Investment Platforms Explained
If you’re just starting out investing, you might need a place to do it. Learn what an investment platform is, how to choose one and the costs and benefits involved.
Investing was once an expensive endeavour that required going to a stockbroker, fund manager or financial adviser. Nowadays, if you understand what you are doing, you can manage your money in one place for less – all from the comfort of your armchair.
What is an investment platform?
If you plan to invest by yourself, signing up to a platform should be your first port of call. Investment platforms are essentially online supermarkets that enable you to purchase a range of funds, shares, bonds and other investments from one location, usually inside a tax-free Stocks and Shares ISA or a self-invested personal pension (SIPP).
Their online presence – some offer apps, too – make it possible to buy, sell and keep tabs on your investments from your computer or smartphone.
How to choose an investment platform
There are plenty of platforms to choose from in the UK. Selecting one depends largely on what type of investor you are.
You’ll want to consider charges, customer service, how easy the platform is to use and whether you’d like access to research, tools and guidance. Another crucial point to ponder is the range of investment choices available – some platforms offer more than others.
» MORE: How to start investing
How much do they cost?
Customers will pay a fee for using the platform, often referred to as the annual ongoing charge. You may also be charged for executing certain transactions, such as buying or selling funds. Charges eat into the returns of your investments, so it’s important to compare costs and do a thorough check of the key information documents before investing to make sure you aren’t paying more than you realise.
Unfortunately, determining which platform offers better value for money is challenging. Charges vary by provider, making comparisons difficult and the small print essential reading.
Most platforms charge a percentage fee based on the amount of money you have invested, but others charge fixed fees, irrespective of the amount you have saved.
Identifying which approach is beneficial depends on various factors, including how much you have invested and, in the latter case, whether any freebies (like free trades) are thrown in. As a general rule, fixed fees become more cost-effective for those with larger sums invested. If you are just starting out, look for the lowest percentage fee.
What do you want to invest in, and how?
Weigh up what you want to invest in first. Certain platforms are better for shares, whereas others offer more attractive deals on funds.
The frequency with which you trade can also make a difference. Some platforms favour investors who seldom tinker with their investments. Others cater more towards regular buying and selling activity.
Finally, if you have your eyes on a specific fund, check how much each platform charges to invest in it. A few of the bigger platforms may negotiate discounts with providers, resulting in lower initial and ongoing charges.
» MORE: Investment funds explained
Which is the best investment platform?
Which platform works best for you will ultimately be determined by the amount you have to invest, your investment strategy as well as the level of support and guidance you might need in managing your portfolio. Some excel in customer service, tools and research, while others focus on keeping costs as low as possible. Fund suggestions and ready-made portfolios can be helpful too if you aren’t confident doing research yourself, so long as you bear in mind they aren’t tailor-made for you.
Comparison tools let you narrow the field to your individual needs. Run a search based on your criteria and then cross-reference the results with customer reviews.
And if you find you actually don’t fancy picking your investments, you could seek out a financial adviser to work with, or look into robo-advice platforms, an automated option that poses a handful of questions and then, based on your responses, allocates a suitable, low-cost basket of investments.
WARNING: We cannot tell you if any form of investing is right for you. Depending on your choice of investment your capital can be at risk and you may get back less than originally paid in
Daniel is a freelance finance journalist. He has written and edited news, deeper analysis features, and opinion pieces for the Financial Times, Investopedia and the Investors Chronicle. Read more