Platform - Account - Fund
Want to invest some of your hard earned cash you are not going to need for 10+ years in a tax efficient manner?
Then you want an S&S ISA or a SIPP. Terminology alert:
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S&S ISA - Stocks and Shares Individual Savings Account. It is a tax-efficient, UK-based investment account allowing individuals
to invest up to £20,000 annually without paying capital gains or income tax on profits. Also known as an investment ISA,
it is designed for medium-to-long-term growth. You can access your ISA at any time.
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SIPP - Self-Invested Personal Pension is a flexible UK pension plan that gives you control over your retirement savings, allowing
you to choose from a much wider range of investments than standard pensions with added government tax relief on contributions.
You can access your SIPP from age 55 (rising to 57 in 2028) and take a tax-free lump sum and/or set up an income.
Whether you invest first in a SIPP or ISA very much depends on the individual's circumstances so we'll leave that discussion for another time.
Assume that we have selected our investment account, we'll add some cash to the account. What are we going to buy?
We are going to buy a single fund, specifically a global index fund. A global index fund is a type of passively managed
investment fund that seeks to track the performance of a broad, international market benchmark, such as the MSCI World Index or FTSE Global All
Cap Index. By investing in thousands of companies of varying sizes across developed and emerging markets, it provides instant, low-cost diversification,
reducing the risks associated with investing in a single country or company. Because they are not actively managed, global index funds generally have lower fees.
All good, but which provider or platform are we going to choose? Which criteria should we use to select a platform? I'd suggest 4 main criteria and I'll tack
another on to the end:
- Cost - platform fees will eat into our investment gains. We're picking a low fee fund and we should select a low fee platform
- Funds - we do need to have access to a suitable global index fund; in reality all DIY platforms meet this requirement
- Functionality - while our investing requirements are fairly basic and largely should be catered for by core functionality, what about if we want to transfer
a previous pension into a SIPP. Will the platform do that for us? How about drawdown - what options are available to us to extract
money from the SIPP when we reach 55? Some platforms offer more functionality than others. Does the platform offer real time trading? Some people deem this
important. Do you want to be able to access phoneline support? Etc. etc.
- Reputation - are they going to be around next year? Your money and investments are covered but your platform going bankrupt would likely still be a major hassle
- Offers - the last in the list for good reason but some platforms offer significant incentives to join them from time to time. If they tick all the other boxes,
why not?
The good news is that the UK investment marketplace is increasingly competitive with a number of providers offering free or low cost investment platforms and
services. You do still tend to get what you pay for, however, so you need to decide on your priorities and requirements, do your research and select accordingly.
The newer platforms unsurprisingly tend to cut their costs and offer a lesser service compared to some of the more establised players. But if you are not going to
miss those additional service elements then why not go for free? In particular, arguably there is no need to pay for the simpler accounts (ISA, GIA). Further,
if you are just starting with a SIPP, are several years from retirement / drawdown and don't have any complex transfer requirments a free platform should be fine
for a SIPP as well. If you are approaching drawdown then this would be one good reason to pay for a better service from the likes of II or Vanguard. Another SIPP requirement
that may impact platform selection is if your employer would be able to pay directly into your SIPP. The free platforms don't offer this yet. Similarly, if you have your own
limited company and want to make employer payments to your SIPP.
Back to the point around just starting off investing. Most of the paid platforms have a minimum monthly charge. If you are starting from nothing and are putting
in £100 a month but there is a £4 minimum charge per month that is a 4% effective charge, albeit rapidly decreasing. Why pay a 4% fee when you can pay nothing? Fees
can really eat into your investment returns!
Now, if you decide you should pay a little for the extra functionality offered by one of the paid platforms for your SIPP some of the platforms have packaged
services where you pay £14.99/ month and you get ISA and GIA thrown in, along with some other extras, e.g. II. A valid requirement might be to keep all your accounts on
the same platform, to speed and simplify ongoing management. Some platforms will charge completely differently and separately for each account (stay away from those) whereas
others will charge you the same % fee on the combined pot of all accounts, e.g. Vanguard. This might be combined with a fee cap when you reach a certain pot size, e.g. £375,
equivalent to £250k @ 0.15% on Vanguard). Some of nastier platforms make their fee structures more complicated again by charging differently depending on what type of fund you are
invested in, i.e. OEICs vs ETFs. Some platforms don't offer both types of funds. I'm going to skip over defining these in detail. Suffice to say for now that they are different
types of fund with the main difference being that it is possible (but not always platform supported) to trade ETFs quicker than OEICs.
Where does that leave us? Summary of competing thoughts incoming:
- If just starting with a SIPP/ investing in general and don't have a large lump sum (£10k+), choose a free platform
- If you just want an ISA and/ or GIA, choose a free platform
- If have more complex requirements that are not catered for by the free platforms, consider the paid platforms
- If you decide to go with a paid platform for your SIPP is there a saving to be made by still keeping your ISA/ GIA on a free platform or is
the possible additional cost of having everything in one place worth it to you?
- If you are going to quickly be way over any price cap on a paid platform then the cost may be trivial in this context
- It's not difficult to move between platforms. If it turns out you are not happy with your choice, try somewhere else
Whistlestop Platform Reviews
I've used the first 4 to greater and lesser extents and am currently able to recommend any of them:
- Vanguard -
well regarded, simple with a limited fund choice, service OK to good but can be slow, I quite like the site but a bit limited/ old fashioned and the App
is functionally incomplete, with pot <£125k there are cheaper platforms, also not good for very small pots, phone support. Recommended.
- Trading 212 - a proven player in the marketplace, free but no SIPP, near live trading, ETF only (no OEICs), fussy but 'pretty' App with lots of unnecessary functionality, no phone support. Recommended.
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Interactive Investor - a tiered service, recently simplified for the better, pretty comprehensive service offering, referral and cashback deals often available.
Do, annoyingly, still charge dealing fees on top. Recommended. Referral:
I get £200 / you get free fees for a year (minimum £5k investment)
(https://www.ii.co.uk/recommend-ii?ii_referrer=1dgr08v2lw4ux-k5mi165br8bx)
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Freetrade - up and coming so reputation and stability possibly an issue, near live trading, simpler/ limited App, recently started offering OEICs as well as ETFs on their free tier
also offering SIPPs, though limited SIPP functionality as of yet, referral and cashback deals often available. Recommended. Referral: Get started with a free share worth £10 to £100.
https://magic.freetrade.io/join/christopher/cde84b56
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InvestEngine - the original 'we do all accounts' free platform, well regarded by its users but concerns have been raised about stability/ cashflow, ETF only, batch trades.
- Hargreaves Lansdown - established brand, complex charging structure = avoid, so can only recommend their JISA as free and, possibly, their LISA but only because of the limited
competition in this space
- Fidelity - established brand, old fashioned processes reported, complex charging structure, can be cheaper for ETFs investing but really wouldn't bother, with the exception of
their JSIPP, which is free
- AJBell - established brand but another that has an overly complex fee structure, can be cheap for ETF investing with infrequent share dealing.
Good for drawdown and employer payments. Might possibly be one to have SIPP in with other accounts on a free platform but probably another best avoided except
as one of the very few platforms that accept LISA transfers
- Dodl - sub-brand of AJBell. Notable for being the lowest cost LISA platform but not capped. Limited funds. Wouldn't consider for anything but LISA.