Wednesday 11 May 2016

Selecting Your DIY Online Broker

It is 3 years since my first post on this and there have been quite a few developments so I will try to bring things a little more up todate.

When I first started investing in the late 1980s, there was no internet and the buying and selling of investments was done by post or telephone with either a traditional stockbroker or for trusts and funds via the provider.

Today, most diy investors will invest online with an execution-only discount broker.

I first registered online with Interactive Investor in 2000 - I moved over to AJ Bell Youinvest (formerly Sippdeal) in 2012 when ii set up its own platform and then introduced its £20 quarterly charges. More recently I have set up a new ISA account for my Vanguard LS funds with Halifax Share Dealing as the annual flat fee of £12.50 works out cheaper than the 0.25% fee on these funds with Youinvest.

With online brokers, your investments are held in a nominee account which means you will not receive a share certificate so there is no ‘paperwork’ to attend to. The online execution-only broker is not legally permitted to offer advice to its customers.

Some Things to Consider

The main things to consider at the start of the process are the costs of acquiring different types of investments and also platform costs :

A.  Will you be investing using mainly funds or with shares, investment trusts and exchange traded funds (ETFs)?

Some brokers such as my broker AJ Bell charge a percentage fee - currently 0.20% (0.25% from 1/10 2016) -  for holding funds. Others brokers do not charge a fee for holding funds so it will be useful if you are clear from the outset.

All brokers will charge a transaction fee for buying & selling shares, investment trusts and ETFs - typically around £10. Some charge for buying/selling funds also but several make no transaction charge for funds.

B.  What is the value of your portfolio?

Online brokers mainly divide into two categories, those that charge a percentage platform fee based on the value of your investments and those that charge a fixed annual/quarterly fee regardless of how much is held with them.

As a rough rule of thumb, if your portfolio is greater than £30,000 then it will probably work out cheaper to look at the fixed fee providers and for less than £30,000 the percentage fee will probably be better.

C.  Will it be a lump sum investment or are you drip feeding via regular monthly direct debit?

If you will be drip-feeding your money into the investments over a prolonged period, it will make sense to choose a broker who can offer low cost options. As we have already seen above, some brokers make no transaction charge for the purchase of funds. Many offer a regular investment discount - maybe £1.50 or £2.00 for the regular purchase of investments.

D Combined Charges

It will be important to have a clear picture of both the platform charges and the cost of buying/selling the investments as well as the cost of the investments themselves. For example, it may cost more initially for a one-off purchase of an investment but there may be no ongoing platform costs or fund charges if holding individual shares.

Low cost index funds are becoming more popular with small investors. The ongoing charges for some are less than 0.10% p.a which is incredibly good value but this can be negated by holding them in with a higher charging platform. An extra 0.20% in broker charges may not seem much but on an typical portfolio of around £25,000 it will be an extra £50 every year.

Once you are fairly clear on these 4 points it should be easier to narrow down the best choices for the most suitable broker. Cost is important but it may not be the only consideration.

Some Other Considerations

1. Does the broker offer the type of investment you wish to hold in your portfolio? Seems fairly obvious but some brokers will offer only a limited range of investment trusts etc.

2. What range of analysis tools are offered? It can be an advantage to view your portfolio online and also to maintain a ‘watchlist portfolio’ of investments you may wish to follow and analyse for the future. You may wish to filter shares for things like size, dividend yield, cover etc.

3. If you are likely to hold investments which produce an income such as the dividends from shares and/or investment trusts, check the situation regarding re-investing of dividends - is there a facility for this to be done automatically and if so, is there a charge?

4. Check if there are additional charges for telephone trades - with my former broker, interactive investor, the fee was £10 for both online and telephone trades. With my broker AJ Bell, its an extra £20 for telephone trades.

5. Check the level of exit fees in the event you wish to move to another broker. Typical fees are usually based on whether you wish to transfer your portfolio over without having to sell and then repurchase with the new broker and will be around £20 - £30 per line of stock. Obviously, if you hold many different investments, it could be very expensive to transfer out.

6. Is it likely you will want to hold overseas listed investments? If so, make sure this option is available and check out any additional costs.

