Understanding Investments: Platforms - BOD019

0:28I knew you knew that. a hand of your money. Still warm in here. It's fricking boiling. Hottest day of the year. I know we complained about it a lot last week, but it's now even hotter because we've been under this light for an hour. Yeah, I feel like we've got to say we are loving the heat. In Cornwall, we got to what, about 30, you think, today? 30 degrees today. For Cornwall, with the sea air, that is proper. It's perfect. It's delicious. I was just down the beach all day and it was beautiful. But under that fricking huge-ass light, it's not what we need it's not what we need it's so warm never mind we're not complaining we're delighted to be here for you our glorious audience of course yes thank you for joining us once again indeed what are we talking about this week this week we are continuing our investment series so we start concluding even yes certainly this bit anyway yes so we're starting we started with assets then we zoomed out to wrappers and we're zooming out as far as you can now to platforms okay So this is going to be an interesting one, I think.

1:31Yeah, we say that every week, so hopefully it is. People are watching and listening. They are indeed, yeah. That is true. It must be reasonably interesting. That's the main thing. No, it's just the eye candy. Yes, exactly. I've got my legs out again. So have I now. Sorry if they're incandescent, iridescent, reflective paleness. Not a lot of sun yet. No. I mean, it's been rubbish winter and spring, hasn't it? Oh, yeah. It's just funny to think how beautiful it's been this week. And then like two weeks ago, it was... Horrible. Hailing. Do you remember? Yeah, exactly. Okay, so let's start with everybody's favourite segment.

2:03It's Wanky Word of the Week.

2:10Okay, right, what is this week's Wanky Word of the Week? Are we going to just brush past the part you still don't have a button? Okay, you gave me a bye last week, so... Yeah, alright. This is, what, episode 19, so it needs to be for next time. You need to stop making these promises. I know, I feel like I could really over-engineer a solution, but really I just need to keep it simple. Yeah, a story of your life, really. Yeah, it is, really. It's like, what's the most elaborate way that I can get one single button here, but probably I'll just plug these mics into a different box here with a thing.

2:41Yeah, I do. Right, so this week's Wanky Word of the Week is potentially one of the wankiest we've had. Indeed. I think it breaks the scale of wankiness, to be honest. Yeah, well, that's all right. Let's push new boundaries. What is it? FCA authorised. FCA is the Financial Conduct Authority. Your besties. Yes, my besties. They are there for a reason. Actually, they do pretty much an excellent job. So they are the regulator. So they are tasked, well, they're one of two financial regulators. The Prudential Regulation Authority regulates the big weeks, so the banks, the big insurance companies. But for smaller companies, financial advisors, things like that, it's the FCA, the Financial Conduct Authority.

3:22so basically they are my uh policemen you know they are the ones that make sure that advisors are well they're there to make sure good outcomes for consumers of financial services yeah i'm sure it's irritating for you but it's a massive benefit for us in fact in other countries there isn't the regulation we've got and we really are a benefit for it oh there's no doubt about that we are a mature um financial services system in the uk we are you know obviously a one of the G7 economic superpowers. We are a developed economy and with that comes protection for consumers. Without it, the system won't work and doesn't work in so many other countries.

4:01We had a visit last week from our colleague Cal and he was telling me that in Bulgaria a few years ago, the government just decided it would dip into everybody's pensions. Can you imagine if that happened here? Well, I'm amazed there wasn't riots on the street there, but I mean, there may have been, but I feel like I would have heard about that and Cal would have said about it. But I mean, here there would be i mean absolute uproar imagine if they did in france they're very rioty quite a rioty people would begin the world would implode so we are you know the regulated by and large does a good job you hear about the failings always but generally speaking they do a very good job as a regulated individual and the owner of a regulated firm i have a lot of hoops to jump through and it's all for the benefit of the public so it's worth doing i feel like we should just clarify why we made that French comment.

4:45We went to Paris quite recently during some riots and let's just say they're very passionate about it. Well they've been rioting since the revolution. Yeah they are passionate people. That's one word for them yeah. But I think it's just funny to think that isn't completely out of the blue for us. No no it's we always say people shouldn't go on holiday with us because we went to London in 2011 with the Tottenham riots and then went to Paris and they were rioting over the change of the pension age. We've had more things like that. Yeah, it was changing the pension age. And so I remember, so the 2011 one, I was obviously very young.

