The average private investor in the UK has been bafflingly loyal to active unit trusts and OEICs. And until recently, most IFAs were also very loyal – at least partly due to commission payments.
Of course, commission payments for new investments have been gone for over six years now, and passive funds and ETFs are getting more attention. The rise of wealth managers with their model portfolios has helped too.
The rise of investment platforms has been another big change over the last decade. But are these platforms giving ETFs and passive funds a fair crack of the whip?
We decided to find out by looking at the platforms used by advisers as well as those aimed at retail investors.
Let’s start with the leading retail platforms, also known as 'investment supermarkets'. We are studying whether these platforms give ETFs any exposure on their lists of recommended investments, while also taking a deep dive into the platforms’ pricing structures. If platforms charge more for active funds, they have an incentive to push those funds harder to their customers.
Hargreaves Lansdown (HL), the best-known retail platform, has a list of favourite funds on its site called the ‘Wealth 50'.
The name is a bit misleading as there are actually 62 products on the list, of which ten are passive tracker funds. There are no ETFs or investment trusts but HL does provide information about ETFs and investment trusts on dedicated pages on its site.
On investment trusts, HL says: "Investment trusts do not lend themselves to the Wealth 50 list due to liquidity, pricing and complexity issues."
On ETFs, Hargreaves says: "The tracker funds we have on the wealth 50 are simple and ultra low cost, cheaper in many cases than ETFs."
Looking at the passive tracker funds on the Wealth 50, it is true they are all cheap, and HL has negotiated good discounts on them. So, for example, the L&G UK Index fund has an ongoing charge of just 0.04% on HL (after a 0.06% discount), and that is the same fee as the very cheapest ETF investing in UK stocks – the Lyxor Core Morningstar UK ETF.
That said, fans of ETFs might argue that even if ETFs offer no price advantage over a conventional tracker, other advantages such as ease of trading and transparency are useful.
It is also worth noting that HL’s charging structure for its platform makes ETFs cheaper than trackers on the site – although it is a cost advantage that only applies for long-term investors who rarely trade.
If you hold unit trusts or OEICs in a ‘fund and shares account’ on HL, you normally pay a 0.45% annual charge but no dealing charge. If you hold an ETF, you pay no annual charge but you do pay a dealing charge which may be as high as £11.95. So there’s a trade-off there.
In and ISA, you also have to pay the 0.45% annual charge for ETFs, shares and investment trusts.
Barclays Smart Investor
Barclay Smart Investor has a ‘funds list’ which only comprises active funds. The platform says it’s working on the expanding the list to include some passive products in future. It’s not clear whether that will include ETFs.
Barclays charges more for active funds with a 0.2% annual charge for unit trusts and OEICs. For ETFs, shares and investment trusts the annual charge is 0.1% a year. There is a cap on charges of £125 a month. The dealing charge for funds is £3 a deal; for ETFs, shares and investment trusts, it’s £6.
Interactive Investor (ii) has a list of recommended investments called the ‘ii Super 60’. The list lives up to its name and comprises 60 products. There are 32 active funds, 14 investment trusts, eight passive funds, three ETFs and one ETC (a gold fund.)
ii is introducing a new pricing structure from 1 June. If you go on the platform’s basic ‘investor plan’, the charges for holding and trading ETFs, funds and investment trusts are identical.
On the AJ Bell site, you’ll find an impressively diverse list of 87 ‘favourite funds'. It includes 16 ETFs and 5 trackers although there are no investment trusts.
AJ Bell charges a 0.25% annual charge for most investors and the charge applies to all types of fund as well as shares. However, there is a £7.50 per quarter cap on the charge for ETFs, shares and investment trusts that does not apply to funds. On the other hand, you pay a lower dealing charge on traditional funds.
The Share Centre
The Share Centre’s biggest list of recommendations is the Platinum 120 which only contains active OEICs and unit trusts. If you want to invest passively there is a list of 48 ‘preferred index tracker funds’. There is also a list of preferred ETFs and ETCs which comprises 43 funds. It is a broad list but is a little less prominent on the site than the Platinum 120 and index tracker list. There is also an investment trust list.
The Share Centre charges a simple monthly fee for any investment account with dealing charges on top. The charges are the same whether you are investing in an ETF or an active fund.
Charles Stanley has a ‘Foundation Fundlist’ which includes nine index trackers as well as 48 active funds and investment trusts. The platform says it is prioritised trackers so far because ‘they facilitate easy monthly investing….also the quality of data for populating the website’s pages hasn’t been as good’. But Charles Stanley says 'things have moved on' and ETFs may be included on the list in future.
As for charges, Charles Stanley has a 0.35% annual charge that is applied to holdings of funds, ETFs, investment trusts and ETFs. (The charge is lower for large holdings, and there’s a £240 annual cap on the charge for shares, ETFs and investment trusts, but not for funds.) There’s no dealing charge for funds, but you have to pay £11.95 to trade ETFs, investment trusts and shares.
Bestinvest has a list of ‘Rated Investments’, which comprises 173 products in total. There are 13 ETFs and 21 investment trusts on the list. The platform has a simple charging structure – 0.4% on all types of investment, with lower fees for large holdings. Dealing for funds is free, otherwise it’s £7.50 a time.
So what about adviser platforms?
For this section, according to data from the lang cat, we look at the different ways adviser platforms offer ETFs:
Platforms which offer whole of market access to ETFs and investment trusts:
Alliance Trust Savings (adviser platform)
Aviva Adviser Platform
Seven Investment Management
Platforms that do not have ETFs or investment trusts:
Aegon (formerly Cofunds)
Old Mutual Wealth
Parmenion (has a specific range for investment trusts)
Platforms that offer a specific range of ETFs and investment trusts:
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