Battle over investment platform fees intensifies

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Interactive Investor is transferring tens of thousands of customers to its cheapest level of charges, the latest salvo in an intensifying battle among retail platforms over fees.

The UK’s second-largest investment platform said on Friday its lowest priced option — £4.99 a month — would be available from September to those with up to £50,000 to invest, up from £30,000, while it raised the price on its middle-ranking “core investor” plan by 20 per cent to £11.99 a month.

Insisting the changes were cost neutral for the platform, chief executive Richard Wilson said the business was wrestling with inflationary pressures and its ambitions to attract more customers after being acquired by asset manager Abrdn for £1.5bn last year.

“A large part of the restructuring is to broaden appeal, so there’s a progression for those at lower asset levels,” Wilson said. “Part of what we’re doing here is resetting that price point, so it’s fit for the future.”

The changes are among a number of developments planned by the platform this year as it positions itself as a gateway for customers to access Abrdn’s other services.

Abrdn’s acquisition in May 2022 brought the wealth management and advisory firm into the retail investment space. Interactive Investor plans to launch a new digital “portfolio partner” service at the start of next year, which will guide investors based on their risk tolerance and financial goals.

“We’ve joined the teams together on product engineering and investment management to create a new product which will have mass appeal to simplify the experience of investing for a large number of people,” Wilson said.

Interactive Investor has made several revisions to its pricing structure since it introduced a monthly subscription model in 2019. The approach is an outlier among other large platforms, which lean towards a percentage fee of clients’ assets.

“The challenge with the fixed fee model is that it’s not so attractive when you start off,” said Jeremy Fawcett, chief executive of research firm Platforum, referring to the fact that fixed fees represent a higher proportion of the total for those with smaller portfolios. “They need to move the needle, they need to be getting more consumers than Hargreaves Lansdown, AJ Bell and Vanguard.”

He added that, unlike rivals, Interactive Investor’s fee structure meant it had to fight harder for new customers as its revenues did not increase as pots grew over time. It has around 400,000 customers and £56bn in assets under administration.

The platform scrapped a mid-tier option in 2022 and launched the cheaper £4.99 plan targeting less wealthy investors at the start of the year. It said it would also cut trading fees from £5.99 to £3.99 from September, including on US shares.

Customers would be informed of the changes in the coming week, it said, ahead of moving individuals to its entry-level subscription plan.

Wilson defended the decision to raise prices on its current mid-tier plan, arguing that the company was managing high inflation and had not increased subscription costs since 2020.

Freetrade, a start-up platform, raised its standard subscription fee for tax-free individual savings accounts (Isas) to £5.99 a month in March, while increasing the price on its self-invested personal pension account to £11.99 a month. Its Sipp service is cheaper than Interactive Investor’s equivalent “pension builder”.

Hargreaves Lansdown, the UK’s largest investment platform, removed charges on monthly investing in shares, investment trusts and ETFs this year. It comes as the platform undertakes a digital overhaul it said would help lower fees.

The pricing moves by Interactive Investor make it the most affordable for individuals holding more than £15,000 in an Isa, according to consultants the Lang Cat, based on assumptions around the number and type of trades made by investors.

“It’s a highly personal situation. You have to look at your own initial portfolio size,” said Steven Nelson, insight director at Lang Cat. He said individuals would still need to consider if they planned to trade more actively or intended to buy and hold.

Interactive Investor’s announcement comes as the Financial Conduct Authority prepares to introduce new Consumer Duty rules next week. The regulator will aim to apply pressure on firms over opaque fees and charges, though Fawcett said measures were unlikely to lead to lower fees.

He said that platforms were motivated by competition. As consumer choice has widened, they had to fight harder to attract customers.

“We’ve got no interest in the cheap seats. What’s important is that you have a service where the consumer thinks that they’ve got value,” Wilson added, insisting the platform would not engage in a race to the bottom on fees.