Using an investment platform to manage your pensions is a far superior way of controlling your investment compared to traditional, outdated products.
Platform services were cost prohibitive for all but the biggest investors when they were first introduced to the UK in 2004. However as time has passed, new service providers have entered the market bringing with them better products and more attractive investment platform fees. Our view is that the situation has now reversed, and that managing investments via a platform is now appropriate for all but the smallest of investors.
It can take some time to understand the charges that come with the use of an investment platform. It certainly took me a few months to fully get my head around the charging structure when we first seriously researched platforms in 2009.
Let me try to explain.
The Trio of Service Providers
First of all, when using a platform there are three independent services that you’ll be accessing. All three work together for your benefit but each carries its own, independent charges.
The Platform Provider
The Investment Manager
The last two of these services would have traditionally been provided by the same company. For example, if you held a Standard Life pension your money would have been held in a Standard Life managed fund. The adviser in this model helped you select a pension, got paid a commission and then did very little.
The Adviser has Become More Important
When using an investment platform the adviser’s role is very different to the traditional model. In addition to helping you to decide which platform to use, the adviser must now also help you decide which investments to support.
The opportunity for an adviser to create wealth for their clients has therefore increased enormously.
The investment platform needs setting up by the adviser, as did the pension product in days past. This is a once-off job. However, advising on and moving investments on an ongoing basis, requires the adviser to constantly be looking to protect and grow your pension funds.
These ongoing services are designed to help you build and protect your wealth for you and your family ready for retirement and through retirement.
Our fees for these services are quite simple. We charge an initial fee and an ongoing fee.
Over time we may also identify some additional requirements for once-off advice, in which case we would charge an additional fee as appropriate. This gets cheaper the more money you have invested through us.
There are no other fees from Reeves Independent. For clients subscribing to our ongoing service, all advice and switch fees are free. The full list of our fees is available in our terms of business that are readily available for your review.
Investment Platform Fees Vary Widely
Charges from platform providers vary from supplier to supplier. Our preferred platform provider is Transact. We find this company to be the most functional and reliable platform of all the platforms we use. And in addition to that it has more than 8000 investments. Their fees are also very competitive.
Five years ago Transact made a pledge to reduce their fees as their funds under management grew. They have fully honoured this commitment. This means that, in our opinion, Transact now provides the best value for money platform on the market.
We review this position formally every six months even though our regulator, The Financial Conduct Authority, only requires us to do so once a year.
Transact, like those of most other platform providers charge their clients an annual ongoing fee. They also make a small charge for each transaction (or ‘trade’) that they execute. They are the ones that actually make the investments and they charge for those services.
The more you have invested through Transact, the lower their fees.
Investment Platforms are not just for pensions. They can be also be used to manage bonds and ISAs.
There are a range of options and products that you hold within a platform like Transact. Your pensions, executive pensions, onshore bonds, offshore bonds, ISAs can all sit within the platform. Some of these products have a separate annual fee which is a relatively small fee for people with large funds.
The Investment (or Fund) Manager
The third of the trio of suppliers is the Investment Manager (or Fund Manager).
Generally speaking we recommend collective investments, pension funds for example, from a range of companies and unit trusts.
There are not normally any initial fees to buy into these funds. Instead, Investment Managers charge an annual fee on an ongoing basis. Investing in these funds through a platform generally attracts a discounted fee, compared with working direct with the Investment Manager. Investment fees vary from fund to fund.
A platform thus provides a vast range of investments at a discounted cost.
How these fees compare with the old model
Generally speaking the investment funds plus platform fees are around the same level as the traditional model. Sometimes you will get a better product much cheaper, other times you may pay a bit more.
If you are new to platforms, you may consider fees from the adviser and the platform provider for their services as a new charge, extra over what you have paid before.
The reality is that the initial adviser and platform fees are not new. You will have paid them in the past through your pension fund. This arrangement wasn’t at all transparent and most people didn’t realise these fees were being paid. All that has happened is that the charges have now been separated and made clear to clients.
The ongoing adviser fees are however extra to the traditional model. But with the new model you are getting a service that you always needed to maximise the benefits if your investments. You just weren’t getting that service.
Do you still have unanswered questions about platform fees and how they work? If yes, drop a note in the comments section below and we'll do our best to see you right.