About Fund Platforms
What are fund platforms?
Fund platforms allow you to hold funds from a variety of fund managers in one place. This makes holding and trading a wide range of funds very straightforward, especially
within Individual Savings Accounts (ISAs) and pensions. The more advanced platforms also allow shares to be held.
Without a fund platform
Your funds are held via individual fund managers. You deal with each directly and receive separate valuations - you'll need to combine
these to see your overall position. Holding funds within an ISA means a separate ISA account with each manager. Shares will need to be held separately via a stockbroker.
With a fund platform
Your funds are held within a single platform account, so you only need to deal with the platform. Funds from different managers can also be combined within a single
platform ISA account. As there's only one valuation containing all your funds, keeping track of your portfolio is straightforward. Some platforms also allow you to hold shares.
It's important to recognise that platforms don't manage your investments, they simply handle the admin/logistics required to hold your investments in a single account.
What about ISAs and SIPPs?
While you can hold investments on a platform directly (i.e. 'as is'), you might benefit from holding them within 'tax wrappers' such as ISAs and pensions. It's standard for platforms to offer a
stocks & shares ISA wrapper and most also offer a pension wrapper in the form of a Self Invested Personal Pension (SIPP). You can read more about ISAs and SIPPs on the Candid Money website:
ISAs - SIPPs.
How safe are fund platforms?
In the normal course of events holding investments via a platform should be very safe. But in the very unlikely event a platform runs off with your money you'll only be covered by the Financial Services
Compensation Scheme (FSCS) for up to £50,000, so it's especially important you can trust a platform when investing more than this. Your investments will be held in a 'nominee' account, which means
you're not the legal owner but are entitled to receive what you're owed.
Nominee accounts are separate companies owned by platforms that hold funds and/or shares on behalf of all their customers. For example, suppose 100 customers of Platform A each buy 1,000
units of Fund Z, then the nominee company (i.e. account) will hold 100,000 Fund Z units and be the registered owner. The nominee account's terms and conditions will state that
the customers are the 'beneficial' owners of 1,000 Fund Z units each.
Put simply, a nominee company owns the funds or shares but promises to pay customers what they're owed (i.e. dividends and proceeds when funds/shares are sold, or the shares/units themselves if you move
the nominee account to another platform).
Nominee companies are separate entities from the platforms that set them up. If the platform goes bust the funds/shares/cash held in the nominee company are ring fenced, hence unaffected.
It might take a while to get the assets re-assigned to you, but they'll be safe.
However, if the stockbroker or fund platform illegally dips their fingers into the nominee company then you could lose money.
In the case of fraud the Financial Services Compensation Scheme (FSCS) would normally step in (provided the platform is covered by the scheme - they should be if based in the UK and regulated by the FSA).
FSCS compensation gives up to £50,000 protection per institution per person, i.e. £50,000 of cover per platform.
If you hold bank accounts or funds within a nominee account then these will normally be covered individually too, i.e. cash will be covered up to £85,000 and funds £50,000 - both per institution
(i.e. bank/fund group) per person. But this is protection against the underlying bank/fund manager not being able to repay you - a totally separate issue from the nominee account.
When you buy funds and shares via a platform there are various charges that may apply. Comparing the overall impact manually is complex, hence the comparison tool on this site. But it's nevertheless
useful to understand what these charges are.
Fund InitialFund AnnualP'form SetupP'form AnnualP'form DealingP'form Xfer
Funds have historically included initial charges to pay for upfront sales commissions. Given commissions are now banned for new sales and most platforms waive upfront commissions where
they still can be paid (on pre 6 April 2014 sales), the majority of funds have nil initial charge via platforms. Nevertheless, there are exceptions, so worth checking.
Annual fund charges and rebates
When it comes to annual charges, fund platforms normally now use cheaper 'clean' or 'institutional' fund versions without commissions and platform fees built into charges.
However, on funds sold pre 6 April 2014 platforms can still take their from annual fund charges of which, depending on platform, some or all might have been rebated back
to you (usually into a platform cash account). The figures below show a typical breakdown of charges.
A fund's Ongoing Charge (OCF) or Total Expense Ratio (TER) shows total annual charges.
What investments can I hold?
Fund platforms generally offer enough choice to cater for most investors' needs.
You can expect to choose from 1,000+ funds (unit trusts and oeics) from a wide range of fund managers, which should suit the vast majority of fund investors. Offshore based funds are still not that well
represented, although this is unlikely to be an issue for most UK based investors. You may find some smaller niche funds are only featured on a few platforms, if at all.
What happens to investment income?
If you hold income producing investments on a platform (e.g. equity income funds or corporate bond funds), the fund managers will pay income directly to the platform, not you. When platforms receive income,
they normally give you 3 choices of what to do with it:
Pay to your bank accountRe-invest funds/sharesKeep in platform cash account
You can choose to have whatever income the platform is holding for you paid to your bank account (via BACS), usually once a month. Although there's typically no charge for such payments, they're often subject to a
minimum of around £10. If your income balance is too low, it'll be rolled over to the following month.
Platform tools to help monitor your investments
A key attraction of using fund platforms is viewing all (or most of) your investments in one place. Various tools might be available to further help monitor and analyse your investments.
ValuationPortfolio AnalysisModel PortfoliosResearch
All platforms offer online valuations, allowing you to see how your portfolio is doing at a glance. At the cheaper end of the market this is typically all you get, although this may well suffice
depending on your expertise and needs.
Can I use more than one platform?
Yes, you can use as many as you like. However, using more than one dilutes some of the key benefits - simplified administration and easier portfolio monitoring.
Can I transfer between platforms?
Yes, you normally have 2 options: either transfer the investments 'as is' or sell them, transfer cash and repurchase on the new platform.
Re-registrationTransfer as cash
Transferring investments 'as is' is commonly referred to as 're-registration' or an 'in-specie transfer' - platforms have been compelled to allow this since 31 December 2012.
However, you may face a charge per investment for doing so (in addition to any charges for closing your account) and the platform you're moving to will need to offer
identical versions of the investments, which isn't always the case.
Most discount brokers (companies that don't give advice but refund some/all sales commissions) offer access to at least one fund platform. And a few companies that
have traditionally been discount brokers also run their own platforms, namely Bestinvest and Hargreaves Lansdown. And to further confuse matters, some platforms aimed squarely
at the public offer discounts that compete with discount brokers.
Which is the best option? It doesn't really matter provided you're happy with overall charges and service.
Pros & Cons
Using fund platforms is generally a good idea, but there can be drawbacks. Here's a quick summary of the potential pros and cons.
- Reduces administration and paperwork.
- Makes switching between funds simpler and quicker.
- Can be the cheapest way to buy funds.
- Easier to monitor your investments when held in one place.
- Tools can help analyse your portfolio.
- Scope for ISA and pension tax wrappers.
- You may be charged to re-invest income.
- Potentially steep charges when closing an account/transferring to another platform.
- FSCS cover only up to £50,000 if platform runs off with your money.
- Charges sometimes relatively high on smaller sums, depending on platform.
- Share dealing may be more expensive than the cheapest online stockbrokers.
- Derisory interest rates on cash.
- Charges can become confusing.
If you want to read more about investing in general please visit the investing section on the Candid Money