There is therefore no single one-size-fits-all best broker, the best one for any individual will be the one that ticks the most boxes according to that individuals specific situation and requirements.

Comparison Sites

Monevator has painstakingly created a comparison table covering most of the popular discount brokers and fund platforms. The table is mainly aimed at diy investors seeking a passive approach to running a portfolio using mainly index funds and ETFs.

Compare Fund Platforms is a spin-off from Candid Money run by Justin Modray. You select the type of investments you wish to compare or may be interested in purchasing, confirm a few assumptions on period of investment and rate of growth (include the option of also holding shares and/or investment trusts also) and instantly see which broker currently offers the lowest cost.

Also Snowman's comparison via Money Saving Expert forum.

Of course, you are not limited to just one broker for all investments. You could use one for your sipp and a different one for your ISA or non-isa trading account. You could use one for low cost trackers as I have done for my Vanguard funds and a different one for shares and investment trusts.

If using more than one broker, just be aware that with ISAs, you can only fund a single broker with your allowance for any one tax year - it cannot be split between two brokers in the same year.

Some Brokers to Research - info believed to be correct at time of posting but please cross check!

AJ Bell Youinvest -
Platform - 0.25% (but capped at £30 for shares, trusts and ETFs)
Dealing - £1.50 for funds - £9.95 for shares, trusts and ETFs

Hargreaves Lansdown -
Platform - 0.45% (but capped at £45 for shares, trusts and ETFs)
Dealing - free for funds - £11.95 for shares etc

Cavendish -
Platform - 0.25% funds only
Dealing - free

Halifax Sharedealing -
Platform - £12.50 p.a. flat fee
Dealing - £12.50 funds and shares etc.

Alliance Trust -
Platform - £90 p.a. flat fee
Dealing - £12.50 funds and shares etc.

Charles Stanley -
Platform - 0.35% on funds and shares etc
Dealing - free for funds - £10 for shares etc

Iweb -
£25 one-off set up on opening account
Dealing - £5 funds and shares etc.

Vanguard -
Platform - 0.15% (NB Only Vanguard Funds & ETFs)
Dealing - free for funds - £7.50 for ETFs


  1. HI, this is really helpful. Just thought it might be worth identifying those percentage platforms which have a cap, for example AJ Bell/YouInvest have a cap of £200 on Fund charges. I was thinking of opening a SIPP with AJ Bell/You Invest on behalf of son (who currently holds a stakeholder pension with Friends' Life). Are they straightforward to deal with? I have experience of CSD for ISA (becoming too costly as no cap) and Interactive Investor for a SIPP and dealing account.

    1. That's a good point Bellabeck. For those with funds in excess of £100K the cap will mean a lower % in platform charges.

      I have held my sipp with AJ Bell for several years and have always had a good service and a prompt response to any email enquiries.

      I have not had dealings with ii since moving my ISA to Youinvest so cannot comment on their current service.

      Thanks for stopping by and good luck with the new SIPP.

  2. I am mulling over plaftorms for my SIPP too. I use funds and am in the accumulation phase. Some people are struck by analysis paralysis over their portfolio structure, but I'm on the brink of diagnosing myself with platform paralysis!

    I need a broker with a flat fee or capped pricing structure and am familiar with YouInvest from holding an ISA there. I gather Halifax SIPP is basically a rebadged YouInvest interface and with regular investment pricing work out cheaper than YouInvest for me.

    Still more to mull over. It was all so much easier when HL charged me a fee of £2/month for holding a single LifeStrategy fund and no dealing fee. RDR, grumble, grumble!

    1. Yes, sipps can be a bit tricky to compare. Ideally you would want free dealing for regular monthly contributions combined with a reasonable annual fee for platform charges.

      The reduced fees for regular subscriptions on funds may come into the equation as would the possibility of opting for the use of ETFs.

      When you have narrowed down the possibilities run it through the Compare Fund Platforms site.

      Good luck with getting things sorted!

  3. TD do have a platform fee for holding funds.

    1. Thanks for pointing that out Fabian - duly updated.