Online investment - We've created a detailed guide for online investment beginners.
Even stuffy old finance is not immune to the technology revolution. There are now dozens of decent options for us to set up and manage both investments and pensions online.
There are 2 basic approaches to running a DIY investment or pension account. You can either select the shares or funds to put into your ISAs or pensions yourself. This choice will suit more confident investors who enjoy researching the markets. Or you can pick an option which does the investment heavy-lifting for you. Minimising the decisions and giving you the comfort of having an expert on your side. An online investment personal shopper.
I have personal accounts with over 25 online investment and pension providers so I can see at first-hand what they’re like as a customer. Behind the glossy homepages, the reality of using a service online, transacting, calling them up and tracking returns can be less slick. Here are my suggestions.
There is a vast array of choice. These are the five main questions I think we need to ask.
No-one wants to pay above the odds – when you’re looking at fees you have to factor in 2 basic charges. The fees we pay a fund manager if we use funds rather than selecting our own individual shares. And the administration fee (sometimes called a platform fee) we pay the service provider. I'd expect to pay a fund manager about 0.75% and a platform up to about 0.4%. Any more and you need to feel sure that you’re getting value for money.
As for the actual service and ease of use, there is a huge disparity in what goes on behind the scenes, on the secure trading sites. Here's a tiny example. I'm currently doing my tax return and need to dig out consolidated tax vouchers for the investment accounts. They're simple to find on AJ Bell, Charles Stanley, Hargreaves Lansdown and Interactive Investor. I need to make phone calls to Alliance Trust Savings, Barclays, Nutmeg and The Share Centre as I can’t find them despite trawling through the sites.
In general when it comes to service, Hargreaves Lansdown remains the clear winner here. Their people on the phones pick up quickly, they are human beings (how retro!) and they know their stuff. As cyber crime is on the rise, I also think there is comfort in dealing with a FTSE100 company, with all its processes and protocols. With a 0.45% charge they are slightly on the wrong side of an acceptable fee but many people who have shopped around grin and bear it for the service.
When chatting to people about the right fit for them, I do ask about their personal trade-off between time and fees charged. Hobbyist investors may prefer to look for the low charges and be happy to spend a bit more time on hold or working through a website which can be trickier to navigate. Those less interested will value convenience and advice above everything.
Finally, there are a lot of dodgy firms out there. If it’s a new brand, do check who the ‘custodian’ of your money is. This ringfences your investments if the firm you have invested with gets into trouble. Also there is no such thing as a free lunch. Anyone promising ‘guaranteed’ returns is probably lying. So run a mile from those timber/car park/property schemes ‘guaranteeing’ double digit returns. Good investments should be pedestrian and boring!
Holly’s suggestions for investments
There’s still a bit of a weird ‘headmaster and pupil’ dynamic between pensions providers and us. Most of us still think as pensions as something that are served up to us by authoritarian figures and we have to just grin and bear it. To do as we’re told.
But these days, an online pension looks just the same as an investment account, just with its own set of tax rules. I think of online pensions like a later-life investment drawer which we can't open till we're 55. But we can choose what goes into this drawer and look at it online whenever we want. We no longer have to politely just accept whatever is served up to us.
Pensions can be very simple in the saving up phase. And turn hellishly complicated at retirement stage. If you are in your 50s and want to start to take some of your pension in the next 10 years, I think you want to pick a firm with a strong pensions heritage, and teams of skilled people who can tackle your more complicated questions. AJ Bell Youinvest and Hargreaves Lansdown lead the pack here in my opinion – in the main you’ll talk to good people on the phones who know their stuff. Of the two, AJ Bell Youinvest have lower charges but a less slick online experience.
Many less enthusiastic savers will find these websites daunting. If you prefer to stick to bigger brands which offer simpler, more ‘vanilla’ services, then I think Aviva is worth a look. This huge brand will also offer comfort to those who want to deal with an old, solid and established firm. There’s a very simple online journey and you just need to pick one of four choices, so it doesn’t overwhelm.
As for charges, expect to pay about an online pension providers about 0.3% - 0.4% for administration and a further 0.75% for the investment funds you may choose to put into the pension.
Holly’s suggestions for pensions
Value service? Happy to pay a bit more for an easy life? Hargreaves Lansdown. Just very good.
Low cost? With some pedigree behind the brand? Charles Stanley can be a bit daunting for the novice but is low cost and is currently waiving the normal £100 annual pension fee for those with more than £30,000
Want an online firm which lives and breathes pensions? AJ Bell Youinvest has a very good pedigree in pensions administration and is a decently priced option offering a range of choices for all levels of knowledge.