, the total cost of investing is higher, emphasising the extent to which overall charges are driven by investment costs.
The services with the highest OCF/TER – most obviously The Share Centre, Bestinvest and Hargreaves Lansdown – are the most expensive overall. Conversely, low underlying fund management charges enable Vanguard, Fidelity, Cavendish Online and Aviva to target more cost-conscious investors.
There are sometimes specific reasons why these services are able to charge less. For example, the greener lines tend to reflect investment in passive vehicles (with Cavendish Online, AJ Bell and Vanguard being obvious examples), while the redder lines are generally those invested in actively managed funds.
Alternatively, lower cost might reflect a streamlined service. Cavendish Online, for instance, offers only funds, with no direct access to shares or to many of the tools and content that other platforms provide.
While cost is not the only consideration, the scale of charges in this table underlines why it should have at least some bearing on platform decisions.
Note: OCF/TER indicates cost of the portfolio; total cost includes this plus platform and transaction costs. Green is cheapest; red is most expensive. Source: LangCat, as at end August 2018