We are increasingly being approached by new clients who are being recommended to a platform where all their investments, pensions and particularly SIPPs are in one place and you have a huge choice of funds for your pensions and investments. Is there hidden pitfall to these seemingly fantastic services?
Yes, in our professional opinion there is.
How do platforms work?
- Your pension, investment, ISA or bond sits on one platform.
- This is an access point that you can log into and select a range of investment funds from many different providers and fund managers.
- The positive side is all is in one place.
- The range of funds to choose from.
Platform Charges – A typical platform service
So who is involved? Platform provider, Fund Manager and Financial Adviser.
Each of the above wishes to charge and be paid for the services.
So what is a typical charge for an average platform:
- Platform provider say 1.0% pa.
- Fund Manager charge say 0.3% pa. Some funds, that need a high degree of research such as property funds or ethical funds could even have charges of 1.0% pa.
- Financial Adviser charge say 1.0% pa.
So before you even start to receive any growth on your investment, you fund must grow by 2.3% pa to 3.0% pa to stand still.
Compare this to a simple, retail investment or pension or ISA with annual charges only of between 0.4% pa (pension) and 1.5%pa on ISA.
On a £100,000 pension fund, a SIPP platform, ISA or investment account, this may mean higher charges, in the above example of up to 2.6%pa i.e. £2,600 per year.
We suggest you should only use a platform where you are going to actively use it or if your financial adviser is. Beware platforms, some charges are way too high for the benefit that you receive.