An investment platform (also sometimes called a broker) is a piece of software that lets you buy, sell and hold investments. Historically if you wanted to buy investments you had to call a stockbroker – think Leonardo Di Caprio in Wolf Of Wall Street, but with less chest thumping – and they would execute a buy or sell order for you. But thanks to the wizardry of modern technology you can now invest using nothing more than a smartphone and an internet connection.
What sounds simple enough on paper often causes a lot of confusion in practice. There are a dizzying number of investing platforms and investment account types to choose from. This is before you even get to investing in one of the thousands of stocks, funds and bonds available to the average investor today.
So if a robo adviser sounds like a mechanical butler to you, or if you don’t know your index funds from your ETFs, sit back, we’re here to put all of your fears to rest. In this article we’ll be explaining what an investing platform is and some of the pros and cons of each.
What’s an investment platform?
As mentioned at the start of the article, an investment platform is simply an online service that lets you buy, sell and hold investments. Some are standalone investment platforms available as websites, some are available via smartphone apps, and a few that are available across both. It is also worth noting that some high street banks also offer investing platforms – Barclays’ Smart Investor and Halifax’s Share Dealing platforms come to mind – but these aren’t to be confused with their regular banking services.
At the time of writing there are over 20 investing platforms in the UK, with multiple having launched in the last five years. This means that as a first-time investor not only are you spoilt for choice, but you also have to wade through a sea of options. Analysis paralysis remains a real risk for the first-time investor!
Imagine if you had never owned a smartphone but were tasked with choosing a mobile provider for the first time. Do you go with EE or Vodafone? Pay-as-you-go or SIM only? Choosing an investing platform for the first time can seem daunting, but don’t let the unfamiliarity put you off. Signing up for an investing platform is very similar to opening a bank account, and broadly speaking, they fall into one of four types.
Robo-advisers – an odd sounding name to the uninitiated – are a platform type that offer ‘pre packaged’ investments (imagine if IKEA offered investment products!). When you sign up to a robo-adviser platform you are normally asked some high-level questions about your investment objectives and risk appetite, and then the platform will suggest a ready-made investments for you to choose from.
You don’t have to do any picking. The fees that you pay to invest on a robo-adviser are generally higher than with other platform types because the service does most of the legwork for you. Robo-advisers you may have heard of include Nutmeg, Wealthsimple and Moneyfarm. You can find a robo-investor using our robo-calculator.
Premium DIY investing platforms are known as such because you make all of your investment decisions yourself (that’s the DIY part), but also because you get a lot of added extras on the platform like research articles and dedicated customer service. So if for example you wanted to buy shares in an overseas country or participate in a stock market IPO, there’d be a telephone number you can call for help.
The fees you pay to a DIY investing platform are therefore lower than with a robo-advisor, because although the platform does provide you with information you can use to make your investing decisions, ultimately the specific combination of investments you choose are down to you. Premium DIY platforms you may have heard of include Hargreaves Lansdown, AJ Bell and Fidelity.
Low-cost DIY platforms – often called no-frills investing platforms – are exactly as advertised. You get access to an investing platform, with little in the way of research and investment ideas or fancy extras like smartphone apps. These platforms are best suited to people who know exactly what they would like to invest in and would like to keep platform fees to a minimum. iWeb is an example of a low-cost DIY platform.
Use the simple investment platform calculator (two questions) is a super quick way to find the right DIY platform. If you’ve already got investments or have a good idea about different accounts you hold, you can use the more detailed investment fee calculator.
Lastly we have commission-free investing platforms, which focus on the buying and selling of individual company stocks, ETFs (exchange-traded funds) and CFDs (contracts for difference). CFDs are a slightly more complicated instrument and will be the focus of a different article. Many of the commission-free investment platforms are available as smartphone apps, and according to Investors’ Chronicle their uptake is currently accelerating at a faster rate than those of more traditional investment platforms.
What makes them ‘commission-free’? Normally when you buy funds or shares on an investment platform you pay a fee to the platform itself when you buy and sell, a bit like the ‘postage and packing fee’ you pay when you buy something on Amazon or eBay. If you’re a frequent trader, these costs can rack up quickly, so commission-free platforms instead opt for paid monthly subscriptions. Examples of UK commission-free investing platforms include Trading 212, eToro and Freetrade. You may also have heard of Robinhood in the US. Comparetheplatform will be introducing a trading app calculator soon.
Tune in later in the week to get the lowdown on the different types of accounts available on platforms. If you know about ISAs and haven’t used your ISA allowance this year, you can use any of our calculators above to help you find the right home for your money.