Intensified Battle Erupts Regarding Investment Platform Fees

Stay up-to-date with free investment updates

Subscribe to our myFT Daily Digest email and receive the latest investment news every morning.

Interactive Investor is taking a competitive stance in the retail platform market by transferring thousands of customers to its lowest cost fee structure. Starting from September, customers with up to £50,000 to invest will now be eligible for the £4.99 per month option, up from the previous limit of £30,000. Meanwhile, the “core investor” plan will see a 20% price increase to £11.99 per month. Interactive Investor CEO Richard Wilson attributed these changes to inflationary pressures and the company’s goal of attracting more customers since being acquired by asset manager Abrdn for £1.5bn last year. Wilson stated, “Part of what we’re doing here is resetting that price point, so it’s fit for the future.”

These changes are just one part of Interactive Investor’s strategic plans for this year as it positions itself as a gateway to Abrdn’s other services. Following Abrdn’s acquisition in May 2022, Interactive Investor is planning to launch a new digital “portfolio partner” service early next year, which will provide personalized investment guidance based on risk tolerance and financial goals. Wilson expressed confidence in the appeal of this new product, stating, “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.”

Interactive Investor has made adjustments to its pricing structure several times since implementing a monthly subscription model in 2019. This approach sets it apart from other major platforms that primarily charge a percentage fee based on client assets. However, the fixed fee model initially appears less attractive, especially for those with smaller portfolios. Jeremy Fawcett, CEO of research firm Platforum, commented on this challenge, saying, “They need to move the needle, they need to be getting more consumers than Hargreaves Lansdown, AJ Bell, and Vanguard.”

Unlike its competitors, Interactive Investor’s revenue does not increase as client portfolios grow, making it necessary for them to work harder to attract new customers. They currently have around 400,000 customers and £56bn in assets under administration. In line with their goal of appealing to a wider audience, the platform discontinued a mid-tier option in 2022 and introduced the cheaper £4.99 plan at the beginning of this year. Additionally, they announced a reduction in trading fees from £5.99 to £3.99 starting in September.

Interactive Investor will inform its customers about these changes and transition them to the entry-level subscription plan soon. Regarding the price increase for the mid-tier plan, Wilson defended the decision, citing the need to manage high inflation and the fact that subscription costs have not been raised since 2020.

Comparatively, Freetrade, a start-up platform, raised its standard subscription fee for tax-free individual savings accounts (ISAs) to £5.99 per month in March. Hargreaves Lansdown, the largest investment platform in the UK, eliminated charges on monthly investments in shares, investment trusts, and ETFs this year as part of a digital overhaul aimed at reducing fees.

Interactive Investor’s pricing adjustments position it as the most affordable option for individuals with more than £15,000 in an ISA, according to consultancy firm the Lang Cat’s analysis of assumed trading behavior.

According to Steven Nelson, insight director at Lang Cat, the decision on which plan to choose depends on an individual’s specific circumstances, including the initial portfolio size and their trading preferences. He emphasized the importance of considering whether one plans to trade actively or take a buy-and-hold approach.

Interactive Investor’s announcement coincides with the Financial Conduct Authority’s upcoming implementation of new Consumer Duty rules, which aim to address transparent fees and charges in the financial industry. However, Fawcett believes these measures are unlikely to result in lower fees and highlights the growing competition among platforms. As consumer options widen, platforms face the challenge of attracting and retaining customers.

Wilson emphasized that Interactive Investor’s focus is not on offering the lowest fees but on providing value to their customers. He stated, “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.”