5:18So you shielded that from me very much. So I know Ellie was a little bit aware of it and a bit worried, but I was largely shielded from it. But the Paris ones were eight. The Paris ones were hilarious because, well, they weren't, but they were because we were just like, God's sake, how are we in another place with riots? And you know, there would be like a thousand police officers go by with, you know, machine guns and batons. Yeah, exactly. It's a little bit scary for some people from Cornwall. Yeah, and we crossed the street and there was just this guy with blood all down his face and we were like, he was being seen to, but we were like We should probably not be here.

5:52We should probably not be here. Anyway, so that's the regulator. Yeah. Alright. Okay, let's start with platforms and let's start with the basics. What is it? It's the right place to start. So we talked about assets. These are like the little building blocks. You know, different things that you can invest in to grow your money, shares, bonds, gold, commodities, all that sort of stuff we talked about a couple of weeks ago. And we hold those things in wrappers, which are kind of accounts, right? So there's sort of the boxes that the underlying investments sit in. So an ISA or a pension. And then a platform, really, all a pension, all a platform is, start getting my vocab right, right from the start, is basically an online system where on you can hold different types of wrapper so you have one login and you can see both your ISA and your pension and your GIA or whatever other wrappers you've got all in one place so it's kind of to answer the next question so let's just visualize it for me I always think of I know this is a bit weird but like again this is just an insight into my brain but I'm very visual I always you are so I'm currently thinking of like a bookcase or just like some shelving units and there's like some little boxes on it.

7:05So the shelving unit is our platform. The boxes are our wrapper and the things inside the boxes are the assets. The Ikea Kallax. Indeed. Of investing. And I'm just thinking like you see the bookcase and you see all the boxes in one go. Yeah. And the boxes got labels on them. ISA, pension, GIA, bond. Or file facts or whatever you want to call it. Not file facts, files. Files. Yeah, whatever. Box files or whatever. So yeah, there's your boxes. Inside there will be your assets but the bookcase as a whole is your platform. And you only need to look at it and you've got everything. Step back, look at it, and you can see everything.

7:38Is that okay? Yes, no, it's a good analogy. So a platform will offer different kinds of accounts and wrappers. And most of them these days, most, not all, will offer investment funds. All right. Remember we talked about funds? It's the mechanism by why. A group of people put their money together, therefore can buy more than you get a cut of it. Economies of scale, yeah. So you've got a sort of portion. A cut equivalent to what you buy in. Yeah, exactly, right. Sorry, I didn't mean to punch the mic. That's okay. So a platform will offer funds from many different fund houses, mostly, right? Some platforms are offered by fund houses themselves.

8:19So Vanguard, which is a massive investment company, have a platform, but you can only buy Vanguard funds. You can buy an ISA, you can buy a SIP, you can buy a GIA, but inside your funds are going to be Vanguard funds. You can buy Vanguard funds if you're not on a Vanguard platform. Correct. yeah so if you were on for instance hargreaves landstown right you own a vanguard fund inside yes so hargreaves landstown are the platform you've got a lifetime isa on there and a stocks and shares isa and you hold vanguard funds inside there but vanguard's platform will only let you buy its own funds and there are some others like that not many though okay okay so different rappers different fund groups can you invest without a platform yes let me answer this last week i think we might have done um yes i mean so you can i mean the answer is yes but i don't know how you would do it these days um but i mean you could let's say uh pick an investment company there's one called jupiter right jupiter to my knowledge don't have a platform um in the true sense of the word offering you sips and all that sort of stuff so you could just buy some jupiter funds, they will offer an ISA, right?

9:27That doesn't make them a platform. So what I'm gleaning from this is that you could, but it's a lot easier too. Platforms are just a logical extension. I mean, I'm long enough in the tooth to remember the predecessor of platforms, which were called fund supermarkets. Wow, that's wacky, isn't it? Before that, it is, but the point, and if you get the analogy on why they were called that, because before that, if you wanted a Jupiter ISA, you've completed a paper application form and sent them a check. And then next year, you did Artemis, and the year after that you did Fidelity, right? So you ended up with millions of ISAs with loads of different providers.

9:59Fund supermarkets came along and suddenly you could collect them all together. You could still have all those different fund houses, but in one place they've been consolidated. Platform is the logical extension of that. Not only can you have funds from different groups, but you can have different wrappers as well. I'm with you. Yeah. I'm just picturing like a supermarket aisle and just being like, oh, Vanguard, Fidelity. I know. Yeah, I know. Exactly. That's exactly the analogy. Yeah, it makes sense. I've just got very clear image okay so what do these platforms do behind the scenes so i mean obviously their primary purpose is to kind of hold the money for you so that you can log in and see what you got yeah all right so they do that so they actually physically will hold your money that's called a nominee service it doesn't matter why it's called that i don't fully know why but it's generally called nominee so you send them your money direct from your bank and they organize the buying of the funds that you've chosen.

