Forgive me for going on about platforms a lot over the past couple of months, but the first set of results for our 2021 ‘top rated’ platforms are in – and they’re really interesting.
The rise of Freetrade is what stands out, an app-only trading platform that launched in 2018 and now has approaching 700,000 registered users. It came top or second across all five criteria (website/app, value for money, customer service, research and range of investments) as voted for by readers, and its average overall score was well ahead of the 17 other platforms surveyed.
Of course, these results need to be taken with a pinch of salt. Freetrade has a much narrower offering than traditional platforms and a large proportion of its investors don’t have experience of any other broker. Trading is only possible on the Freetrade app (not desktop) and it doesn’t have a customer phone line – all communications are done digitally.
But what the results do indicate is that customers like it. We had about 100 different people rate the app for Isas over February and March, making it second to Hargreaves Lansdown for number of ratings. It had plenty of complimentary comments appreciating its ‘online community’ and low costs.
The second takeaway for me was the slip in the ranking of Hargreaves Lansdown, once the gold standard for service among do-it-yourself investment platforms. Of the 18 platforms our readers ranked, Hargreaves came 17th for value for money in the Isa category. For customer service, it ranked 11th, and for its website, 8th.
These rankings aren’t an authentic illustration of the merits of each platform on each criteria. I challenge anyone to persuade me that any of these platforms has a better website than Hargreaves (yet). I’m also conscious that those who joined Freetrade after the crash last year might have seen great returns and favour the app for it.
However, I think there might be a more serious point about technological disruption in the industry. Many people have been quick to dismiss new commission-free apps as serious rivals to traditional platforms as it is an industry dependent on scale in order to build profits.
It’s very early days for Freetrade, but its head of communications Alex Campbell describes its financial position as "resilient" following a recent fundraise that injected £35m of capital into the business. It is currently tracking towards an annual revenue run rate in 2021 of £12m (still miles behind the traditional players).
A drawback of Freetrade, like all neo-brokers, is that you can only invest in listed securities. The significance of this may be waning though with the rise of exchange traded funds and plenty of attractive investment trusts.
Many of you will not want to consider moving to an app-only platform, but Freetrade’s rise will I hope keep the other platforms on their toes. The service levels at traditional platforms should be their key advantage – and something customers are generally happy to pay more for – but standards need to be kept up.
Hargreaves’ increased marketing spend of 75 per cent last year suggests it is not resting on its laurels, as platforms have battled to win new customers. But this must be irritating for loyal customers who have been at the short end of depleted service levels.
With any luck, the fruits of the marketing spend should lead to a reduction in Hargreaves’ 0.45 per cent annual fund administration fee (or the £11.95 dealing fee). It’s 66 per cent operating profit margin last year implies it could accommodate it, and I’m sure it would garner goodwill.
Click here for the survey results (only includes platforms rated by more than ten different people).
Other links:
Beware the compounding effect of platforms fees
Is commission-free trading here to stay?
