Compare Providers to Choose the Best Stocks and Shares ISA for Your Needs
Inflation rates hitting their highest level in years, and expected to still have some way to go before they peak, along with miserly interest rates being given to balances on cash ISAs mean Brits are instead putting record levels of cash into stocks and shares ISAs. As with making a decision on any product or service, those looking at stocks and shares ISA options should be setting aside some time to making a comparison of the options available to them.
In contrast to cash ISAs, stocks and shares ISAs are tax-efficient wrappers that hold risk-based investments such as company shares, government-issued or corporate bonds and different kinds of funds. Other than the difference of their contents, cash and stocks and shares ISAs provide exactly the same tax shelter qualities. Personal allowance levels that can be invested in a stocks and shares ISA are now the same as those for cash ISAs and returns, like the interest rate received for cash ISA balances, are sheltered from counting towards income tax.
However, comparing stocks and shares ISAs is more complicated than comparing Cash ISAs, where the main consideration is simply the interest rate offered. Fee structures for stocks and shares ISAs are more complicated and often vary depending on what investments are held within the ISA. Also, not all stocks and shares ISAs accept the same range of kinds of investments. Choosing investments wisely is also a factor and some stocks and shares ISA providers offer advice or support in this regard and others don’t.
Comparing and contrasting stocks and shares ISA options is not only important for those opening one for the first time. Existing holders should also keep an eye on the market as there could potentially be another provider that offers a better fit and improved terms for a stocks and shares ISA portfolio than it is currently taking advantage of.
Stocks and Shares ISA Providers
Banks usually offer stocks and shares ISAs and it can be tempting for consumers to simply take an offer from the bank current and/or saving accounts are held with. However, the ‘easy option’ of going with your bank is unfortunately often not the best choice. Stocks and shares ISAs provided by the main UK high street banks are often quite limited in the range of investments the holder can choose from. Banks also rank among the worst providers of investment ISAs in customer satisfaction surveys. Fees applied are also rarely competitive with other choices available. Feel free to give the stocks and shares ISA offered by your bank due consideration but don’t fall into the trap of simply opting for it without first assessing it in comparison with the competition.
Budget Stockbrokers that offer execution only share dealing services with low transaction fees often have among the lowest fees of stocks and shares ISA providers. However, a drawback to budget stockbrokers is that they often only have a limited range of funds on offer and sometimes none at all. Value added resources such as research on different investment options and other content and investment markets data is also usually a casualty of the ‘no frills’ approach of budget stockbrokers.
A stocks and shares ISA with one of this category of providers is probably most suited to more experienced investors who adjust their portfolio regularly so benefit from low transaction costs, prefer to pick their own shares rather than invest in funds and have access to other investments research sources.
Budget fund supermarkets are very similar to budget stockbrokers with the obvious difference that they usually exclusively offer funds and not individual company shares. Fees in investment ISAs also tend to be among the lowest but the service sticks to the basics. Don’t expect much more than an ISA wrapper, a fund trading platform and a customer account that allows you to track performance.
Investment platforms is the broadest category of ISA provider and also show the greatest variety in the difference between fees and other considerations that holders will want to compare, such as available investments range and support services. We group fund supermarkets and full-service stockbrokers together under investment platforms as the distinction is now almost non-existent with all of the companies on the market offering both a good range of funds and individual company shares. Fund supermarkets may have a wider selection of funds choices and stockbrokers offer more access to internationally listed company shares. However, most will offer both investment categories in a way that meets the needs of all but a very few investors.
Generally speaking, though the rule is by no means hard and fast, the greater the depth of value added resources such as research and fancy dashboards to track ISA investments, the higher annual fees tend to be. Each individual investor will have their own opinion on what they see value in paying extra for and what they can live without in the interest of lower costs. Some investment platforms also offer an advised service for stocks and shares ISAs, which can make sense for those who don’t feel confident enough to pick their own investments.
Robo-advisors: the new wave of robo-advisory platforms also all offer stocks and shares ISAs. Robo-advisors automate the kind of advice traditionally provided by human financial advisors. Investors are taken through a questionnaire covering their personal financial situation, investment aims and timelines, risk appetite and tolerance. The platform then places them into a particular investor profile group and offers a diversified investment portfolio to fit.
Robo-advisors tend to have reasonable fees, often comparable to those of DIY investment platforms and can be a good choice for ISA holders who are not experienced in picking their own investments or who have limited time to do the necessary research.
Choosing the Best Stocks and Shares ISA for Your Portfolio and Profile
Other than cost, which is of course important, the kind of investments an ISA holder intends to make, if they require advice and what additional support they would like should be used to inform a decision on ISA provider. It does make sense to set aside a few hours to think about requirements and preferences and to conduct a proper comparison of the options available to you. In terms of cost, The Telegraph newspaper has put together a good table covering the cheapest and most expensive providers of stocks and shares ISAs, based on fees for 2017. Also review the market every year or two as switching ISA providers is now an easy process that your new provider will take care of for you.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.