10:53Yeah, you don't. You just pick the fund. You pick them on the website. They do it all. The actual mechanics of money changing hands, going from there to Fidelity or Vanguard, all that sort of stuff. They do all that. So that's the sort of nominee service bit. They will do any report into the Inline Revenue, HMRC, if necessary. So if you are putting money into a pension, your platform will contact HMRC and ask for the tax relief back. Yeah, so they just take control, don't they? They essentially do all the admin for you. Yeah, I do. Because I do nothing. No, exactly. I have a little look every now and then.

11:28I put money in. That's all I do. Well, exactly. So they are talking to HMRC. You've got a sip on there. They're claiming the tax relief. At the other end, when you retire and you start taking money out, they will report to HMRC on that as well. They will reconcile any income. So imagine if you're holding a Vanguard fund, and so are millions of other people, that Vanguard fund makes a profit and issues a dividend or whatever. that has to be distributed between all the shareholders. You're just one of them. And that's the platform's job. So they're doing a lot of work behind the scenes, for which you pay them, of course, which we'll get to in a minute.

12:00Yes, we will. Are they banks? No. They're regulated, though, hence Wanky Word of the Week. So they're regulated. We tend to call them providers, but they're not banks. A bank's job is to take your money on deposit. We talked about this really early on, didn't we? And they basically use your money. you put your money with HSBC say, HSBC take that money they give you 2 % or 3 % interest, but they take your money and they lend it out to somebody else if it's in a savings account they get the interest yeah, not in a current account but you get a little bit of interest, but they take your money and they lend it out to somebody else at a much higher interest rate and they make a turn in the middle, they make the profit really so they pay you 3%, they charge somebody else 7%, they're keeping 4 % roughly, very simply and that enables them to pay staff and make massive profits.

12:50Banks are just some of the most profitable businesses on the planet. Which, let's be honest, is a good thing. Oh, yeah, it depends how socialist you are, but yes. We kind of need banks. Banks are the arterial system of the world economy. What a beautiful phrase. They move money around. Arterial system. In the way that our arteries move blood around the body. Good. I knew you knew that. I don't think you did, actually. No, sorry. I slipped into sort of slightly condescending, speaking to 10-year-old Kate there. I was literally appreciating the phrase for what it was. Do you think if I didn't know what it means, they're going, oh, arterial, that sounds nice.

13:22I wouldn't have given a shit. No. So banks are the arterial system. We need them. Platforms are not banks. They're just providers in the same way that insurance companies are. Okay, yeah. All right, so into the sort of features and functions section about platforms. So I know we've, just to summarize again, what are the platforms that are letting me do, the user? You, the investor. Makes investing much easier. makes investing well much easier because you can spread your money around much more easily than you used to be able to. You can shift money between accounts dead easy. Just log on and move it, right?

13:58Subject to the rules of the wrappers and stuff. So invest really easy. A key thing is to enable you to see where all your money in one place. I mean, that's proper useful. The thing is, it's just the norm now, right? But it's less than 20 years ago that that was like, wow. wow, this is like the bleeding edge of technology, being able to see your ISA and your pension in one place. I know. But now we take it for granted, which is excellent. So consolidated view, that enables you to plan, to review things and keep on top of it all, which is properly good. And yeah, offers access to loads of different fund providers, different wrappers and stuff like that.

14:38That's what they allow you to do. So when you're picking one, because we've mentioned several, there's loads out there there's no one that's better than the other certainly not that we'd stay on here well no we can't recommend so let's talk about design and ease of use how much should that impact your picking off that platform yeah it's sort of hard to know this until you actually start using them right but you can move money between platforms yeah so if you start with one for a couple months realise you don't like it you can shift money from one to the other So it's not like, oh, that money's got to stay on that platform.

15:15Even if it's in a pension? Yeah, you can transfer pensions from one to another, usually without charge or with fairly minimal charge.

15:24So app, yeah. I'll say, what was the question? Ease of use. Ease of use. Yeah, so usually you interact with your platform in one or two ways, same as you would your bank, either through a browser on a desktop or more likely these days on an app, right? So you want an app that makes sense. So classic example of this for me, I've got loads of clients and listeners and viewers to Meaningful Money who use a platform called Interactive Investor. I.I. I.I, yeah, Interactive Investor. It's great because it's fixed fee. Get into that a little bit later. So if you've got a lot of money, it's really cheap.

