Investment Platforms

Brochure for the True Potential Investment Platform

Investment platforms are usually the best way to hold and view your investments. But what are they and how do they work?

Investment platforms are secure websites which administer your investments and financial products.

For the last decade or more, financial advisers have typically used investment platforms for the majority of their investment clients.

The way it used to be

The traditional style of financial planning involved segregating the different tax planning products by selecting a particular company to provide a particular product. Invariably, the most appropriate product provider for a pension would be different to the most appropriate product provider for an ISA and so on.

Once the product provider had been selected, maybe on the grounds of charges, contract terms or investment options, you then had to make do with whatever funds that product provider offered. The problem, of course, is that any particular product provider’s investment funds may go through a period of underperformance. The initial way of dealing with this was to offer funds from other investment houses but these were usually more expensive as the product provider needed to add a margin for themselves.

So, what you ended up with was a collection of policies with different companies, selected at different times during your life, all with different investment options within them. This is shown pictorially in the following diagram.

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From an investor’s point of view this was administratively very cumbersome and many people were disturbed at the forest of paper which came through their letterbox from all of these companies.

From an investment advisers point of view, if they wanted to change a client’s investment profile, they were often left with whatever choice the different product providers decided to offer, and quite often there were further initial charges to move between funds.

How it should be

As much as possible it makes sense to use a single investment platform for your investments. It will not necessarily cover all of them, for example you usually get higher interest rates by keeping your cash accounts directly with banks or building societies. You may also have older pension contracts with valuable guarantees that cannot be included.

But generally, consolidating your investments onto one investment platform will save you a great deal of administration in keeping an eye on your investments. It will particularly assist your tax records and allow you to more easily control the level of risk you are taking. This is not a case of putting ‘all your eggs in one basket’ as you can still spread your capital among many different funds in different types of assets and different regions of the world.

In addition, and in reality most exciting of all, you can also apply your capital to a range of tax efficient accounts which all report to you in the same way. So, rather than thinking in terms of your pension being different to your ISA, you can apply a defined and dynamic investment strategy to all of your monies, and tactically exploit the tax planning benefits of the different structures to best serve your interests and objectives.

This is incredibly valuable in allowing you to manage your financial objectives and, in so doing, the likelihood of you achieving your objectives. So your investments will look more like the following:

What are the benefits of investment platforms?

  • You can view a number of different investment products and investment funds provided by a range of investment houses in once place.

  • You can not only view the products and investments but you and your adviser (if you have one) can deal with them as a whole portfolio.  This allows easy analysis of the proportion of each type of asset being held and their geographic location so that the overall level of risk can be monitored and easily adjusted.

  • An investment platform turns a series of individual investments into a true wealth management facility, allowing greater control not only of the investments but of the type of tax wrapper being used.  Completion of annual tax returns is simplified as is making maximum use of annual ISA allowances, pension allowances and capital gains tax exempt amounts.

  • You can see the value of your investments 24 hours a day, 7 days a week from any computer or mobile device that has internet access. Depending on the investment platform you can easily top up your investments, make withdrawals, set up regular withdrawals, switch funds and refer to past correspondence.

What types of investments can be included?

Investment platforms have expanded the range of investments that can he held and administered in this way. They can now include:

  • unit trusts

  • OEICs (Open Ended Investment Companies)

  • investment trusts
  • exchange traded funds (ETFs)

  • stocks and shares ISAs

  • junior ISAs

  • direct shareholdings

  • direct bond holdings

  • cash on deposit or held in money market funds

  • venture capital trusts (VCTs)

  • onshore investment bonds

  • offshore investment bonds

Rather than thinking in terms of products, investment platforms offer a series of tax efficient ‘wrappers’ such as ISA accounts, life assurance bonds (onshore and offshore) and pension accounts – self-invested personal pension (SIPP) and flexible income drawdown. They also provide a home for your ‘unwrapped’ investments in a general investment account.

A major benefit of an investment platform is the ease with which it is possible to switch money from an unwrapped general investment account into one of the wrapped accounts to make use, for example, of your annual ISA allowance or top up your pension funding.

The investment range of most investment platforms will number thousands of different funds from a wide range of investment houses. The choice of investment is therefore usually not dependent on whether you are investing in an ISA, life assurance bond, pension (subject to pension investment limitations) or general investment account, as it would typically be when going direct to a traditional product provider.

How do you transfer existing investments to an investment platform?

There are two types of ‘transfer’. Re-registration and a cash transfer.

Re-registration – A large number of funds can simply be re-registered to an investment platform. In this case there is no need to sell and repurchase your fund holding.

Re-registration is preferred, if available, because your investment is never out of the market. As your investment is not sold you are not creating a chargeable gain for capital gains tax purposes where investments are not held in an ISA or pension. It is important, however, to keep a record of the original purchase price of the funds which are being re-registered and any reinvested income distributions so that these can be used to calculate your capital gains tax liability in the future.

