Beware a bargain when tempted by a platform promotion

According to a survey by RetailMeNot, nearly 70 per cent of millennials look for a deal before making a purchase and two-thirds of consumers have made a purchase they weren't originally planning to make, solely based on finding a coupon or discount.

It’s all very well to do this with one-off transactions, but when investing you should not base your decisions on what appear to be bargain offers made by your platform. The notorious Stanford Marshmallow experiment springs to mind, where children were offered a choice between one small but immediate reward, or two small rewards if they waited for a period of time. In follow-up studies, the researchers found that children who were able to wait longer for the preferred rewards tended to have better life outcomes. 

Investment platform discounts are great – as long as you don’t make decisions based on their availability. And while some genuinely offer valuable rewards, other offers look like they might do more harm than good.

Getting more customers

Some platforms, such as Bestinvest and AJ Bell Youinvest, offer to cover any exit fees your broker charges if you decide to switch to them. They both offer to cover costs up to a maximum of £500. To be eligible for this deal with AJ Bell, the monies being transferred must be worth more than £20,000. This is a great offer because it reduces the barriers to competition from brokers which have not followed the regulator’s encouragement to remove exit fees. Most platforms have, however, so it is not a deal of not much use in most potential cases. 

interactive investor takes a slightly different approach to transfers. It gives £100 in cash to investors transferring individual savings accounts (Isa) and to its platform, if the transfer value is over £20,000. However, interactive investor’s website says that the offer ends on 31 August, so it will be interesting to see what it offers those transferring to it after that date – applying urgency to a deal is one of the oldest tricks in the book.

Lots of platforms also offer money to recommend a friend. This is one of the most powerful marketing tools platforms have so, while it can be a nice bonus, it is not advisable to be influenced, or to influence anyone else, on the basis of these deals. There are so many things to consider when picking a platform such as financial stability, availability of securities, customer service levels and costs, that any promotion should be insignificant in the decision making process.  

Platforms offering referral bonuses 

Hargreaves Lansdown is not currently running a friend referral promotion. As the surge in customers amid lockdowns put pressure on its operations and led to service delays for transfers, promotions appear to have been scaled back although its marketing spend increased last year. However, if you take advice following a quick consultation with its advisory helpdesk, it will pay both referrer and referee £100.

Luring customers to trade more

Several platforms offer permanent promotions on dealing. IG, Hargreaves Lansdown and AJ Bell lower their dealing fees the more you trade. If you trade often, this can make a considerable difference to your overall cost of investing, so you need to think about how you use your platforms when working out which one is best for you. 

If you trade a lot, there are a growing number of platforms that don’t charge any dealing commission. They are establishing so called 'freemium' models, where certain services are provided at no extra cost but in most cases you pay a monthly subscription.

When you deal foreign shares, remember that the foreign exchange charge is likely to be significantly higher than any dealing fees. This is why interactive investor’s sporadic waiving of its dealing fee for US stocks around earnings season may not save you very much. Although it cuts the £7.99 dealing fee, there is still a 1.5 per cent foreign exchange charge. interactive investor does, however, give every customer one free trade per month. This makes their accounts more cost effective than they may appear at first sight if you don’t trade frequently and time your dealing accordingly. 

Tempting with the big bucks! 

Some platforms offer prize draws which really can make a difference to the lucky few. Barclays Smart Investor has launched a new prize draw recently, with 13 cash prizes. One customer will win £10,000, two customers will receive £5,000, and 10 more will receive £1,000 each. Customers with accounts worth over £500 are added to the draw automatically. 

Clare Francis, director of savings & investments at Barclays, says: “Our research has shown that more than 80 per cent of those who invested for the first time under lockdown plan to keep up their investment habits, so we’ve launched this prize draw to support those who are working hard to invest for their future.” The prize draw will be a nice boon for those who win. As far as incentives go, it also feels more generous than others as it is not trying to push you into any action with the offer.

One of my favourite offers comes from Hargreaves Lansdown. New customers opening a stocks and shares Isa on this platform can benefit from its Isa promise, that if you’re not satisfied with its service in your first 12 months as a client and choose to switch to another provider, it will refund its annual account charge. Shame it doesn’t offer customers with accounts other than Isas similar refunds. 

Vanguard is one of the few platforms that doesn’t offer promotions. Jonathan Goodstone, public relations manager at Vanguard, says: “Generally, our approach is to look for ways to serve all investors equally, across the services and fund range, which lends itself more to initiatives like the comprehensive reduction of fund fees in 2019.”