Choosing an investment platform. Method 2: doing your own detailed research
If, rather than using the investment platform we have selected as being likely to suit most readers, you prefer to carry out your own research into identifying the ideal platform for your circumstances, follow these five steps.
1. How does the platform measure up on fees and costs?
It’s vital to keep the costs of investing your pension assets as low as possible, as differences in costs that appear small will begin to add up to a sizeable sum over decades.
To compare fees and costs, we favour an easy-to-use price comparison tool put together by The Lang Cat, a specialist consultancy. The tools are tables that show which platforms are most and least expensive according to the size of your pension pot.
The tables assume that you have invested your pension money as suggested in one of the three portfolios in Step 3.
The tables also take into account any fees charged to withdraw your money in line with the strategy outlined in Step 4. Simply check the appropriate table and look at the column that corresponds to the amount that you will invest.
High-income and compromise portfolios
The important point is that no single platform is cheapest in all circumstances; it depends heavily on how much money you have in your pot. It also depends on the type of investments you own and how often you intend to change them. This should not be too much of a consideration for those investors who follow our model portfolios, however, because we have selected a limited number of holdings, including both unit and investment trusts, which you would not expect to be trading regularly.
If, however, you want to be absolutely sure that you have the cheapest provider, you may need to do some sums yourself, based on your exact needs. Alternatively, other tools do exist online. One is www.comparefundplatforms.com, although this doesn’t take account of the fees involved in withdrawing money from your pension.
2. Does the platform offer the range of investments you need?
It may be hard for you to answer this at the moment, although other parts of this website should help. The most important investment categories are funds and shares. Almost all platforms offer funds, although several do not offer shares. The majority deal in both.
Our three portfolios outlined in Step 3 each have a mixture of funds and shares. This is not because our approach involves investing in the shares of individual businesses. In fact, we have avoided this approach because it requires a high level of research and monitoring.
Instead, we invest exclusively in funds run by professional investors; it just happens that some of the ‘funds’ we have chosen (namely the investment trusts, explained elsewhere on this website) are technically regarded as shares.
Bearing in mind that several well-regarded platforms do offer both types of asset, and that even if you want to restrict yourself to one or other at the moment, things could change in future, it’s best to choose a platform that offers both shares and funds.
3. Does the platform allow you to withdraw money in the way that you want at a reasonable price?
Most investment platforms were established before George Osborne’s pension freedoms were announced (see our history of Britain’s pension system). They were forced to decide quickly how or whether to charge for withdrawals made under the freedoms. The process is still bedding in. Ideally you want to be able to access your pension money in the way promised by the government when the pension freedoms were announced: just as if you were using a bank account.
So you may want to make regular or ad-hoc withdrawals as often as you like, in some cases using methods that minimise your tax bill (these methods are described elsewhere on this website).
You don’t want to be caught by unexpected charges for any of these services. The following table sets out what the main platforms charge in this area at the time of writing. These figures are not static and could change. These charges are accounted for in the tables above, assuming that you follow the system of quarterly withdrawals described in Step 4, but you may find it useful to know them if you make additional withdrawals.
Hargreaves Lansdown no charge
AJ Bell Youinvest £120 a year with a further £30 per ad-hoc income payment
Fidelity no charge
Charles Stanley Direct £60 a year with a further £30 per ad-hoc income payment (plus £180 every time a pension is ‘crystallised’, in other words when money is first withdrawn in any way)
Bestinvest £120 a year (if the pension account contains less than £100,000) and £30 per ad-hoc income payment (irrespective of the sum in the pension account)
Source: comparefundplatforms.com, 30/9/19
If you find a particular platform’s website hard to use, you may be put off from carrying out important tasks. It’s worth taking a look around the website of the platform you are thinking of choosing before you make a final decision.
Standards of telephone support also vary and some platforms (typically cheaper ones) are online-only operations. Try phoning the companies to see how quickly they answer the phone and how responsive they are to some simple questions about their services. If a firm passes this test, it’s a good sign.
Look also at the range of research and analytical tools offered on the website, which is something else that varies widely. Read our article by Holly Mackay for a review of how the main platforms measure up.
5. Financial strength and reputation
The chance of losing any of your pension investments through the failure of a platform, or through administrative incompetence, is very small. These firms are tightly regulated and your assets belong legally to you, irrespective of the financial state of the firm that administers them. If your platform went bust, you would keep all your assets.
(A very small number of investors did lose money when a minor platform called Beaufort Securities went bust in 2018. There were special circumstances involved; we believe the chances of similar losses at one of the big platforms are extremely small.)
However, even if your money is safe, having it with a platform that fails is very much something to be avoided, as administrative headaches and delays would be very likely. It’s hard to say for sure whether you would be able to continue making withdrawals while things were sorted out – and these withdrawals are your income!
You don’t really want to get involved in trying to assess the financial strength of a pension platform, but we can say that the vast majority of the best and most popular platforms are either very large, successful businesses in their own right, or are part of much larger financial institutions such as banks or fund groups. It is unlikely any of these will fall into financial difficulties.
Reputation is also important: firms that have a high public profile will want to avoid the adverse publicity that disgruntled customers can generate by taking complaints to the media. Accordingly, they tend to be more inclined to nip problems in the bud. The best known platforms include Hargreaves Lansdown, Barclays Smart Investor (formerly Barclays Stockbrokers), Fidelity Personal Investing, AJ Bell Youinvest, Halifax Share Dealing and Interactive Investor*.
The final point is that solid, profitable platforms are less likely to increase their prices suddenly or to be sold to a rival. Both types of disruption are best avoided from your point of view.
Maintain a keen focus on costs, but weigh this against all the other factors. Keep everything under annual review and be prepared to switch if changing circumstances make it essential. It may be worth deciding in advance which platform would be your backup choice.
However, switching is not to be undertaken lightly. The costs and inconvenience involved can be considerable and the process can take a long time – often many months – to complete. You would need to be prepared financially for such disruption, perhaps by withdrawing the equivalent of several months’ income before the switch.
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