Earlier this month, Barclays Smart Investor announced an overhaul of its pricing structure that was promoted as a “simplification”. The changes have undisputable benefits, such as removing the minimum £4 monthly fee that was punitive for customers with small portfolios, as well as a £3 fund dealing fee. But the new system is not exactly what you would call “simple”.
There are now two different pricing structures in place for existing and new customers respectively, and which one is preferable depends on the size of your portfolio and the assets in which you invest. While it is true that new customers do now benefit from a more straightforward fee structure, there is a sting in the tail: in many cases they also pay more.
Pricing complexity was in no way exclusive to Barclays. Across the board, it is very difficult for investors to figure out which platform is cheaper for their needs because there are just too many variables to account for, and you are not always comparing apples with apples.
A key issue is the difference between investing in open-ended funds and investing in single stocks, exchange-traded funds (ETFs) and investment trusts – something that in all fairness the Barclays fee overhaul does eliminate for new customers. If you invest in open-ended funds for the entirety or for a portion of your portfolio, on most platforms you will have to contend with a percentage-based fee that increases in absolute terms as your portfolio grows. Interactive Investor’s flat fee is the main exception, but among the other main platforms, such as Hargreaves Lansdown and AJ Bell, the annual fee on funds is not capped, and can add up to hundreds of pounds a year.
You also need to pay attention to the details of how the fee is charged. In most cases, the percentage charge falls for bigger portfolios, but the reduction only applies on a portion of the assets. So, for example, at Hargreaves Lansdown you are charged 0.45 per cent on the first £250,000 of funds and 0.25 per cent on the value between £250,000 and £1mn. Meanwhile, if you have more than £250,000 with Fidelity, the fees on the entirety of the portfolio drops from 0.35 per cent to 0.20 per cent. The difference is not trivial.
And as we have pointed out in the past, some platforms consider those limits per product, not per client. So you may have a £600,000 portfolio and still not enjoy a fee reduction if it is spread, say, between an individual savings account (Isa), a pension and a general investment account. Meanwhile, other platforms charge per person.
If you invest exclusively in single stocks, ETFs and investment trusts, the annual fee is less of an issue because various platforms cap their yearly charges at relatively low levels, including AJ Bell at £42 a year and Hargreaves Lansdown at £45 a year for an individual savings account (Isa). But you have to account for the dealing fee, which in Hargreaves Lansdown’s case is a pretty hefty £11.95 per deal (with some discounts for frequent traders). So you need to think carefully about how often you trade. The size of your portfolio also plays a part in your decision-making, as do the accounts you need. If you add self-invested personal pensions (Sipps) to the mix, the fees generally get higher, but the quality of service becomes crucial.
Online platforms make investing easy and accessible to many, and they obviously need to make money from their business. But it shouldn’t be this difficult for investors to compare their charges.
