In the first post of this series, we looked at understanding what financial investment platforms are. Here, we talk about choosing the right platform to suit your needs.
Advised Platforms and D2C
It’s important to understand that there’s a clear difference between adviser-led platforms and direct to consumer (D2C) platforms. If you’re dealing with an adviser they will recommend a platform for you. I do this, and as an adviser I have to justify my recommendation of whichever one I propose.
I have to explain to my clients why I’ve chosen one platform over all the others. If you’re working with an adviser who recommends a platform, ask them for the criteria they used to come up with that decision.
Going it alone
But, if you’re going it alone, you’ll be looking at one of the direct to consumer (DtoC) platforms, cutting out the middleman. There are more of these springing up all the time, and if you choose one of these, you must understand that you’re making all your own decisions. You won’t be able to pick someone’s brains about the funds you’re considering or ask if you should invest in a pension, an ISA or something else.
Because there’s no advice being given, it is still possible for a deal to be done between the provider and the platform, so be a bit sceptical if the platform you use offers its ‘top 100 funds’ or similar, because there may be a deal going on somewhere – the fund manager may have paid to be in that list.
Do your research
So, what do you need to do? Firstly, you need to do some homework. It’s an important decision to choose a platform, and although it’s not irrevocable, shifting money around can be a pain, and sometimes the product and platform providers count on inertia.
Don’t choose the first platform you come across, and try several. Look at the demos and check out the research pages. Get a feel for the website, the tone of the information and how it’s presented to you. Does that resonate with you and are you in their target market?
It might be difficult to assess the profitability of the platform, but a bit of digging around might give you some idea about how it is funded. Look at the ‘About’ page – is the platform owned by a larger company? Visit the FAQ page and see if there are questions about how the platform makes its money and if it is profitable.
You can also send a message to ask your questions – consider it due diligence. Don’t be afraid to ask difficult questions, given that you’re about to invest some money. Ask them how they make their money and if they’ll still be around in five years. If they’re a limited company, some of the information should be in the public domain anyway.
Does the platform meet your needs now, and will it continue to do so in the future? Your needs might be simple at the moment and you only need one type of account, but in future you might need more functionality. Don’t pay more now for future needs, but keep it in mind so you know the platform will continue to serve you.
Watch for charges
Secondly, you need to take extra care with charges. Think about your own usage: are you’re going to be moving money around and making deals, or will you buy and hold? Will you be shifting money between ISAs and pensions? All these things may determine the costs you might incur.
All the platforms will give you a headline percentage figure, something like 0.3% or 0.45%, and this is a percentage of the money that you hold there. But, look out for fixed price charges on the top of that. Some will charge you for buying shares, including exchange-traded funds, which are increasingly popular and similar to tracker funds.
They might charge you for transferring money out, or even for withdrawing your own money, so you need to be careful. For smaller accounts, fixed price charges may represent a larger proportion of the pot. Whereas a larger account will likely pay less under a fixed-fee system than a percentage-based fee.
In the last post, we’ll talk about where to find impartial advice about financial platforms.