16:00But I find its interface really, really clunky. I used to have an account with Trading212. I could not get on with it at all. But plenty of people do. It's interesting, isn't it? I shifted to InvestEngine currently. not a recommendation and i find it much easier to use so sometimes you just gotta try stuff i shifted my eyes there from 212 to invest engine much easier get on with it much better so sometimes you gotta kind of try it and see and that's very personal it's just the same way that you can't use instagram to use your life but no it pains me yeah um just advancing age you know like it's it's not that instagram necessarily is the problem it's just it doesn't make sense or it doesn't come naturally to you yeah it is very subjective and we all work differently and i think you know i think there's part of the reason for instance why hargreaves lansdowne is so massive is because it's extremely user-friendly they've also been around for like decades but it's extremely user friendly interactive investor is less so i think but it's generally for hardcore investors so they're able to hack it and they're more likely to yeah really get into it or whatever so it's Just subjective, but you really have to kind of try it and see.

17:11I think there's other reasons to choose between one platform and another. All right, well, we'll get into that. Do most people use all the fancy features? No. Can I answer that? You can. When I log into, in my case, hardly signs it down. Not a recommendation, just the one I use because he told me to at the time. So when I open the app, there's a row of things on the bottom. I couldn't tell you what any of them are apart from on the left it says profile. Face ID pops up. Bam. There are my investments. I click one button. That's all I do. Yeah, exactly. You see the value. And then I might go add money.

17:43Yeah. Okay. So you don't do anything with it, really. I don't do any of the bottom tabs. I only click bottom left, which is profile. So, you know, your platform will allow you to drill into, you know, if you hold six different funds, it'll allow you to, you know, drill into each one and see how each individual fund has done. You can do it over different timescales. You can draw. You can have it draw a nice chart for you. fill your boots if that turns you on, but it's just not my, most people don't need to know that sort of stuff. You know what I mean? Jeremy, it's just our view and our sort of general recommendation here is that you just invest and leave it.

18:21Once you've chosen your portfolio, just put the money in and leave it unless you have to take it out for whatever reason, but certainly don't try and beat the market. Don't switch your funds all the time. Don't fret when it's gone down because it just will. But most people don't use any of that stuff. They just log in, look at their values and log back out, me included. And I was going to say, there's absolutely nothing wrong with it. In fact, that's a really good thing to do. It's great because it means money's not taking over your life. Yeah, exactly. It's a means to an end, not the end itself.

18:51All right, costs and charges is interesting to break this down and sort of make sense of it. How do they make money? A few ways usually. So obviously if they charge you a fee and it's explicit, There was a time whereby the platforms had kind of kickbacks from the fund provider. So, you know, if Platform A, whatever, would offer access to, say, Fidelity funds or Vanguard, and Vanguard would essentially pay a commission, right? Thanks for using us. It's all just a little bit sort of smoke and mirrors and a bit sleazy, that. And mercifully, that was all cleaned up years ago. So there's none of that now.

19:29So the platform's charged you a fee. it's explicit and clear and they have to disclose it up front. So fees fall into sort of two types. One is a percentage, a little bit of vocab for you, that's called ad valorem, Latin. In other words, percentage based, right? Most humans would call it that. What was wrong with saying that? Ad valorem? The longer you spend in my world, I reckon within the next two months you'll read or hear the phrase is Advalorum. Sorry, I'm just picturing myself there like, Advalorum with my wizard robe and my wand. What appears when I do that? Everybody will die of boredom.

20:12Brilliant. Let's use that. Useful spell. So Advalorum is percentage-based. So in other words, the platform will take a small percentage, I mean a tiny percentage of your money every month. So they'll express it in annual terms. so for instance HL Hargings Lansdowne I believe starts at 0.45 % right so if you've got 10 ,000 quid on there they'll charge you 45 quid a year yeah it is nominal it's fairly nominal yeah but fairly nominal so that's percentage fees other platforms charge you a fixed fee so in other words 10 quid a month per wrapper so if you hold 3 wrappers 30 quid a month or 1 wrapper is 10 quid a month or whatever and then there's sometimes they will charge you for extras.

20:58For example, if you are retired, which I know is not our target audience, but sometimes they'll charge you an annual drawdown fee for accessing your pension. Maybe sort of ad hoc fees if you want an extra statement or something like that. There's sort of one-off ad hoc charges for extra bits, but mostly it's percentages or fixed fee, but it's explicit and really clear. So can they eat at my returns? Of course, yeah. So any money you spend on a platform or you pay to a financial advisor or whatever is a is a pound that you can't spend yourself do they it's not like you have a direct debit set up with them is it it's they take out of it's a get out of report normally some platforms do allow you to pay a direct debit actually but most don't um so normally what let's say you are let's say you got 10 000 quid in your heart rate down isa and they're going to take 0.45 so they want 45 quid a year out of you they will sell 45 quid worth of your vanguard fund that you hold every year to pay for the fees.

