What Is An Investment Platform? How Do They Work? (2024)

An investment platform (sometimes known as a fund supermarket) offers a single place to search for and invest in shares and investment funds.

They are online or app-based services that allow you to keep all of your investments in one place, including your trading history and any investments you have bought or sold. They’ll often charge various fees, including platform fees (which can be a flat rate or a percentage of your investment) and transaction fees for each trade.

Investment platforms usually offer share accounts and trading accounts, as well as the opportunity for you to manage investments in wrappers such as stocks and shares ISAs, Lifetime ISAs, Junior ISAs and self-invested personal pensions (SIPPs). Many platforms will also provide news and interactive tools to help you select and manage your portfolio effectively, as well as forums for their clients to join.

Types of investment platforms

Investment platforms come in two broad groups: those that allow you to decide on the specific investments you will make for yourself, known as “execution-only”, and those that create a portfolio for you based on your investment objectives and attitude to risk.

Execution-only platforms

These platforms give you complete control over your investment choices and can tailor them to suit you. However, this means all your investments are made on an ‘execution-only’ basis, making you solely responsible for these choices and you will have no protection or comeback if you incur any losses.

Model portfolios

If you’d prefer to have someone do the fund research for you, look for platforms that offer model portfolios instead. They may also have different names, such as ready-made or “do-it-for-me” portfolios. These will typically ask you about your investment preferences and appetite for risk to decide which investment portfolio could be suitable for you. They are often preferred by those new to investing who need help to understand the fund landscape.

It's important to note that not all platforms offer the same choice of investments. This is because each one selects which investments it will have available, so make sure you compare platforms in advance so you know both the kind and quantity of funds you’ll have access to.

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What types of investments are available?

Investment platforms usually offer the following range of investment choices:

Shares

These are investments made in individual companies. Having shares in a company means that you own a part of it. If the company does well, the price for individual shares rises and you make a profit, whereas bad performance means the share price will drop, reducing your profits or causing your shares to be worth less than you originally paid for them. There is even the possibility that you could lose all your investment if the firm goes bust.

Funds

These are a very common way of investing. Investment funds pool individual shares, bonds or both that have a common ‘theme’. The individual parts are called units. The theme can be quite wide-ranging. For example, you might invest in a fund that is specific to a region, such as Europe or Asia, or an individual country, such as Germany. Or you might pick a fund that is investing in a commodity, such as oil, gold or one that invests in green technologies – in fact almost anything you can think of. There is still the possibility that you can lose all your money, however, this is a lower risk than with individual shares as your fund will be invested across multiple companies.

Bonds

These are where you are lending money to a company or even the Government (UK Government bonds are also called gilts). In return, you will be paid interest on the loan. Of course, some companies (and Governments) are more stable than others and bondholders are much further up the list of investors to be repaid, so the risk is less.

Are investment platforms safe?

When you invest using a platform, your investment is placed into a ring-fenced account held with a custodian. The custodian is a separate entity to the investment platform and is usually a large bank. The custodian makes sure that your investment assets are not muddled with those of the investment platform.

This means if the platform fails and falls into financial difficulties, your investment assets will remain separate and cannot be used by the platform, for example to pay its debts.

If the custodian was to fail, then investments would be protected under the rules of the Financial Services Compensation Scheme (FSCS).

Furthermore, investment platforms are regulated by the Financial Conduct Authority (FCA). You can check if the platform is authorised by looking at the FCA register. The regulator is responsible for making sure investment platforms adhere to marketing and advertising rules about financial promotions and that they conduct their business to the required regulatory standards.

Note: There is no protection against poorly performing investments. If you have made all your buying decisions, you are responsible for these choices.

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What do I need to think about when choosing an investment platform?

There are three main things you need to consider when choosing which investment platform is best for you. These are cost, the access methods available and the total value of your investments. This last one is closely related to costs, so we’ll tackle those together.

Platform fees and portfolio size

The smaller your trading portfolio, the more you need to focus on costs. If you have a modest portfolio – say up to £5,000 – then you’ll want to ensure that any profit you do make is not immediately gobbled up by trading fees and monthly costs.

As mentioned above, every investment platform is subject to differing fees and charges. Some will charge per trade, some by flat fee, others on what investments you are selling and some will charge you a percentage of your total portfolio value.

Those who are irregular share-dealers or who have a smaller pot of investments should look carefully at costs and make sure that their profits are not wiped out by the cost of an expensive trading platform.

You might want to remember that different investment platforms will give you different investment options, so this will influence the choice that an individual will make. A more experienced investor will probably seek the widest range of investments, whereas for a less experienced investor, a more limited choice may still be acceptable.

Accessibility

The old practice of calling your stockbroker every time you wanted to make a trade is long gone. Now, many people will be comfortable buying and selling through an online provider – either through a smartphone app or via an online portal.

Choose an investment platform that you feel most comfortable trading with. For beginners, you may want a platform that provides lots of ‘hand-holding’ and tools that enable you to make better decisions, while experienced traders might prefer something that is more responsive.

Next, consider which platform matches how you want to manage your portfolio. Online share-dealing via a laptop or home PC is great if you prefer larger displays and you don’t envisage wanting to do much trading while on the move. Apps have the advantage of allowing you to access your platform while out and about (providing you have a decent 4 or 5G signal) but the display is considerably smaller than if you use a conventional home computer.

How to choose the best investment platform

The best investment platform for you will depend on your individual financial situation and your investment goals. Below are some of the points to consider when looking at investment platforms.

• Check that the platform offers the type and range of investments you want to make.
• Check the charges are sensible for how frequently you want to trade – i.e. if you want to trade frequently are the costs prohibitive, or is there an inactivity fee if you don’t transact very often?
• Consider a model portfolio where the investment platform chooses your investments based on your attitude to risk and investment needs.

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