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Stockpickers' platform problem

With competition aplenty, make sure you're using the most suitable platform
February 4, 2021

Commission-free trading apps are booming but check before you buy

They say statistically you are more likely to get divorced than change who you bank with. I wonder if the same is true for investment platforms. Hargreaves Lansdown’s (HL) 93 per cent client retention level last year suggests it might be, but admittedly duplicity is more acceptable in the broking world. What is interesting though is where the lion's share of new accounts are being set up. 

There’s no doubt Hargreaves Lansdown’s growth last year was impressive: this week it reported 84,000 new customers for the second half of last year alone, a 40 per cent increase in net new business on the same period in 2019. Vanguard’s UK private investor platform doubled its user numbers last year to 200,000 and AJ Bell (AJB) also had strong growth with a 30 per cent rise in customers in 2020.  

But the star performers have been the commission-free investing apps. Freetrade, a mobile-only app set up in the fourth quarter of 2018, entered last year with 50,000 customers and rounded it off with 350,000. In January alone, it added a further 150,000 customers, with 40,000 people joining on a single day last week.   

eToro and Trading 212, platforms that offer derivatives trading as well as commission-free investing, have also seen startling growth. Set up in Israel, global platform eToro added roughly 1m new users last month and 5m last year, 10 per cent of which are in the UK. An eToro spokesperson says 85 per cent of the platform’s users are investing directly in assets (including bitcoin), rather than derivatives.

London-based Trading 212's website says its mobile app has more than 14m downloads, and the fintech company tweeted that it was the most downloaded app in the UK in the last week of January. It was forced to temporarily freeze new account creation last week because so many people tried to join them that the app crashed, fuelling a spate of irate customers on Twitter. 

 

 

The rise of the competition has not gone unnoticed by Hargreaves Lansdown, which increased marketing spend by a hefty 75 per cent last year. While its core target customers tend to invest in funds, its latest analyst presentation showed that monthly trading volumes of shares were two to three times higher than in previous years in almost every month in 2020. 

So, should stock pickers part ways with traditional platforms for the newer, cheaper models? There are a lot of considerations before jumping ship. The commission-free apps all have a much narrower product range, offering no mutual funds and often restricted stock lists. Neither do they have the research and analytics available on the major platforms, or the customer service levels – for now at least. The average account size of the neo-brokers also tends to be a lot smaller than those of their more established peers. 

A big frustration for some people in recent weeks has been the inability of platforms to cope with high trading volumes, but this seems to be more of a structural problem than provider specific. Freetrade, eToro and Hargreaves Lansdown, for example, all had periods where GameStop (US:GME) couldn’t be traded due to share price volatility, triggering time out periods from the exchange to allow trading to settle down to a more orderly fashion.

It’s definitely worth shopping around because there is a huge range in what the platforms offer. Think carefully about how you use the platform, as different providers are suitable for different people. Usability, financial stability, cost, customer service and product range might be among your key considerations.