21:56They just do it monthly, right? So they divide that 0.45 % by 12 and they take it out every month. But they'll just sell a little tiny fraction of your investment. Yeah, and you don't notice it. No, you don't notice it. Or maybe I don't because I don't have that big of an investment. You don't have that much. But imagine if you've got a million quid on a platform, 0.45 is four and a half grand a year. But I'm also, if you've got a million quid, you can afford the four and a half grand. You can, but that's not how most people get a million quid. It's easy to kind of dismiss 45 quid a year when you've got 10 grand, right?

22:33Yes. But four and a half grand when you've got a million, it's like that's four and a half thousand pounds. People like me, advisors, tend to think in percentages. Real humans think in pounds. It's a lot of money. Four and a half grand. Think about what you could do with that. I mean, even for somebody with a million quid, that's quite a nice holiday. Yeah. Right? and so you put it you think actually would i have a holiday or would i give it to this idiot financial advisor sat in front of me hmm let me weigh that up so you've got to put in pounds terms generally speaking that's where percentage-based fees cover a multitude of sins and most people just like that's not very much oh it's only a couple yeah it's not even one percent and remember last week's wanky word of the week was compounding yeah well any every pound you spend on charges cannot compound.

23:16It's gone. That one pound could be four quid when you retire. You scale that up, it's big money. So you've got to be careful. Fees will eat into your returns. Well, I was going to ask you now then, so are there any kind of fees that people should watch out for? Well, people your age, when you're getting started, when your balances are relatively small, percentage-based fees kind of work. So let's use that£10 ,000 example, right? On Hargingslandstown, they have, I think, just tweaked their charging structure. So if I've got this wrong, it doesn't matter. It's just an example, right? So if they're charging 0.45 on 10 grand, that's 45 quid a year.

23:54Whereas if you were on Interactive Investor and you had your 10 grand ISA there, you'd be paying 10 quid a month. So you'd be paying 120 quid a year versus 45, all the difference in the world, right? Three times the amount. So generally speaking, percentage-based fees work best for smaller amounts. for larger pots, flat fees work best. Can you ask your provider, right, I want to switch to fix now, or is it going to need to go to a different platform? No, they'll either offer it or they won't, so it'll probably be you would need to switch provider. But that's a lot easier than it sounds. Why do some do percentage and some do?

24:31Business model. Maybe thereafter. I think interactive are after larger pots. Right. I mean, even like Hargree's Lansdowne, they will tear down so the charging structure doesn't stay the same yeah I suppose the more money you have in yeah they'll charge you a slightly reduced fee yeah because you're trusting them with so much money yeah exactly and you know it's a business right so they know if they overcharge yeah people get pissed off people will leave yeah right and so they want to get their balance right so I think it's who they're aiming at so yeah it's mostly down to business model which they choose yeah when do fees matter when yeah from day one literally it's easy to dismiss a few quid here and a few quid there, but it does add up.

25:15As grandma once said, look after the pennies and the pounds, look after themselves. Right? So this is a good example of that. It's worth keeping an eye on costs and choosing the option which is best for you wherever you're at in your time of life. And if you're starting to feel more uncomfortable with the amount, then maybe it's time to look at different platforms. Yeah, well, it's law now that on an annual statement, costs are broken down to the penny in pounds terms, not percentages. So, you know, when you get your annual statement, there'll be a page and it'll say, you've paid this much. You say you paid this much to your fund providers, this much to your provider.

25:48And if you've got a financial advisor, this much has gone to them as well. And so you can see it in pounds terms. So we've never used to be the case before 2012. But that's really good. It's really good. It's really open. Yeah, exactly. Transparent and clear. But it means that advisors have had to get better at justifying value. and platforms and fund providers. Yeah, so for me at the minute, the percentage works because I don't have millions. That much, yeah. And that I can personally, I personally justify the fee because it's really easy to use and I like the platform. Yeah, there are cheaper ones available for you, but it serves a purpose.

26:27And I think as a starter investor, it's really clear. But you know, as you make your millions, then... When are you going to pay me my millions? then we'll switch platforms down the line maybe. You probably, you know, this side of 100 grand, you probably don't need to be worrying too much about going fixed fee. But it does depend on the platform. Okay, so let's talk about trust to kind of wrap it up. Okay. How do you know if you can trust a platform? It's a good question. Is there like how you can search for your financial advisor and you see, oh, FCA authorized. Okay, they're chartered, they're a fellow, whatever.