Switching Investment Platforms Could Save You Over £30,000

Loyalty in the financial world doesn’t always pay off. Sticking with the same pension or ISA platform may actually cost an investor with a substantial portfolio more than £30,000. This sum is significant enough to cover a full year of private school tuition, boost retirement income, or provide a down payment on a first home for their child.

While many individuals routinely compare energy, broadband, auto insurance, and phone providers to save money, the potential savings from changing investment platforms are much greater.

Charlotte Ransom, founder of the advisory firm Netwealth, emphasized the need for investors to reassess their financial assets. She stated, “We readily embrace the switch-and-save philosophy for utilities and insurance, yet we neglect to consider the significant assets we hold in pensions, ISAs, and investments, which are typically the largest after property.”

The Financial Conduct Authority (FCA) suggests that investors usually incur an average annual advisory fee of 2.4%. For a portfolio valued at £250,000, reducing this fee by a mere one percentage point to 1.4% could save £2,500 annually.

If these investments grow by 5% annually over ten years, this could amount to savings of approximately £34,084. With an annual growth rate of 7%, the savings could increase to around £40,488, enough to cover two years of private school fees at an average of £20,000 each year or fund an additional 18 months of retirement living, based on estimates from the Pensions and Lifetime Savings Association, which states that a moderate retirement lifestyle costs approximately £31,700 annually.

Despite these attractive savings figures, there is a surprising resistance to switching investment platforms. Research from St James’s Place (SJP), one of the largest advice networks in the UK, indicates that 62% of UK investors have never switched their financial adviser or investment service. This figure rises to 72% among those aged 35-54 and 74% for individuals aged 55 and older.

Why You Should Consider Switching

Iain Solly, who had been a client of Hargreaves Lansdown for ten years, chose to switch to Interactive Investor last year. The 56-year-old from Tunbridge Wells transferred his £650,000 pension, reducing his annual fees from £1,625 to just £264. He stated, “As I was contemplating retirement at 59 or 60, I needed to re-evaluate my investments and the costs associated with managing them.”

Transferring investments requires careful consideration and planning. First, ensure that the new platform offers the same investments, as some may have limited options. Ideally, you should transfer “in specie,” meaning that your investments remain intact during the transfer, avoiding selling and repurchasing that could incur trading fees or taxes.

To initiate the transfer, open an account with your new provider and provide details of your existing account; they will typically handle the majority of the process for you. It is also advisable to notify your current platform of your departure and to inquire about any exit penalties.

The transfer duration will vary based on the types of investments. Cash and equities generally take up to six weeks, funds can take up to eight weeks, and overseas holdings may take up to 12 weeks, according to AJ Bell.

In Solly’s case, the entire process was completed in about three weeks. He is pleased with his decision, not only due to the reduced fees but also because it prompted him to reassess his portfolio and choose more income-generating funds. He remarked, “The cost savings were much more substantial than I anticipated. I’m regretting that I didn’t make this change sooner.”

For DIY Investors

For those who prefer a hands-on investment approach, selecting platforms that offer a diverse range of low-cost products is essential. Additionally, prioritize platforms known for good customer service and user-friendly apps or websites.

Understanding the cost structure is crucial and includes considering four major factors: the platform fee (charged for using the investment platform), product fees (associated with the investments themselves), trading costs (for executing buy/sell transactions), and advisory fees.

Be mindful of potential hidden costs such as exit fees, initiation fees, and elevated charges for trades made via phone.

IWeb, under Halifax, is noted for having no platform fees, focusing instead on a flat £5 per-trade fee for shares and funds. Classic investment product fees vary, with tracker funds charging less than 0.1% and managed funds from 0.6% to over 1%.

AJ Bell is also a strong choice, especially for smaller portfolios, featuring a 0.25% platform fee and £1.50 for fund trades. For those focused solely on shares, there’s a monthly fee capped at £3.50, although individual share trades can cost £5 (which reduces to £3.50 for frequent traders).

Hargreaves Lansdown charges up to 0.45% on funds without imposing a trading fee. For shares, there’s no platform charge, but trading fees can be as high as £11.95 per transaction.

As your portfolio expands, your optimal platform may shift. Generally, percentage-based fees benefit smaller investments, while fixed fees become more attractive as investment amounts increase.

Interactive Investor, for instance, imposes a £4.99 monthly platform fee for amounts up to £50,000, which works out to approximately 0.12% annually based on that level. Share transactions usually cost £3.99 each.

Vanguard, while more costly for those investing under £32,000—with a flat fee of £4 monthly—offers a lower expense structure above this threshold, charging an annual platform fee of 0.15% with no trading fees and investment costs of roughly 0.2%, albeit only for its own funds.

Considering Financial Advice

Hiring a financial adviser can be pricier, yet it may be beneficial for those with complex financial situations or those who prefer professional management of their investments.

When choosing a wealth management advisor, consider crucial aspects such as the variety of products offered, the quality of service, and whether the adviser is independent or tied to a particular firm. Independent advisers are typically favored since they can recommend a broader range of products. Beware of firms hesitant to disclose their fees upfront, insisting instead on in-person meetings before sharing cost details.

Determine the level of advice needed, as advisory fees are typically charged in addition to platform, fund management, and trading fees. The FCA notes that advisers generally charge around 2.4% for an initial consultation and 0.8% annually for continuing assessments, although you may choose to forgo ongoing reviews.

Robo-advisors like Nutmeg, Moneyfarm, and Wealthify are worth exploring as lower-cost alternatives, offering standardized guidance instead of personalized recommendations. These platforms provide ready-made portfolios tailored for different investor types, with fees varying; for instance, Nutmeg charges between 0.7% and 1.15% depending on the service level selected.

At the premium end of the market are fully managed discretionary portfolio services, where an expert oversees extensive aspects of your wealth. For example, Quilter often levies an initial fee ranging from 1% to 3%, along with an ongoing advisory fee of 0.6% to 0.95%.

Additionally, there can be a platform fee of up to 0.3% and charges of 0.75% to 0.97% for their actively managed fund portfolios, potentially totaling an annual fee of around 2.17%, not including the initial advisory fee.