UK investment platform providers have reported a spike in account openings since the coronavirus outbreak triggered a market sell-off. But is now a good time to invest?
Global stock markets have responded to the COVID-19 pandemic with worrying volatility and large drops, amid dramatic action from governments to limit the spread of the virus. The FTSE 100 alone has tanked by a quarter since the start of 2020.
Despite this, platforms including Interactive Investor, The Share Centre, Vanguard, Hargreaves Lansdown and Lloyds Banking Group have told Which? that their new accounts business has boomed.
Read on to find out why there’s been a spike in new investment and whether you should consider investing during this period of heightened uncertainty.
How much have new investments surged by?
An investment platform, sometimes called a fund supermarket, is a website that allows investors to buy and hold a range of funds from a host of fund management companies together in one portfolio.
AJ Bell – a Which? Recommended Provider – reported more than 17,000 new account openings for its YouInvest consumer platform in the first quarter of this year, making it a record quarter for the firm. The provider saw a 9% increase in new customer platform growth.
Vanguard – another Which? Recommended Provider – told Which? it has seen a 25% increase in its client base from the start of February to the end of March, with more than 20,000 new customers signing up.
Interactive Investor noted a 119% increase in Isa account openings between 14 February and the end of March. It says it has also seen a 47% increase in its Sipp uptake.
The Share Centre saw a 193% increase in account openings from the start of February to the end of March. The number of accounts opened in March compared with 2019 was also up, by 121%.
Lloyds Banking Group reported an 8% increase of new accounts being opened from January to February across its Halifax Share Dealing, Lloyds Share Dealing, Bank of Scotland Share Dealing and iWeb Share Dealing platforms. From February to March it says it saw an increase of 269% of new accounts being opened across these accounts.
It seems that business is booming across the board, but there are also reports that the demographic of investors piling in is shifting.
A spokesperson at Hargreaves Lansdown told Which?: ‘We have seen elevated demand for new savings and investment accounts in March, from new-to-the-business clients, with a younger average age of 42 years old; which is six years younger than the average age in 2019 (48).’
Hargreaves Lansdown was not able to provide a full breakdown, but it says that a full trading update will be revealed in two weeks’ time.
- Find out more: how investment platforms work
What’s caused the investment platform boom?
The coronavirus outbreak has been a financially worrying time for many people.
Around four million people are on the government’s coronavirus job retention scheme which allows employers to ‘furlough’ their staff rather than having to let them go. Meanwhile, a recent survey by People Management and the Chartered Institute of Personnel and Development (CIPD) found that one in four UK employers expect to make permanent redundancies.
Experts have been warning that a global recession is coming and could last for a very long time. So what’s promoted the boom?
Some eager investors with extra money could be looking to pick up shares in a plummeting market to find safe havens for their cash.
According to Hargreaves Lansdown, more-adventurous investors view volatility as an opportunity to potentially earn greater long-term returns. Price swings can be up as well as down, and falls in value can sometimes potentially create buying opportunities, it says.
March is also usually a busy time for platforms as they try to attract customers looking to use their annual Isa allowance.
In the run-up to the end of the tax year, competition typically ramps up, as providers launch competitive offers or switching incentives to lure investors in.
Low minimum investment
What’s more, it’s now easier than ever to open investment accounts online or by using mobile apps and often with just a small sum of money.
For instance, Vanguard allows you to start off with an initial investment of £500, which you can pay in five monthly instalments. Hargreaves Lansdown says a significant proportion of new business clients are also using a mobile device to open their first account.
Is now a good time to invest?
Whether or not you should invest now depends on your attitude to risk, your financial position, your goals for your money and the time frame in which you’d want returns.
There’s a common misconception that investing is about trying to time the market, but the truth is that no one can know for sure what markets are going to do.
If you want to invest, it’s better to focus on how long you can, or want to, stay invested for. Most investments are a medium to long-term commitment.
If you do choose to invest, you should consider paying off any debts first.
A plethora of investment platforms have ready-made portfolios to appeal to investors who don’t have the knowledge, confidence or inclination to build their own.
But if this is something you’re unsure of, you can also talk to a financial adviser. For instance, some use risk-attitude questionnaires that can help you.
- Find out more: how to find a financial adviser
What costs do I need to be aware of if I want to invest?
You’ll always be charged when you invest via a platform, but how much varies depending on the provider, your investment style and how much is in your pot.
You should review your fees to ensure you’re not paying more than you bargained for and see whether there are better deals elsewhere.
Improved competition in the market means that providers often reduce fees to attract new customers and stop current users from switching.
Apart from general ongoing costs, some charge you to buy and sell investments. These can add up if you trade frequently.
Investment platforms aren’t just divided by price, however, but also by customer service, investment choice and ease of access. So take these into consideration when choosing a provider.
If you have any financial concerns during the pandemic, Which? has put together detailed guidance and advice to help you.