The platform market for DIY investors appears to be getting more competitive. But if you have to pay a chunky exit charge to leave your current provider, the market isn't as competitive as you might think.
I wrote last month about the UK’s cheapest investment platforms. These platforms enable you to buy and sell your investments online, and also to manage SIPPs as well as Stocks & Shares ISAs. The best known platforms include Hargreaves Lansdown and Fidelity.
The two big plus points for platforms are that they give you lots of control over your investments and the charges are low. However, you do need to be careful. That’s because some platforms impose chunky exit charges if you want to move your investments to a new home.
Sell and rebuy
One way to transfer your assets is to sell all your investments on Platform A and then ask for a cash transfer to your bank account. Then you can set up an account with Platform B and make all your investments afresh.
Trouble is, this ‘sell and rebuy’ approach can be expensive and you’ll also be uninvested in the stock market for a little while.
So when you start the transfer, you might sell your shares in, say, Marks & Spencer for 350p each. By the time the transfer process had finished, the share price might have risen to 380p and you’ll have lost out on some share price gains.
The alternative is an ‘in-specie’ transfer where you move your investments between platforms, but you never actually sell the underlying investments, such as those Marks & Spencer shares.
Exit penalty
So, at first glance, it looks like an ‘in specie’ transfer is the best approach. But what are the costs?
Platform providers can levy two types of exit charge. The first is an account closure fee, which applies whether you’re doing ‘sell and rebuy’ or an ‘in specie’ transfer. The second is a charge per fund or share for ‘in-specie’ transfers specifically.
Here are the charges for a range of popular platforms:
|
Platform/broker |
Close account (direct investments) |
Close account (ISA) |
Close account (SIPP) |
Transfer out in-specie (per stock) |
|
Alliance Trust Savings |
Nil |
£60 |
£150 |
£20 |
|
Barclays Stockbrokers |
Nil |
£60 |
£90 |
£30 |
|
Bestinvest |
Nil |
£60 |
£150 |
£25 |
|
Cavendish Online |
Nil |
Nil |
£150 |
Nil (£56 for non-fund investments in a SIPP) |
|
Charles Stanley |
Nil |
Nil |
£150 |
£10 |
|
Clubfinance |
Nil |
Nil |
N/A |
£10 |
|
Hargreaves Lansdown |
Nil |
Nil |
£90 |
£30 |
|
Interactive Investor |
Nil |
Nil |
£360 |
£15 |
|
Rplan |
Nil |
Nil |
N/A |
Nil |
|
Share Centre |
Nil |
Nil |
Nil |
£25 |
|
Sippdeal |
Nil |
Nil |
£90 |
£20 |
|
TD Direct Investing |
£5 |
£60 |
£90 |
£35 |
*All charges include VAT at 20% where applicable
**Source: rplan and comparefundplatforms.com
Some of these charges are pretty scary. Imagine you had a SIPP with Hargreaves Lansdown which was invested in ten different funds. If you wanted to transfer all ten funds ‘in specie,’ you’d have to pay an exit fee of £300 for the funds as well as a £90 account closure fee - £390 in total.
[SPOTLIGHT]TD Direct Investing is even more expensive – you’d have to pay £440 if you wanted to make the same transfer from a TD Direct SIPP.
By contrast, a new platform provider called rplan won’t charge you any money to make this transfer. Cavendish Online also won’t charge you anything for the ‘in specie’ fund transfer although you will have to pay a £150 account closure fee for the SIPP.
Clubfinance is also pretty cheap – it won’t charge an account closure fee for the SIPP, and it only charges £10 for each ‘in specie’ transfer.
What next?
So what should you do?
If you’re thinking of transferring from a platform with high ‘in specie’ exit charges, you may decide that it’s not worth it given how much money you’ll have to pay to your current provider.
This is especially true if your investments are relatively small. If you have £5,000 invested across five different funds at £1,000 each, a £30 exit charge for each fund would work out at £150 in total. That’s 3% of your total investment. That’s a chunky exit fee and fees of that size definitely discourage competition.
That said, some folk are making larger investments in each individual fund, and for them, the exit fees won’t be as painful.
If you have £10,000 invested in a particular fund, a £30 charge works out at only 0.3%. If your investments are around this size or larger, switching to a cheaper platform looks more attractive.
And if you’re considering investing on a platform for the first time, it makes sense to focus on the platforms that charge low exit fees or none at all. Rplan, Clubfinance, and Cavendish Online look to be the cheapest in that respect.
More on investing and platforms:
Why the 'discount tax' is good news for investors
Nutmeg: An alternative way to invest your ISA
Why you should invest in shares
The cheapest investment platforms - rivals to Hargreaves Lansdown