How do investment platform fees work?

A fund’s ongoing charge is taken inside the fund, a little at a time, and shows up as a slightly lower price; it is not billed to you. A platform’s charges are separate. They pay for holding the investments, running the account and carrying out deals, and they are paid from the account; the FCA notes that its cash balance can be used to pay fees.

Both apply when a fund is held on a platform. Fundology shows each fund’s ongoing charge in pounds on £10,000; it does not show any platform’s prices, and this guide describes how platform charges are built rather than comparing platforms.

The FCA’s study of investment platforms (interim report 2018, final report 2019) set out the main types:

A percentage fee (the FCA’s term is “ad valorem”) grows with the value held. Many are tiered: one rate on the first £250,000, for example, and a lower rate above it. Some platforms stop charging the fee above a certain value. A fixed fee is the same number of pounds whatever the value.

The difference shows as the value changes. These round numbers are illustrations, not any platform’s prices:

In 2018 the FCA found that flat fees in pounds, at the levels then charged, could make some platforms much more expensive than percentage pricing, especially for smaller pots. In its scenarios, dealing charges made up around a third of the price paid for frequent traders and for smaller pots traded occasionally.

In its final report (March 2019) it found charges on £5,000 in a stocks and shares ISA ranging from 0.20% to 2.40% a year, a possible difference of £650 in returns over five years at 5% annual growth. Fewer than half of the consumers it surveyed (43%) researched charges when choosing a platform, and most of those who tried to estimate what they paid made significant errors.

FCA rules require firms to give clients information on all costs and charges in good time before providing a service, to total them as a cash amount and as a percentage, and to illustrate the cumulative effect of costs on returns, both before and after the service is provided. An itemised breakdown must be provided on request.

In its 2022 review the FCA said these disclosures must include on-boarding, account and dealing fees, transaction fees such as telephone trades and foreign exchange, ad hoc admin fees, exit fees and the interest applied to cash held. It found main platform charges and fund charges generally easy to identify, but activity-based charges, such as telephone trades, foreign exchange and interest on cash, sometimes harder to locate. It listed as good practice a single list of all fees, worked examples, and platforms stating whether any exit fees apply.

For one fund held on a platform, the yearly cost is the fund’s ongoing charge plus the platform’s fees, with dealing charges, and the spread on ETFs and investment trusts, each time you buy or sell. The fund’s own transaction costs, published separately from the ongoing charge, are also paid inside the fund.

A lower total cost does not mean a higher return: costs are certain, returns are not. Capital at risk. Past performance is not a guide to future returns. The value of investments can fall as well as rise.

The FCA found in 2019 that exit fees were a barrier to switching platforms and that nearly half of the firm websites it assessed did not give clear information on exit fees, including whether any applied. A platform’s list of charges shows whether it charges to leave or to transfer investments out.