If one or more of your current investment funds is not a mainstream fund then you should check with the platform provider first to see if they already hold the fund. Otherwise, unless they are prepared to add it to their platform you will have to use a cash transfer basis.

Cash transfer – Some funds cannot be re-registered to an investment platform because they are not held on the new platform or the fund is held but not the particular version of the fund in your current plan. In such cases you will be offered the alternative of a cash transfer.

It is important to check the chargeable gains that will be created if the funds are not held in an ISA or a pension.

It is important to note that where a cash transfer is involved, your money will be out of the market for a period of possibly 7 to 10 working days. This is the period typically taken for a simple individual fund transfer. Transferring from an existing investment bond will typically take 10 to 20 working days because the surrender value has to go via your own bank account. Transferring from a personal pension plan can take several weeks and sometimes longer.

This could pose two potential risks as follows:

Being out of the market for 10 working days may not have any noticeable effect when markets are flat, but it is possible that markets will move ahead strongly during the time that you are out of the market. You would need to reconcile yourself, therefore, to the possibility of missing out on growth in your investment during this period.

Of course, it is just as likely that markets could fall back during the period that you are out of the market and then you would have gained by your absence from the markets at that time. In such a situation it is unlikely that you will feel that to be a problem!

The period that you are out of the market may coincide with an interest or dividend payment. Depending on the particular payment procedures of the investment house concerned, you may suffer the loss of an interest or dividend payment for the relevant period.

This potential problem can be overcome by taking care not to use the cash transfer method close to the stated interest or dividend payment dates. It is not always possible to avoid this, however, where a number of funds are being transferred at the same time as most investment houses will not let you make partial transfers from the same product.

Where want to transfer from a number of plans it would be prudent to stagger the transfer rather than trying to do them all at once. If your partner is also going to be using the same investment platform then it would be prudent to stagger his or her plans separately from yours.

What should you watch out for with ISA transfers?

Where the funds are currently held in an ISA the transfer (re-registration or cash) does not affect the ISA status of the investment when it is moved to the investment platform. It will be added to the ISA account of the investment platform without using any of your current year’s ISA allowance.

You can transfer a Cash ISA to an investment platform if you wish to invest the money in a Stocks and Shares ISA account going forward.

The transfer will be handled by the investment platform once you have given them permission to do so. What you must not do is close the existing ISA account yourself. If you do your cash or investment funds will lose their ISA status. You will then have to use up any remaining ISA allowance to reinvest them again and you will be subject to the annual ISA allowance (currently £20,000).

What should you watch out for with pension transfers?

With any type of pension transfer you need to make sure that you are not giving up valuable guarantees or other benefits. Guarantees such as a guaranteed annuity rate or guaranteed investment rate would be lost on a transfer to and investment platform pension account or indeed to any other pension plan.

Certain types of older pension plans such as Retirement Annuity Contracts and Section 32 Buy Out Plans may have particular benefits which would be lost on transfer. It is best to take advice before taking a transfer so that you do not lose out. If you are not able to afford advice then at least contact Pension Wise to take advantage of their free pension guidance.

What should you watch out for with unit trust or OEIC transfers?

If your unit trusts or OEICs (Open Ended Investment Companies) are not held in a tax wrapper such as an ISA or pension plan then you need to be careful of capital gains tax. If you are able to transfer the funds by re-registration then there will be no problem as you won’t be creating a chargeable gain at that time. As mentioned earlier, you will need to keep a record of the original purchase price for when you do eventually sell those funds.

If you are not able to re-register those particular funds you will have to encash them and then reinvest the cash onto the investment platform. When you encash the funds this will be a chargeable event for capital gains tax purposes. You will need to be careful how and when you do this to avoid paying unnecessary tax.

How to choose a digital advice service

If you are not using the services of a financial adviser but still want some assistance with setting up an investment or pension portfolio you could use one of the digital advice services. Of course you have to be at ease using an online service but that is pretty much a necessity for all of us now.

A good place to choose your digital advice service is the Boring Money Digital Advice Service Best Buy List

My choice of direct-to-consumer investment platforms

The following are my top five picks for direct-to-consumer investment platforms. Naturally if you are going to use a financial adviser you should use the investment platform which they recommend as being most suitable for your objectives.


Links to further information

Important

This information does not constitute personal advice and should not be treated as a substitute for specific advice based on your circumstances.

Information given relating to tax legislation is based on my understanding of legislation and practice currently in force. Whilst I believe my interpretation of current law and practice to be correct in these areas, I cannot be responsible for the effects of any future legislation or any change in interpretation or treatment. In particular you are warned that levels of tax and tax reliefs are subject to alteration and, in any case, the value of such reliefs and benefits may depend on an individual’s circumstances.

If you are in any doubt as to whether any course of action is suitable for you, then you should discuss the matter with a suitably qualified independent financial adviser or other specialist.