Interactive Investor purchase of ATS reduces choice but could cut costs

Interactive Investor has not yet announced what prices Alliance Trust Savings customers will pay going ahead, but it has said that charges would be as good as, if not better, than what they currently pay.

Lord Smith of Kelvin, chairman of Alliance Trust, added: “The two businesses are highly complementary and Alliance Trust Savings customers, many of whom are Alliance Trust shareholders, will benefit from Interactive Investor’s similar flat fee structure, as well as its increased scale and focus.”

Alliance Trust Savings and Interactive Investor are the largest DIY platforms operating a fixed fee model. Fixed fees are beneficial for investors with large accounts of more than £100,000 as the platform costs are capped and do not increase as the portfolio grows. This is in contrast to platforms that charge investors a percentage of their assets to use the platform.

Interactive Investor’s purchase of Alliance Trust Savings follows its acquisition of several platforms last year, including TD Direct Investing, Trustnet Direct, Telegraph Investor and The Motley Fool. Its latest acquisition leaves investors with fewer fixed fee platforms to choose from. But Interactive Investor argues that both sets of customers are likely to benefit from its increased scale and financial strength, which will allow it to invest further in technology, products, staff and customer services.

More than price

Holly Mackay, chief executive officer of personal finance website Boring Money, believes a move to Interactive Investor could lead to a better service for Alliance Trust Savings customers because this platform has been starved of investment for the past few years. “It’s not particularly easy to use and it’s pretty utilitarian behind the scenes,” she adds.

Interactive Investor is focused on growth, and investing in its platform and services. “It has also done quite a good job of integrating customers from the TD Direct Investing platform onto its platform, whereas other businesses have crashed and burned when they’ve had to re-platform,” added Ms Mackay. “Only last year Barclays had quite a shocker [moving customers from its old platform to its new Smart Investor service].”

As a result, she does not expect many Alliance Trust Savings customers to leave when they join Interactive Investor, particularly as the two platforms have a fixed fee structure. And she is surprised at the prevalence of percentage charging platforms across the wider platform industry.

“It shows that price isn’t everything for investors because as long as people think they are getting a reasonable deal, in my experience they are more concerned about usability,” she explained. “Very few customers of Hargreaves Lansdown [which operates a percentage-charging structure] seem to move. They know they’re paying a bit more and arguably above the odds. But it works and people value ease and convenience.”

Jeremy Fawcett, head of platform research company Platforum, added: “Interactive Investor’s latest acquisition consolidates its position as the number two platform for self-directed investors. Its fixed annual fee makes it distinctly different to most of the other platforms and substantially less expensive for investors with larger portfolios. It has parked its tanks on Hargreaves Lansdown’s lawn, but to poach its clients or pick up first-time investors it will need to be convincing across a range of attributes that are important to investors. Price is one, but so are brand, service, usability and a number of other things.”

When choosing which platform to invest via, or if you are considering switching to another one, you should consider the range of investments it offers, its website and customer service – as well as price.

Understanding platform fees

Even if price is your most pressing concern, you need to look beyond headline rates to work out how much your platform will cost, based on how you use the platform and your portfolio size. For example, most platforms charge administration fees for holding assets on them. These are either a fixed fee or percentage of the value of your account holdings. Percentage charging platforms are better suited to smaller investment pots, while flat or capped fees benefit larger ones.

In addition to platform fees, you may have to pay to open a particular type of account such as a general investment account, individual savings account (Isa) or self-invested personal pension (Sipp). And you are likely to incur costs when you buy or sell assets, and take withdrawals from your Sipp. For example, the cost of trading UK shares can be more than £10 per trade, which can make a big difference to your overall cost if you trade frequently. The cheapest share dealing available in the UK is offered by Dutch execution-only stockbroker Degiro which charges £ 1.75 + 0.022 per cent per trade of UK shares, with a maximum of £5.

If you mainly invest in funds you may want to use a platform that doesn't charge you to trade these over and above its platform fee. Platforms that offer this include Bestinvest, Fidelity Personal Investing, Charles Stanley Direct, Hargreaves Lansdown and Willis Owen.

You should also check the charges platforms levy based on the kind of services you want to use. For example, there could be further charges for regular investment plans, reinvesting dividends or trading international shares. Also check how much a platform charges to withdraw your assets as this can be costly - especially if you want to transfer your assets as investments rather than as cash.

Platforms for investors with large share portfolios

If you want to hold a large share portfolio within an Isa, there are several platforms that offer a flat fee structure or cap costs at a relatively low amount.

For example, IWeb charges a one-off £25 account fee to open a sharedealing or Isa account on its platform. There are no additional ongoing administration fees for holding assets on its platform and it is relatively cheap to trade UK shares on at £5 per trade.

X-O.co.uk also doesn't charge ongoing administration fees for holding shares on its platform. Investors can trade UK-listed securities including shares, investment trusts, exchange traded funds (ETFs) and government bonds (gilts) for £5.95 per trade. But there is a £50 fee for closing the Isa account.

To hold shares, including investment trusts, ETFs, gilts and bonds, in an AJ Bell Youinvest Isa you pay 0.25 per cent capped at a maximum of £7.50 per quarter or £30 a year. AJ Bell charges £9.95 per trade of UK shares.

Hargreaves Lansdown charges 0.45 per cent to hold shares within its stocks and shares Isa capped at a maximum of £45 a year. However, its standard fee to buy or sell stocks is relatively high at £11.95. The Share Centre’s stocks and shares Isa charges a fixed cost of £57.60 a year. And it charges £7.50 per trade for UK shares under £750, or 1 per cent for more than £750.

Interactive Investor charges a platform fee of £90 a year, which is payable quarterly at £22.50. This includes £22.50 of trading credits a quarter which can be used for all trades including regular investments and dividend reinvestments.

Platforms for investors with large fund portfolios

Platforms that offer funds are more likely to charge percentage-based fees, meaning there are fewer fixed fee options for fund investors. But many platforms that charge percentage fees for funds also allow you to trade them for free. So work out whether a cheaper administration cost or trading cost is more important to you. Of the platforms that have fixed costs, IWeb remains a good option for investors with large fund portfolios. It has the same charging structure for funds and shares: a one-off £25 account fee and no ongoing administration fees for holding investments on its platform. It charges £5 per fund trade and has about 2,000 funds to choose from.

The Share Centre’s stocks and shares Isa has the same annual charge whether you hold funds or shares – £57.60. It also costs the same to trade funds and shares – £7.50 per deal for trades under £750 or 1 per cent for more than £750.

Interactive Investor’s fixed cost of £90 a year is attractive if you have a large fund portfolio, although its £10 fund trading fee is relatively high. But the £90 annual platform fee includes trades worth up to £22.50 a quarter, including for funds. Interactive Investor offers around 4,000 funds.

Of the platforms that offer free fund trades, Charles Stanley Direct offers about 3,000 funds and charges 0.35 per cent of the value of your account for fund portfolios worth up to £250,000. For fund portfolios between £250,000 and £500,000 it charges 0.2 per cent of the value of your account, between £500,000 and £1m 0.15 per cent, and between £1m and £2m 0.05 per cent.

Platform costs

Source: providers