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How investment platforms work

Learn how investment platforms can provide a one-stop shop for DIY investors

In this article
What is an investment platform? What does 'execution only' mean? What investments can I buy on a platform? Which Isas do investment platforms provide?
What else do investment platforms offer? What will I be charged for using an investment platform? Where can I read reviews of investment platforms?

What is an investment platform?

An investment platform, sometimes called a fund supermarket, allows investors to buy and hold a range of investments in one place online, and sometimes with a smartphone app.

Investment platforms often provide extensive research and information, such as investment news, historical and recent performance figures and analysis of the investment styles adopted by fund managers. Some platforms also allow you to invest via the phone. 

The crucial point is that investment platforms are designed for people who are making their own investment decisions. This is referred to as ‘execution only’.

What does 'execution only' mean?

The Financial Conduct Authority describes 'execution only' as a 'transaction executed by a firm upon the specific instructions of a client where the firm doesn't give advice on investments relating to the merits of the transaction and in relation to which the rules on assessment of appropriateness do not apply'.

In simple terms, this means you're wholly responsible for selecting and buying investment products, and that an investment broker will only place your money into the products you choose, rather than telling you which investments to pick. 

You'll therefore need to know your investment goals and understand your appetite for risk.

What is a 'do-it-for-me' platform?

Do-it-for-me platforms, sometimes referred to as robo-advisers, offer a halfway house between investment platforms and traditional financial advice.

Most ask you for your investment aims and assess your attitude to risk through a questionnaire in order to recommend a tailored portfolio of funds, gilts and bonds.

While you generally can't specify the exact investments you want to hold, many platforms offer themed portfolios, for example of ethical investments or investments in technology.

Established providers include Nutmeg, Moneyfarm, Wealthify and Wealthsimple, while Barclays has recently launched its own Plan and Invest service.

What investments can I buy on a platform?

Some investment platforms only offer unit trusts and OEICs (open-ended investment companies). 

But many others also offer access to stock-exchange-listed investments, such as shares, investment trusts and exchange-traded funds, as well as bonds and other investments. 

Make sure you know what's on offer before opening an account.

Which Isas do investment platforms provide?

As well as offering access to funds and other investments, investment platforms allow you to put your investments inside a tax-efficient wrappers:

Within these tax-efficient wrappers, dividend income is untaxed, even if it exceeds the annual dividend allowance (£2,000 for 2020-21 and 2021-22). 

Interest from corporate bonds and gilts, and from funds that invest in these assets, is tax-free. There's no capital gains tax on any investment profits within either Isas or Sipps.

You can find details of which platform offers what on our individual platform reviews.

Outside of these tax-efficient accounts, you can also hold a general investment account, which is useful if you've used up your Isa allowances. 

If you're planning your retirement, most investment platforms allow you to manage your pension in an income drawdown plan or buy an annuity

What else do investment platforms offer?

Customer service and price should be paramount when comparing investment platforms.

But it's also worth looking at the following:

 

Investment news

 

Some platforms publish daily updates on investments online and in newsletters, often with expert commentary thrown in. Some now have their own videos and podcasts.

While this can be useful, avoid making snap judgements and focus on your long-term investment goals.

 

Research tools

 

Look out for smart lists of funds and shares that can be filtered in a way that suits you.

Some platforms may use ratings from Morningstar and other data providers, although it's important you understand what these ratings indicate before relying on them too heavily.

 

Blended/portfolio funds

 

Many platforms offer blended/portfolio funds – essentially funds that are made up of other funds.

They're useful if you know your appetite for risk, but don't want to pick individual funds yourself.

Blended funds are usually aimed at a specific risk appetite. For instance, Vanguard LifeStrategy 80% Equity Fund comprises 80% equities and so is suitable for investors with a higher-risk appetite.

 

Recommended fund lists

 

Most platforms employ analysts to put together lists of recommended, best buy or 'favourite' funds.

Criteria for inclusion is generally based on past performance and analysts' views of a fund manager; some lists comprise only certain types of funds – for instance, Interactive Investor's ACE 40 list of ethical funds

Be cautious when using recommended fund lists, as they're not tailored to your risk appetite or goals. Historically, lists tended to favour more expensive active funds over cheaper passive funds, despite performance often not justifying the extra fees.

Make sure you'll be informed if a fund is removed from the list as this could be a sign something has gone seriously wrong.

What will I be charged for using an investment platform?

When investing through an investment platform, the charges displayed by a fund manager are not the only ones to consider.

Rules introduced in 2014 mean that investment platforms must now charge a separate fee for their services. These come in two forms: flat, fixed fees and percentage fees (although some platforms charge neither). 

Percentage fees

This is a percentage of the value of the investments you hold. Many platforms reduce this fee as your portfolio gets larger. 

So, you may be charged 0.5% on the first £100,000, then 0.3% on the next £150,000. Others will stop charging fees for investments over a certain threshold.

Fixed fees

Some brokers levy fixed annual fees in pounds and pence. Most aspects of using the services of these platforms will be chargeable, so you'll pay a fee to trade funds and shares, withdraw money and may face other account fees. 

Find out more about these fees, as well as our unique comparison of charges for a range of portfolio sizes, in our investment charges compared guide. 

Exit fees

You may be charged if you transfer investments from one platform to another.

However, many platforms have scrapped these fees, while others will offer to cover switching fees as an incentive to join them.

If you have a large portfolio, you may find that your ongoing savings from lower fees eclipse the switching fees you'll need to pay.

Where can I read reviews of investment platforms?

To help you find the right investment platform, Which? has created unique review pages for the major providers in this market.

Our reviews tell you how the different companies charge - and how much - and this is complemented by our unique customer satisfaction ratings, in which more than 1,000 Which? members have rated investment platforms for customer satisfaction and other aspects of this service. 

Log in if you're a Which? member to see these reviews. If you're not already a member, join Which? to get full access to these results and all our reviews.

 

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