Investment platforms: how to find one that suits your needs
Older savers are choosing riskier options on investment platforms in order to beat inflation, new data has found.
With the rising cost of living outpacing all but one savings account, over 50s are willing to take a little risk with their money in the hope of boosting their income.
Almost half of the 10,000 investors polled by financial firm Saga found just one in 10 opted for the most defensive investment portfolio, while three in 10 chose a portfolio offering both income and growth as they strive to make their money work hard for them.
If you're tired of miserly savings rates and are looking to invest, read on to find out how investment platforms work, the fees to watch out for and the risks involved.
How to choose an investment platform
The ways private investors can invest and manage their investments has changed radically in recent years, mainly due to the internet and the development of investment platforms.
The advent of online fund supermarkets, where investors could cherrypick their own investments, was the precursor to the explosion of platforms.
Platforms still offer the ability to shop around but now offer a range of other investments too.
There is also an increasing number of platforms that will create and manage a portfolio for you.
The big platforms
The bigger platforms offer a range of investment opportunities including shares, funds, corporate bonds, Government bonds (also known as gilts), venture capital trusts (VCTs), spread betting and more.
Many investments can be held within a stocks & shares ISA or self-invested personal pension (SIPP), which shield them from tax.
The big names include:
There has been a rash of smaller platforms launching in recent years.
They generally offer a slightly smaller range of investments, but are often cheaper than their larger counterparts. Like the big players, they will also usually offer a general account (which isn't tax free) and investments via an ISA or SIPP.
Some, such as Nutmeg, will offer you a portfolio based on how much you have to invest, your financial situation, your attitude to risk and how long you want to invest for.
Others, such as rplan, will grade your investments based on independent risk ratings to help you see how much risk you're carrying and how that compares to how much you'd actually like.
These platforms all have different charging structures, although they have been forced by the financial regulator to separate the fees paid to use the platform and management fees paid for investments.
Previously, there was only one charge, which was split between the platform and investment provider. Providers would then often pay a commission back to the platform.
This change has been implemented to supposedly stop platforms from promoting investments that pay them the most commission. This so-called 'unbundling' has led to the creation of what are known as 'clean' investments.
Some platforms now also offer 'super-clean' funds, which offer a discount on the investment's annual management charge.
However, many platforms still recommend investments, in the form of a 'favourite' list of managed funds or index trackers. Some also offer ready-made portfolio suggestions designed to cater for people's different appetite for risk or life stage.
Following the regulatory change, there are now more fees and charges to be aware of.
You should weigh these up before you sign up to a platform. For the latest information on fees and charges if you're thinking about a stocks & shares ISA, take a look at our guide into how stocks & shares ISAs work, limit, how to invest, fees, cheapest providers and more.