Investors waste on average £140 a year on investment platform fees, partly because they just can’t work out what the charges are.
That is the claim of Broker Compare, the company behind a new tool that aims to help investors find the right platform for them.
Its aim is twofold: to increase transparency around broker fees so that savers feel empowered to invest, and to help new and existing customers to get a fair deal.
Overpaying? Many investors don’t know how much their fund broker is charging
The new tool from Broker Compare aims to change this by showing in a clear concise way how much each provider will charge for the service you are looking for.
And This is Money has entered into a partnership with the firm, to offer our readers the Broker Compare-powered tool to find the best place to invest. You can try out the tool on our Best DIY Investing platforms page and find it at the bottom of this article.
Broker Compare was developed by Stuart Millson, a former consultant to investment managers and brokers.
He became frustrated by the number of people who opted to keep their savings in cash as they felt investing was too complicated for them.
At the same time, many of those who were invested were paying too much for the service provided by their broker – by an average of £140 each – either because they didn’t know what they were being charged, or were unsure about how to switch provider. This adds up to almost half a billion pounds every year.
Broker fees include a combination of charges relating to the value of the assets being administered, the number of trades undertaken and the type of investment the customer goes for.
These factors mean the cheapest broker for one investor could actually prove to be the most expensive for another. It is difficult for investors to work out how much they might pay with one broker, let alone compare multiple options to find the best deal for them.
Millson’s argument is that while investing is by nature uncertain – no-one can say for sure whether the market will go up or down – one thing you can control are the fees that you pay.
He says: ‘Investing is for the long-term, and every penny saved in fees remains invested and growing as the market goes up. That means that the £140 wasted by the average investor each year, growing at 6 per cent, becomes £5,300 after 20 years.
Cash back: The tool could help investors save
‘At the moment the broker market does not function properly – but with transparent prices, investors can make a meaningful decision about whether they want to pay for a more expensive service.’
The brokers listed by Broker Compare collectively manage more than 95 per cent of assets under administration in the fund platform market.
These firms vary in size, with a few companies dominating the market. Some of these may get a cheaper fee deal on underlying funds than smaller rivals – saving their customers quite a bit.
But historically it has been tricky to work out what you get from each of them.
Broker Compare, which is regulated by the Financial Conduct Authority, makes money through sponsorship deals with some of the brokers and will direct you straight to their websites. For fund brokers with which it has no deal it simply provides the figures, so investors will need to hunt down the relevant website themselves.
The venture has the support of MP Chris Philp, who is a member of the Treasury Select Committee which oversees the Financial Conduct Authority.
He says: ‘A very low savings rate is a weak spot in Britain’s economy. Fees which are complicated and unclear are one of the factors which hamper investment, but tools like Broker Compare, which show clearly how much investors will pay, will be much more effective in bringing transparency and competition than anything the Government or regulator can do.’
Try the tool to find the best DIY investing platform here
You can try out the Broker Compare tool to find the best investing platform for you here.
When you search platforms using Broker Compare, you’ll initially see brokers listed in terms of their popularity – assets under administration. You can then adjust the list to display firms sorted by their fees from lowest to highest – either during the first year or on an annual basis.
Enter the amount that you will invest into an Isa, Sipp or general account and how you will add to it. The tool will then show you how costs compare. You can read more about individual platforms here.