So as part of getting ready for the Go T’ Pub I wanted to share the thinking behind the broker platform and how I went about selecting it.
Firstly, what will I be holding in the portfolio? I am not planning on holding any funds, as I don’t want to have to pay a percentage (even capped) of my portfolio just for them to hold my ‘stash. If I find one that works well in terms of overall cost (I.e. zero cost for purchasing the funds, and a cap of £5 a year then it could win out). This would be the VWRL as an ETF or their Fund equivalent (I may do a lifestyle strategy 80/20 if I really do find a cheaper result). In addition to this I will be holding some Investment Trusts, so it needs to be worth while holding these as well.
Future needs. So I need to also think of the future needs here, and by that I mean what happens if I am not adding new funds, how do I avoid inactivity charges or even prohibitive transfer out fees. Given that I expect this portfolio to build up to a substantive size over time, I am happy to take an upfront hit on a higher charge in the early days for cheaper longer term and not have to have the hassle and cost of a transfer.
Based on this, and the fact that I expect the ISA to grow significantly, I am going to look primarily at Fixed Fee only (I may entertain a %age in case)
So, with that in mind, and utilising the wonderful Monevator reference, lets take a look at the options. These are not in any particular order in case you are wondering!
Regular Investment cost: £1.50 (£4.50 per quarter, or £18 per year)
Quarterly Charge of £20 which covers the first 2 trades. This includes the regular saving so in effect per quarter I would get 1 free trade, and 1 just over half price trade. ETF purchases are normally £10 per purchase. I am not expecting to be buying an ETF every single quarter, so this isn’t too appealing.
Total cost per year: £98, plus any costs for more than 4 trades per year (highly unlikely – I would expect at most 2 or 3 for extra cash going in, however a plus if then I have say £500 and it’s a “free” trade as part of the quarterly charge then I may put money to work sooner – worth considering).
Dividend reinvestment is 1% up to a maximum of £10, and it looks like there is an additional £1 charge for any purchase over £10,000 and there is a 1% FX charge for foreign currency (not likely to impact this). Not the cheapest but in large volume that could be helpful to be capped.
They will let me purchase both Fund and ETF for VWRL or LifeStrategy, so based on the costs not a lot of difference as well as various Investment Trusts.
From an ongoing perspective this seems very compelling to not only allow me to do dividend reinvestment (not sure if I can do that with ETFs) and means I could do either Funds or ETFs as well as my ITs and the ability to then do a relatively low value trade for “free” as part of the charge is quite nice and will be even more use in the future when I start getting larger levels of dividends.
When I stop contributing on a monthly basis at some point in the future means I need to have at least £80 a year in income just to pay for maintaining the ISA – not great
Score: I will rate as an 8 as this seems very attractive option for my needs, the only downside is the ongoing charges – 2 grand just to have the account then. Not great.
Motley Fool Share Dealing Service
I spent a while looking through their costs and offering and this seems to be pretty much identical to to Interactive but with their own branding, so at this point I decided not to dive into too much detail on this.
Score: I will rate as an 8 as it seems identical to II
Halifax Share Dealing
So there is a regular investment option, but at £2 per month this is higher than what seems to be the normal flat fee of £1.50 but when the dividends are much higher this would be cheaper than the %age cost.
There is an admin charge of £12.50 per year, so cheaper than II / Motley with their £20 per quarter.
Dividend reinvestment is 2% up to a maximum of £12.50 which again is more expensive than the others, so another negative for HSD.
One off share purchase cost of £12.50. A little more expensive than the £10 above, but of course II / Motley you get the “free” trade out of the admin trade, so if I were to do one active trade a quarter then this would tip the balance back to II
Score: I will rate this as a 6. The cheaper admin charge is a real plus, but the more expensive monthly cost and dividend reinvestment, and the cost of a one of purchase makes this a less favourable option and so a no go.
So, a £25 one off opening fee and then no further charges or administration costs.
£5 dealing charge, regardless, but no monthly saving option it would still be £5 – not so great for a regular investment portfolio.
Score: For the Go T’ Pub ISA whilst building, this is a 5. The costs are an interesting one. Supposing I go for the regular monthly £5 charge, and I invested for 5 years. This would rack up an increase of £210 in charges above say Interactive Investor. It would then take a further 2.5 (ok a bit over) to then get the costs back in admin charges. Of course, this excludes any other trades I may have done over the time (dividend reinvestment?).
I think I would take this had the dividend allowance not been reduced recently as an addition to the ISA area, but for the Go T’ Pub, this is a no .
TD Direct currently provide my actively managed ISA, so are discounted from the Go T’ Pub options, but for completeness the reason I use them is:
No inactivity fee (I have more than £5,600 invested). £1.50 dividend reinvestment.
The downsides are you can’t do a dividend reinvestment if you use the regular contribution approach, which I find very frustrating. They do every so often allow you to trade shares or ETFs for either free or £1 which is handy.
From my own experience I am a big fan of TD, just not if you want to do dividend reinvestment and regular savings. Once you select regular savings you can’t change it back.
Monthly Investment cost £1.50
One off trading: £11.50, or £9.99 for ETFs (bonus!)
Dividend Reinvestment: £1.50
Trading inactivity fee: £10 per quarter. Dividend reinvestment counts as activity so provided there are shares or ITs that pay out quarterly there would be no charge, and if you pay a Fund Holding Fee there is no inactivity fee – but does mean you are paying to hold funds.
There is a sliding scale %age charge for holding Funds (capped at £1,000 per year) so I would be limited to ETFs and ITs – not a problem as I had planned this.
£150 cashback if I open an account and trade for 6 months – that’s not bad!
Score: 9. The ability to void any ongoing charges when I stop contributions is an excellent option and the ongoing costs are reasonable
I had a quick look, but there is a charge for holding shares or funds on a quarterly basis (capped at £7.50 per quarter for Shares, and percentage on funds without a limit). Given these charges this becomes a no for me as well. I really don’t like having to pay charges if I can avoid it – but this is cheaper than Interactive.
The charge for regular investments is a stonking £1.50 with one off purchases at £9.95.
Score I would give as a 7 – and not too bad an option but the lack of a cap on the funds holding charges put me off.
The Final Decision
So this is a really difficult one for me. Interactive Investor and Self Trade are the leaders in this decision, but which to go for?
Self Trade I can avoid any ongoing charges, and a low regular investment and one-off trade costs are good. Interactive Investor I could invest in Funds which means every last penny I put in will go to work the day it goes in, however I will have some ongoing charges to pay.
This is a real tough one and I have thought long and hard about which to do. In the end I am going to go with Self Trade as I avoid the charges, and whilst my emergency fund is rather low at present, it means money not invested can act as a small additional buffer before it gets reinvested. Also, at this stage I am only going for equities for a few years so this will maximise the growth potential. Given that once the portfolio grows to over about £50,000 I will no doubt look to yet another provider to spread the risk (4 ISA providers is enough spread for me) in which case I should have recovered my emergency fund, and then I expect I will go with Interactive, provided they haven’t been bought out! This will also let me go for an equity / bonds split more cost effectively than buying both each month.
Based on the above – which would you have chosen?