Interactive Investor, Money Observer’s sister company, will continue to charge investors fixed fees, following the purchase of TD Direct Investing.
The fixed fee structure suits larger portfolios, those in excess of £50,000, due to the fact that the broker charge remains the same even as the investment pot grows. Whereas, under the percentage based fee model the broker fee increases as the portfolio rises in value.
Under the new charging structure Interactive Investor, the second-largest online broker behind Hargreaves Lansdown, will charge customers £22.50 a quarter, which works out at £90 a year. This represents an increase on the current fee in place, of £20 a quarter or £80 annually.
Trading fees remain at £10, but this figure will drop to £6 for frequent traders, defined as those that trade an average of 10 times a month. In addition, for all clients there’s a £1 fixed commission for regular investments and dividend reinvestments.
Traders will also receive £22.50 a quarter in trading credits. The credits are not just restricted to trades; they can also be used to top up existing investments and to reinvest dividends. Credits can be accrued up to £90, so in other words investors have a year to use them.
Richard Wilson, chief executive officer of Interactive Investor, says: ‘We believe our pricing offers great value for self-directed investors. Customers who use their trading credits through reinvesting dividends, regular monthly saving or more active investing, in effect pay no trading account or Isa fees at all.
He adds: ‘Even for investors who don't trade often, our new pricing is highly attractive to those who have a reasonable portfolio, or are looking to build or consolidate assets, relative to platforms which charge a percentage fee for custody.’
The acquisition of TD Direct Investing has enhanced Interactive Investor’s international trading capabilities. All customers will be able to trade directly on international exchanges and also be able to hold and settle in up to nine foreign currencies. This avoids the need to perform a currency transaction for every trade.
Commenting on Interactive Investor’s new pricing Jeremy Fawcett, head of Platforum, an independent consultancy, made the point that investors are becoming more cost-conscious. This is on the back of changes introduced by the Financial Conduct Authority, which now require all brokers to charge an explicit fee for their services. In the past brokers were able to pocket ongoing trail commissions from fund managers. These commissions were undisclosed, and as a result the breakdown between how much fund investors paid to the broker was not clear.
As a result of the changes, with broker costs now spelt out, investors are able to better size-up whether or not they are receiving value for money.
He adds: ‘The arrival of a scale flat fee model in the guise of the enlarged Interactive Investor platform is a significant development for online personal investing. Investors are becoming more cost-conscious and price is becoming a bigger factor in platform selection.
‘Interactive Investor’s new pricing model makes it good value for its target market of engaged investors or those with average and larger portfolios. From a cost perspective, the pricing works well for investors looking to consolidate reasonably-sized pots in one place.’