- To invest in exchange traded funds (ETFs), investors must first have, or choose, an online platform or broker
- Our comprehensive cost comparison can help you pick the right platform
Investing in ETFs should be cheap. The low cost of simply tracking a market or index is what makes passive investing so attractive – costs can eat into returns; passive investing can help avoid that risk. When hunting for an investment platform for buying ETFs it is therefore especially important to be aware of fees.
Investment platforms present customers with a big array of costs that can be hard to understand. To make things even more complicated, different platforms use different names to describe the same type of fee.
Annual account fee
Generalist investment platforms will often charge a yearly fee for using their services, either as a percentage of the amount you have invested or as a fixed cash amount. Percentage-based fees are often tiered, so that the proportion of the amount invested spent on this charge falls as you invest more.
However, some generalist platforms do not charge an annual fee for dealing in shares (including ETFs). Platforms with a focus on trading are also unlikely to levy such a fee – although some will do if your account has been inactive for a lengthy period.
Commissions charged for buying or selling ETFs and other shares. ETF switches and the reinvestment of dividends can also be subject to fees.
Trading charges can vary both in terms of price and how often they are incurred. Some platforms charge a fee per trade, while others will charge a set amount for up to a maximum number of trades (such as 10 a month). In some cases, investors will receive better rates if they trade more often.
In certain cases platforms will not charge you to trade, although you must consider all costs and charges (as well as your needs) together.
ETFs charge their own management fees (listed on provider websites and ETF literature such as factsheets), although these tend to be extremely low. An ETF that buys a straightforward equity index will often charge less than 0.1 per cent, although more complicated products (such as ‘smart-beta’ ETFs) could charge more.
The difference between the highest price buyers are prepared to pay for the ETF’s shares (the bid) and the lowest amount sellers will accept (the ask, sometimes also called the offer).
The spread will add to your total cost of investing, but also indicates how easy it might be to buy or sell an ETF’s shares. A higher spread indicates it is more difficult to trade.
Comparing the investment platforms for buying ETFs
AJ Bell YouInvest
AJ Bell doesn’t shy away from letting prospective customers know that it is an award-winning platform – it’s in the company’s tag line. It’s less clear exactly which award it has won, but there’s no doubting AJ Bell is a decent product, especially for new investors.
Opening or transferring an Isa is straightforward and AJ Bell offers handy guides to walk new investors through the process. The platform also has favourite funds lists to help investors pick from the wide range of ETFs available.
Good for: Beginners
Bad for: Data
BestInvest’s free guides offer investors ideas for funds for their Isa. It’s worth being wary of the difference between initial and ongoing charges – BestInvest seems to have agreements with some fund managers which allows them to slash initial costs. It also pushes the use of actively managed funds rather than cheap ETFs.
The platform hosts extensive market research and a stream of company news from Sharecast. Perhaps not the best platform for buying ETFs, but a decent offering for investors who regularly trade shares.
Good for: Actively managed funds
Bad for: Buying ETFs
Barclays Smart Investor
Barclays’ super stripped back Smart Investor platform took regular users by surprise when it was launched in 2017. The transition from the old Barclays Stockbroker product was not nearly as smooth as it should have been. But the platform is now in full swing and is a good option for new investors looking for a cheap, simple platform. Fees are just 0.1 per cent, with a minimum of £4 a month.
Investors with bigger portfolios should be aware that the annual fee isn’t tapered downwards and the monthly charges are capped at a whopping £125.
Good for: Beginners
Bad for: Large portfolios
Fidelity’s pricing structure is misleading. For investors with small portfolios (up to £7,500), annual charges are fixed at £45 – good value if you’re close to the £7,500 mark, but terrible value if you only have a small portfolio. Beyond £7,500 the platform brings in a percentage pricing structure starting at 0.35 per cent – thus if the value of your portfolio tilts over the £7,500 mark, you’ll go from paying 0.006 per cent per year to 0.35 per cent per year very quickly.
The platform's own range of ETFs offers decent international exposure. They are not especially cheap compared with the 200 other ETFs offered on its platform, many of them sold by iShares.
Good for: International investing
Bad for: Complicated charges
The go-to platform for DIY investors has a big array of ETFs that can be filtered by fund manager or sector. Hargreaves is heralded for its ease of use and access to a huge volume of information and investment ideas.
Investors should be wary of Hargreaves' complicated web of charges. Some of the funds it offers within its ‘best buy’ lists are very well priced as Hargreaves makes deals with the underlying fund provider. Funds that do not come under its best buy lists are comparatively expensive.
The platform itself is not especially cheap compared with other providers. The ongoing annual fee is 0.45 per cent of portfolios up to £250,000 and buying and selling costs are £11.95 per ETF.
Good for: Service
Bad for: Hidden costs
IG has an enormous range of ETFs to choose from, covering multiple asset classes, including equity, fixed income, property and commodities. To help navigate the slightly overwhelming number of products available, IG has an advanced screening tool that allows customers to filter by sector, geography or performance.
Costs are moderate and paid at a fixed rate rather than as a percentage of the portfolio, which makes the platform well suited to investors with medium-sized portfolios. The platform offers its customers excellent access to data although this is presented in quite a complex way.
Good for: International exposure
Bad for: Complete beginners
Interactive Investor has worked hard in recent years to improve its educational resources. Its guides and reviews are very impressive and useful to new investors. Its costs are also attractive to investors who struggle to navigate the web of charges presented by other providers.
II’s annual charges are fixed, starting at £120 a year for the most basic plan. II argues that this pricing strategy makes it easier for customers to stay on top of their costs and investments. Dealing charges are relatively expensive (£7.99 per trade), but you are allowed one free trade a month, so for ETF investors who probably aren’t going to be buying and selling too frequently, this isn’t much of a problem.
Good for: Medium-sized portfolios
Bad for: Sporadic trading
The birthplace of passive investing launched its UK investment platform in 2017. Unsurprisingly, given the company’s principles and business model, its prices are very competitive. Ongoing charges are just 0.15 per cent (and even then, the platform only charges portfolios worth up to £250,000) and there are no dealing charges.
Investors are limited to Vanguard’s own ETFs, but considering the range of products and competitive prices, that isn’t necessarily a problem, especially for those who are happy to take a hands-off approach to their investing.
Good for: Buying ETFs
Bad for: Stock pickers