More people are deciding to break away from the giant financial services industry and manage their investment themselves. In fact, according to the Financial Conduct Authority, from 2013 to 2017 the amount of self-invested money in the UK doubled to over £500bn.
This new generation of DIY investors are spoiled for choice with platforms allowing them to manage their own portfolios online and execute trades themselves. The options available can be split into two main camps: incumbents and wealthtechs.
Incumbents are, as the name suggests, established financial service firms running DIY trading and investment platforms as part of their wider businesses, which will usually be quite large (some are even listed on the stock market). Examples include AJ Bell Youinvest, Interactive Investor and Hargreaves Lansdown.
Meanwhile, wealthtechs are the new kids on the block, companies that focus on developing technology that caters for DIY investors, an example being, well, us!
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The incumbents may have a longer history in financial markets, but this usually means they have built up higher overheads and need to charge higher fees than the nimble wealthtechs to cover them. Questions have been raised about the value for money the incumbents offer, with the FCA recently issuing a report arguing consumers need greater transparency from these platforms around fees and flexibility.
The extent of this pricing difference is clear in research from Brokerchooser, a stockbroker analytics group that executed identical trades across eight platforms.
It found a bulk trade of £2,000 in Lloyds shares with Hargreaves Lansdown would involve a total investment cost of 1.72% or £34.40. The cost of this investment isn’t much better with the other incumbents. AJ Bell Youinvest would charge 1.52% or £30.50 and Interactive Investor would charge 1.32% or £26.50.
Fortunately, investors have options. This same research showed that wealthtechs have much lower fees. In fact, eToro was proven to be the cheapest and from this Lloyds trade produced a total investment cost of 0.14% or £2.90 (20x cheaper than the incumbents).
Price isn’t everything when it comes to investing but it is the only thing investors can actually influence. By choosing a platform with lower investment costs, investors can walk away with more of their money intact, no matter which way the market moves. Importantly, with a lower cost to invest, these investors are less likely to be put off coming to market in times of stress, when there can be some real opportunities.
Before investing, do some research about the charging structure of the platforms you’re considering. You can find out more about eToro, and how we charge and what we offer, here.
Your capital is at risk.