How investment platforms work - Which? (2024)

What is an investment platform?

An investment platform, sometimes called a fund supermarket, allows investors to buy and hold a range of investments in one place online, and sometimes with a smartphone app.

Investment platforms often provide extensive research and information, such as investment news, historical and recent performance figures and analysis of the investment styles adopted by fund managers.

The crucial point is that investment platforms are designed for people who are making their own investment decisions. This is referred to as 'execution only'.

• Find out more:the best investment platforms

What does 'execution only' mean?

While the platform might provide useful guides and data, you're wholly responsible for selecting and buying investment products.

You'll therefore need to know your investment goals and understand your appetite for risk.

The Financial Conduct Authority describes 'execution only' as a 'transaction executed by a firm upon the specific instructions of a client where the firm doesn't give advice on investments relating to the merits of the transaction and in relation to which the rules on assessment of appropriateness do not apply'.

What is a 'do-it-for-me' or roboadviser platform?

Do-it-for-me platforms, sometimes referred to as robo-advisers, offer a halfway house between investment platforms and traditional financial advice.

Most ask you for your investment aims and assess your attitude to risk through a questionnaire in order to recommend a tailored portfolio of funds, gilts and bonds.

While you generally can't specify the exact investments you want to hold, many platforms offer themed portfolios, for example of ethical investments or investments in technology.

Established providers include Barclays Plan & Invest, Moneyfarm, Nutmeg and Wealthify.

What investments can I buy on a platform?

Some investment platforms only offer investment funds.

But many others also offer access to stock-exchange-listed investments, such as shares, investment trusts and exchange-traded funds, as well as bonds and other investments.

Make sure you know what's on offer before opening an account – you can find out in our investment platform reviews.

Which Isas do investment platforms provide?

As well as offering access to funds and other investments, investment platforms allow you to put your investments inside one or more of these tax-efficient wrappers:

• Stocks and shares Isas
• Self-invested personal pensions (Sipps)
• Junior Isas
• Lifetime Isas

Within these wrappers, dividend income is untaxed, even if it exceeds the annual dividend allowance (£1,000 for 2023-24, half the 2022-23 allowance). Dividends in an Isa or Sipp don't count towards your tax-free dividend allowance.

Interest from corporate bonds and gilts, and from funds that invest in these assets, is tax-free. There's no capital gains tax on any investment profits within either Isas or Sipps, and your profits don't count towards your tax-free capital gains allowance.

You can find details of which platform offers what on our individual platform reviews.

Outside of these tax-efficient accounts, you can also hold a general investment account, which is useful if you've used up your Isa allowances.

If you're planning your retirement, most investment platforms allow you to manage your pension in an income drawdown plan or buy an annuity.

• Find out more:our investment platform reviews

What else do investment platforms offer?

Customer service and price should be paramount when comparing investment platforms.

But it's also worth looking at the following:

• Investment news:Some platforms publish daily updates on investments online and in newsletters, often with expert commentary thrown in. Some now have their own videos and podcasts. While this can be useful, avoid making snap judgements and focus on your long-term investment goals.
• Research tools: Look out for smart lists of funds and shares that can be filtered in a way that suits you. Some platforms may use ratings from Morningstar and other data providers – make sure you understand what these ratings indicate before relying on them too heavily.
• Blended/portfolio funds:Many platforms offer blended/portfolio funds – essentially funds that are made up of other funds. They're useful if you know your appetite for risk, but don't want to pick individual funds yourself. Blended funds are usually aimed at a specific risk appetite.
• Recommended fund lists: Most platforms employ analysts to put together lists of recommended, best buy or 'favourite' funds. Be cautious when using recommended fund lists, as they're not tailored to your risk appetite or goals.

What will I be charged for using an investment platform?

When investing through an investment platform, the charges displayed by a fund manager are not the only ones to consider.

Rules introduced in 2014 mean that investment platforms must now charge a separate fee for their services. These come in two forms: flat, fixed fees and percentage fees (although some platforms charge neither).

Percentage fees

This is when platforms take a fee as a percentage of the value of the investments you hold. Many platforms reduce this fee for larger portfolios.

So, you may be charged 0.5% on the first £100,000, then 0.3% on the next £150,000. Others will stop charging fees for investments over a certain threshold.

Percentage fee structures will best suit investors with £25,000 or less, though it's worth checking because some of the lowest percentage charges will also be great value for portfolios worth more.

Fixed fees

Some brokers levy fixed annual or monthly fees in pounds and pence.

Fixed fees are better suited to investors with more than £25,000 in their portfolios as they usually work out cheaper than percentage fees.

Transaction fees

You may be charged each time you buy and sell a share, investment trust or exchange-traded fund.

Less common are fees for buying and selling traditional funds.

Many platforms that charge transaction fees will provide discounts for frequent trading, or offer free trades in exchange for paying a higher annual fee.

Exit fees

You may be charged if you transfer investments from one platform to another.

However, many platforms have scrapped these fees, while others will offer to cover switching fees as an incentive to join them.

If you have a large portfolio, you may find that your ongoing savings from lower fees eclipse the switching fees you'll need to pay.

Isa fees, foreign exchange fees, phone dealing fees

You're less likely to encounter fees for holding an Isa (as opposed to a general investment account), fees for buying shares or funds priced in a foreign currency (generally as a percentage of the purchase), and fees for making purchases or sales by phone.

Where can I read reviews of investment platforms?

To help you find the right investment platform, Which? has created unique review pages for the major providers.

Our reviews tell you how the different companies charge – and how much – and this is complemented by our unique customer satisfaction ratings, in which more than 1,000 investors rated their investment platforms for customer satisfaction and other aspects of this service.

Log in if you're a Which? member to see these reviews. If you're not already a member, join Which? to get full access to these results and all our reviews.