When it comes to selecting a broker, we are left very much to our own devices.
The amount of money paid into cash Isas fell by around a third in the tax year to April 2017, according to HMRC – dropping to £39 billion from £59 billion the previous year, on the back of continuing paltry interest rates. Worryingly, though, there’s been no comparable uptick in the amount being saved into stocks and shares Isa accounts, which rose by just £1.2 billion over the 2016/17 tax year.
Why not? Clearly there are barriers to entry deterring ordinary savers – nervousness about losing money in the stock market, confusion as to how to go about picking a fund, and our old pal inertia being three obvious ones. But another key issue is actually finding a suitable broker, offering the right kind of investments and the right kind of support at the right price.
If I were writing about buying car insurance, say, or finding the best-value electricity provider, I’d be able to point to half a dozen comparison websites to help consumers make an informed choice: these days, people are very used to using comparison tools, reading reviews and assessing customer ratings to secure the best deals online. But when it comes to selecting a broker, we are left very much to our own devices, reliant on personal recommendations or Google, or the tedious option of attempting to make our own cost comparisons by trawling through websites.
Popular comparison heatmaps
In the September 2016 issue of Money Observer we teamed up with platform consultancy the lang cat to run a feature on the best-value Sipp and Isa brokers, using colour-coded ‘heatmaps’ to highlight the cheapest providers for different sizes of portfolio. That guide has proved enduringly popular on the Money Observer website over the year, so this year we divided the exercise in two, running the Sipp broker comparison last month and Isas this month.
The cost differences between brokers, this year as last year, are pretty significant, underlining the importance of getting the choice of provider right. And it’s clear from the feedback we have received in the past few weeks (see readers’ letters on page 18) that people are hungry for such information – not just newcomers but established investors keen to see if they could save money, in some cases thousands of pounds, by switching brokers.
But the magazine is constrained by space and manageability. We have not been able to compare right across the market because the heatmaps would be so enormous; nor have we extended our comparison to encompass other investments beyond funds, because it would be so complex to present that information on the page. The heatmaps are a great place to start, but they won’t serve the needs of every investor.
That’s why it’s interesting to hear about a new venture called brokercompare.info. It offers a pretty straightforward three-step decision process along the lines of most comparison sites, in this case involving questions about the amount you want to invest, whether in funds or shares (including investment trusts) and exchange traded funds, whether you want to make additional regular savings and how frequently you’re likely to trade.
I did a test run for a lump sum investment of £10,000 into funds in an Isa over a 15-year timeframe, with monthly additions of £200 and four trades a year. The top choice was our sister website Interactive Investor, which would cost me a total of £1,320 over the 15-year period. It was followed by iWeb (£1,350), Charles Stanley Direct (£1,389) and Halifax (1,423). Most expensive were Hargreaves Lansdown at £2,527 and The Share Centre’s standard account at £3,608 – more than twice as expensive as the cheapest options.
Cost and investment range
Of course, choosing a broker is not purely a matter of cost, though that should be a key factor in any choice. Range of investments is another important one: for instance, if you want to hold shares in your Isa, there is no point in opening an account with Fidelity, which doesn’t offer them. Similarly, not all brokers offer investors help in terms of ideas for fund portfolios or a shortlist of superior funds, so check on the website of the provider you’re looking at.
And it’s also important to ‘test drive’ a provider’s website before signing up - some are much more user-friendly than others. Helpfully, the broker compare website supplements the price list with a brief assessment of each provider’s charges and its wider selling points in terms of website facilities, customer service or the type of investor it particularly suits. The bottom line is that comparison sites such as broker compare are not on their own likely to tempt many uninitiated new investors, but let’s hope that over time this kind of investor service will gain profile and show that it’s not so daunting to take the plunge after all.