- Various platforms charge no annual fees for investment trusts
- But if you want a mixed portfolio that includes funds you should pick carefully
- We look at some recent fee changes
One of the advantages of holding investment trusts rather than funds is lower individual savings account (Isa) and pension fees and a wider choice of platforms to pick from. Just like exchange traded funds (ETFs), investment trusts are treated like stocks by providers.
This means that you can invest in them using trading platforms such as Trading 212 or Freetrade, which do not typically offer access to open-ended funds. Plus, more mainstream providers such as Hargreaves Lansdown and AJ Bell cap their fees to a much lower level for holding investment trusts and stocks than they do for traditional funds.
Recent changes
Some recent changes to platform fees will have an effect on investors who hold trusts. In October, Interactive Investor launched ‘Pensions Essentials’, a plan for those who hold less than £50,000 in their self-invested personal pension (Sipp), costing £5.99 a month. The plan can be combined with the platform’s offering for small pots, ‘Investor Essentials’, so that for £9.99 a month you can invest up to £75,000 across your general investment account, Isa and pension. Earlier this year, the platform also reduced its trading fee from £5.99 to £3.99.
Over the past year, Interactive has become much more competitive than it used to be for smaller portfolios. That said, investors with portfolios above the £50,000 or £75,000 threshold are paying a bit more than they used to, as the standard Investor plan has increased from £9.99 a month to £11.99.
Dealing platform iDealing has also changed its fees. The platform used to charge an annual fee of £20 for both its general investment account and its Isa, which has now been waived, while its dealing fee was cut from £9.90 to £5 per trade. These changes make it a very competitive option for holding investment trusts. But be aware of the £2.40 annual custody fee per security that it has introduced. For portfolios holding more than a few trusts, this charge is likely to more than offset the other changes.
Meanwhile, iWeb has temporarily waived its £100 one-off opening fee, which will not apply until 31 December 2023. The platform charges £5 per trade, but no annual fees. At the moment, this means that with iWeb you are charged just £20 a year in total for holding a trust portfolio of any size and trading four times a year.
No annual fees
Partly as a result of these changes, there is quite a choice of platforms that do not charge an annual fee for holding an investment trust portfolio. For both Isas and general investment accounts, this includes iWeb, Interactive Brokers, Trading 212 and X-O. If you only require a general investment account, you can add Hargreaves Lansdown, Fidelity, Freetrade and ShareDeal Active to the list.
There are a few caveats, however. Some are pretty bare-bones platforms, so they might be suitable for confident investors not particularly worried about customer service or extra features, but certainly not everyone. Interactive Brokers, iDealing, Trading 212, Freetrade and X-O do not offer open-ended funds, so if you are planning to create a mixed portfolio, they are not right for you.
As cheap as it may be to invest through a general investment account, you risk paying much more in taxes than you save in fees. Even if you start out with a small portfolio, it will eventually grow, and you may find yourself with a big capital gains tax bill to contend with at some point. In most cases, you should only use a general investment account after exhausting your Isa allowance.
Finally, do not forget about trading fees. Depending on how much you trade in a year, they can add up pretty quickly to a significant percentage of the value of your holdings, particularly if your portfolio is small. For example, you can get Hargreaves Lansdown’s top-quality service without paying an annual fee if you hold an investment trust portfolio in a general investment account, but each trade will normally cost you £11.95, which amounts to £143.40 a year for trading once a month.
The best Isas and pensions
The table above highlights just how much more expensive platforms such as Bestinvest and Willis Owen are for running a big investment trust portfolio. With so many platforms to choose from at lower fees, going elsewhere isn’t typically worth it. Even just looking at the biggest platforms, AJ Bell, Hargreaves Lansdown, Interactive Investor and Fidelity all let you hold £100,000 or more worth of investment trusts in an Isa for less than £150 a year, including one trade per quarter.
Interactive Investor is known for being particularly good for big portfolios due to its fixed fees. This isn’t as true when it comes to investment trusts because of the way other platforms also cap their fees for holding them. But it definitely applies if you opt for a mixed portfolio of investment trusts and open-ended funds.
According to research firm The Lang Cat, for a £250,000 Isa portfolio of which half is in trusts and half in funds, you would be charged £631 by Hargreaves Lansdown, £377 by AJ Bell and £143.88 by Interactive Investor (including four trades a year, two for funds and two for trusts).
Finally, pensions tend to be more expensive than Isas, and for most platforms, this is also true if you hold investment trusts. Fidelity is somewhat an exception to the rule, because for holding investment trusts, ETFs and stocks it caps its 0.35 per cent annual fee at £90 for both pensions and Isas. This used to be £45 (it increased at the beginning of the year), but it is still good value for money for the pension especially. The dealing fee is £7.50 per trade.
