October 18, 2017

Best investing platforms for investment trusts revealed


Investment trusts have proved a winning formula for almost 150 years, but while buying and holding them has got much easier in the age of the internet, investors must be careful how they do so.

A huge disparity in the costs of holding investment trust portfolios of between £5,000 and £1 million across 26 different DIY investing platforms has been revealed.

The research shows annual costs can be high for holding small investment trust portfolios, ranging between 2.4 per cent and 0.48 per cent on a £5,000 portfolio. 

However, the percentage cost drops substantially on bigger portfolios thanks to caps which can bring holding charges down to between 0.02 per cent and  0.46 per cent on a £100,000 portfolio.

But investors must also pay careful attention to dealing costs, which range substantially. 

Shop around: the cost of investing varies greatly depending on the platform you choose

Shop around: the cost of investing varies greatly depending on the platform you choose

Shop around: the cost of investing varies greatly depending on the platform you choose

How are investors charged for holding trusts?

Platform charges usually takes two forms: ongoing costs in the form of an admin or platform charge for holding investments, and dealing fees for buying and selling. 

Ongoing costs can be charged as a percentage or monetary amount and those looked at in the study ranged from zero to £15 per quarter, or a one-off fee of £120.

Standard transaction costs to buy and sell investment trusts are usually the same as those for share dealing and vary from £5 to £12.50. One notable exception to this is Fidelity, where investment trust dealing fees are 0.1 per cent of the amount bought or sold.

IG, Selftrade, shareDeal active, SVS XO, and X-O do not levy ongoing costs to hold trusts.

Clubfinance’s Frequent Trader only implements a charge of £15 per quarter to those who trade less than three times over the period – something which costs £5 per time. Effectively, this means that if you buy or sell once a month, holding investment trusts is free

Investment trusts 

Investment trusts pool investors’ money in a similar way to an investment fund, but the trust itself is a listed company with shares that trade on the stock market. 

To invest in a trust, you buy those shares, which entitle you to a stake in the portfolio of assets it holds.  

Investors buy or sell shares to join or leave the trust, but unlike a unit trust or Oeic fund, the trust does not grow or shrink as they do.  

As shares are limited, an investment trust’s shares can be worth more or less than the sum of the trust’s investments that it is entitled to, known as its net asset value. 

When a trust is in hot demand, its shares may be worth more than the net asset value, trading at what is known as a premium. 

In contrast, if a trust is out of favour, its shares may be worth less than the net asset value, and trade at what is known as a discount. 

Alliance Trust Savings, iDealing, Interactive Investor, TD Direct and The Share Centre levy fixed cash fees – varying from £20 to £120. 

Halifax Share Dealing and iWeb also operate a fixed fee model, although despite being both owned by Halifax, they charge differently.

Halifax charges £12.50 every year for investment trusts held in an Isa wrapper but none for its dealing account, while iWeb has no annual fee but levies a £25 one-off account opening fee for Isa and dealing account.

The pair illustrate the need to pay close attention to both ongoing costs and dealing charges however, as while Halifax charges £12.95 to buy and sell trusts, iWeb charges just £5.

The remainder of the DIY investing platforms have admin charges based on a percentage of your assets that may or may not be capped.

Standard transaction costs were also found to vary from £5 to £12.50 – although 12 platforms offer much lower fees (typically between £1 and £2) if you invest regularly.

The 26 DIY platforms were rated on how much they charge as a percentage of pot sizes

The 26 DIY platforms were rated on how much they charge as a percentage of pot sizes

The 26 DIY platforms were rated on how much they charge as a percentage of pot sizes

Where is best to hold investment trusts?

The cost comparison was conducted by investment platform consultancy firm the Lang Cat and investment trust trade body the Association of Investment Companies (AIC). 

To make comparison easier, the Lang Cat produced a heatmap of the yearly cost of holding only trusts on each platform based on portfolio size, ranging from £5,000 to £1 million, and assuming four buy or sell trades are made per year.

The heatmap indicates relative cost, where green is cheaper and red is more expensive.

X-O emerged as the cheapest option but this does not necessarily mean you should switch from your existing platform provider.

When deciding where to invest, investors should consider what they wish to invest in, which platforms facilitate this, the level of useful portfolio building tools, information on offer, and how much they charge.

The X-O platform lets investors buy and sell shares, gilts, bonds, ETFs and investment trusts for a flat £5.95 whatever the size of the trade. However, it does not allow you to buy funds too..

In comparison, Hargreaves Lansdown, offers a proven popular service weighted towards funds but with access to investment trusts, ETFs, shares and the corporate bond market under one roof. 

It offers an influential range of Master Portfolios, a top fund and trust list called the Wealth 150, and a Portfolio+ service that makes investing easier and more hands off.

So, while X-O may win in terms of the price point, HL has more services on offer. 

In truth, circumstances are unique to each investor so the best online broker for one will not necessarily be right for another. 

You can find a comprehensive guide on how to pick the best DIY platform for your circumstances here

Ben Yearsley, director at Shore Financial Planning, says: ‘I think the research is helpful – especially when looking at the more ‘real world’ scenarios where typical investors have a mix of funds, shares and investment trusts – this seems a more honest scenario as more and more investors mix and match. 

‘It is still surprising how widely charges vary between providers. However, as useful as this research is in helping investors choose high platform to use, it should only form one part of the decision making process. 

‘Cheapest doesn’t mean best, but nor does the most expensive. Functionality, ease of use and safety/security should also be considered alongside cost when looking at where to hold investments.’ 

Ten tips to pick the right platform 

1. Think about the total cost of investing: admin fees and dealing charges

2. Lower sum to invest? Pick a percentage charge

3. Got more money, such as £100,000 or above? Consider a flat fee

4. Frequent trader? Go for lower trading charges

5. Can’t make up your mind? Pick a platform without exit charges

6. Do you want free fund dealing? If you buy and sell often this can help

7. If you buy and sell shares, investment trusts or ETFs, watch out for dealing charges as these really add up

8. Look out for trading charges (£12.50 a deal is high if you buy and sell often, look for ones nearer £5)

9. Look for investor-friendly charges on reinvesting dividends and regular investing

10. Do the sums on extra fees for a Sipp and its withdrawal charges if retired 

To help you find the best investing platform for you, This is Money has teamed up with Broker Compare to offer a comparison tool. Use it below to see which platform comes out best for your Isa, Sipp or general account. To compare investment trust dealing charges, choose the investing in shares option.

 

TOP DIY INVESTING PLATFORMS



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