A beginner’s guide: everything you need to know about switching platforms

When a leading platform overhauled its pricing and services last summer, grumbling was heard across the market, while some investors threatened to take their business elsewhere. Exactly how many people followed up on that threat is unknown, but there’s little doubt that some were prompted to consider their options.

While a number will have since switched platforms, many others will have stayed put, because despite the many potential reasons for moving, the process of switching can seem daunting and complex. Indeed, the ease (or otherwise) with which investors can move between platforms and the factors that influence platform choice are among the issues being addressed by the Financial Conduct Authority in its review of the investment platform market.

While real financial and operational benefits can be gained from switching platform, a decision to switch is not to be taken lightly. If you don’t get it right, you could end up facing hefty charges or find that your investments are on a platform that doesn’t really suit your needs. What’s more, you may worry that it could be too much hassle or take took long.

Alex Kovach, chief commercial officer at Interactive Investor, Money Observer’s sister company, says: ‘Transferring your investments can be a daunting prospect, but the process itself is relatively simple, and transferring could save you thousands of pounds over the longer term. Simply open an account with your preferred new provider and fill out their transfer form. They will then liaise with your existing broker and do all the heavy lifting for you.’

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You could treat the process as an opportunity to look under the bonnet of your portfolio, to make sure it is working as it should and remains in line with your objectives. Here are some answers to questions you may have about switching platforms.

What are the costs involved? 

A new platform is unlikely to charge you for transferring in, but your existing provider may charge exit fees. Such penalties will for many investors be the biggest deterrents to switching.

Charges are usually levied for each stock or fund – typically referred to as ‘each line’ – transferred. ‘These charges vary but are generally between £15 and £30 per holding; the overall cost may be capped,’ says Kovach. ‘When deciding whether to transfer, you have to weigh these shortterm costs against the long-term upside of any move.’

There are four main investment and platform charges to look out for when you’re transferring away from a platform:

 

  • Dealing fees for selling investments
  • A charge for transferring cash
  • A charge for transferring investments in specie (where you shift your investment ‘as is’, rather than by selling it and moving cash)
  • A fee for closing the account

 

‘Some investment platforms, for example Fidelity, don’t make such transfer charges, but others, including Hargreaves Lansdown and Tilney Bestinvest, are less generous,’ says Justin Modray, director of Candid Financial Advice. ‘For example, Hargreaves charges £30 to close an account, £25 to transfer cash into your destination account and £25 per investment to transfer out an investment in specie.’

Can I switch platform without paying any charges?

It’s possible, as not all platforms levy exit fees, so it’s worth checking with your provider what exit fees might be charged. You might also want to choose a destination platform that doesn’t levy exit fees, in case you want to move again in future. Any such penalties should be detailed in the provider’s terms and conditions documents.

It may be possible to reduce or even avoid fees altogether by selling your investments and transferring in cash rather than in specie. But you would lose out on any market gains that occur during what can be a lengthy transfer process.

Should I transfer investments in cash or switch in specie?

The risk of losing out on investment growth during the switching process is a good reason to transfer your investments in specie rather than sell them. Bear in mind that missing out on a period of strong market performance can have a hugely detrimental impact on long-term returns, as the missed returns won’t be compounded.

Modray suggests that where in specie charges look hefty, you could consolidate your portfolio into just one or two funds for transfer purposes. ‘For example, if you want to transfer out a Hargreaves Isa holding 20 funds, it will cost you £500 in in specie transfer fees,’ he says. ‘But consolidating these into just two funds will cut the charge dramatically to £50.’

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Your individual circumstances and the different wrappers and funds being transferred may dictate your choice here, says Mike Barrett, consultancy director at the Lang Cat. ‘If the funds are held outside of an Isa or pension wrapper, moving to cash could incur a capital gains tax liability, so it’s important to assess your tax position as well as any charges that might be involved.’

How long can I expect the process to take?

It depends on what you’re transferring, but it can take some time. Transferring funds and equities can take around six weeks, and cash transfers around a fortnight. The industry is making the process faster, however, and more transfers are now being completed electronically. ‘Platforms that handle transfers electronically are usually quicker, but I’d still expect a transfer to take weeks, and if in specie potentially months,’ warns Modray.

Electronic transfers require the different parties involved (including the new and existing platform and your existing investment provider/s) to have the necessary systems in place, so the whole process is only as strong as the weakest link in the chain, says Barrett. ‘If a provider has to process the request manually, the timescale could be much longer. Again, this is something you should check with your potential new provider before instructing the transfer,’ he adds.

Do platforms offer switching incentives?

Transfer deals are becoming increasingly commonplace as the platform market becomes more competitive and market players seek to attract more investors. You’re particularly likely to come across incentives to transfer in February and March, towards the end of the Isa ‘season’. For example, a platform you are considering switching to may offer to pay your exit fees for you, or it may offer to exempt you from the first 12 months of its charges.

Tilney Bestinvest, for example, covers up to £500 of transfer costs. Spokesperson Jason Hollands says: ‘Some platforms will mitigate exit costs when business is transferred to them. Even if they don’t advertise it, there’s no harm in asking.’

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It’s important, though, not to be swayed by such deals too easily. It’s vital to look at the bigger picture and not get distracted by eye-catching transfer deals. Modray says: ‘The platforms that run such offers are usually at the more expensive end of the market, hence they have plenty of fat on the bone to subsidise winning your business. While you might save a bit over the short term, you could end up paying a lot more over the longer term, compared with cheaper alternatives.’

Keep in mind that investing is ideally a long-term game and that short-term savings can easily be wiped out by high ongoing charges. ‘It’s important to remember that investing is typically a long-term commitment, and investors should watch out for any “honey traps” that these offers might represent,’ says Barrett.

What other factors should I consider when switching?

The Lang Cat has produced analysis for Money Observer on platform charges for both Sipp and Isa investors with different portfolio values (available online at www.moneyobserver.com).

But ultimately, the platform that’s best for you will be dictated by your individual circumstances and preferences. The level of investment choice you want, the amount of trading you do, the types of investments you favour, the wrappers you use and the extent to which you want to monitor your portfolio are among the factors you will need to carefully consider. The amount you’re investing is particularly relevant, as most platforms base their charges on a percentage of your pot. A minority of platforms levy flat fees, so these are generally better choices for those with substantial holdings.

‘Whether you’re a fund or share investor, your trading frequency and the value of your investments are two crucial factors in determining whether you would be better off with a percentage-based or flatfee provider,’ says Kovach. ‘An investor’s choice of investment provider can make a huge difference to their long-term wealth, particularly in a low interest rate, low-return environment where fees eat up a significant part of their annual returns.’ 

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