Should I pay for an investment platform or use a free trading app?
The lang cat’s Steve Nelson asks whether there is a hidden cost to a “free” service.
“Commission-free trading” still feels relatively new in the UK. Even so, it looks like it’s here to stay. Trading apps have helped tweak expectations around pricing and usability, pushing the industry towards simpler journeys, cleaner interfaces and lower visible charges.
They have also nudged some of the established platforms into a bit of action. Fees have been trimmed, tariffs simplified and digital experiences improved. All in all, it’s hard to argue the market is not more competitive than it was.
Still, it is worth stepping back. When trading looks free, the platform still needs to be paid somehow. From a customer perspective, it’s worth taking a look at where the costs sit, who ends up paying them, and what you get in return.
Why would anyone still pay for a platform?
In simple terms, there’s a lot more to the world than price.
Brand reputation and standing can be important when a platform is holding your life savings or retirement money. Established providers have long track records, large teams, and systems built to handle messy real-world events like corporate actions, dividends, tax reporting, transfers, re-registrations and inevitable customer queries. When something breaks, being able to speak to a capable support team can matter more than anything.
One of the benefits that can be stronger on traditional platforms is the ability to help customers exercise their shareholder rights.
Steve Nelson
There is also the question of the investor’s rights, not just their holdings. One of the benefits that can be stronger on traditional platforms is the ability to help customers exercise their shareholder rights. That includes voting on company resolutions and, where relevant, attending AGMs. This is not a niche “nice-to-have”. For some investors it is a meaningful part of ownership, and it can be harder to do well if a platform is built only around fast, simple execution.
Some newer platforms do wrappers and admin very well. Others focus on a narrower set of products and features. Neither approach is automatically better. The point is that paying for a platform is often paying for the parts of investing that are not visible in a “£0 commission” headline.
Are there hidden costs to free platforms?
Hidden is not quite the right word. Most of the time, the costs exist in published terms. The issue is that they can be less obvious, and they can vary depending on behaviour.
A platform can offer free trading and still make money through currency conversion, interest on cash balances, subscriptions, share lending, or other product lines. That does not mean customers are being treated unfairly. But it does mean comparisons need to be based on a clear understanding of the services you actually use.
It also means the economics may nudge customer behaviour. If a platform earns more from FX, overseas trading becomes more profitable for the platform. If a platform earns more from cash, cash features may be pushed more actively. If revenue comes from subscriptions, there may be incentives to steer users into paid tiers.
The big players tend to charge more explicitly, which in turn makes it easier for customers to see what they are paying for, and to decide whether the value, service level, and resilience justify it.
What does the future look like?
Crystal ball time. Price pressure will continue, but only to a degree. Some investors will be comfortable with app-based platforms, and the incumbents will keep adjusting their pricing and digital experiences.
And those incumbents are clearly here to stay. Large platforms become large due to doing things right over many, many years. And everything we know about the sector points to the fact that in uncertain periods, people often care more about operational resilience, support, reputation, and governance. They also care about what happens when they need something that is not just a simple buy or sell.
The likely outcome is a slightly more segmented market. Some platforms will win on simplicity and low visible costs. Others will win on range, wrapper support, service, and reputation. Many will try to do both.
For investors, the sensible approach is to compare the full package. Look beyond the dealing fee. Check FX, cash interest treatment, wrapper charges, and the practical support available when you need it. Then add the less tangible factors. Does the provider feel trustworthy? Will they help you exercise your shareholder rights? Do they have the standing and track record you want looking after your money?
If you want to compare providers properly, the AIC’s platform tables compiled by the lang cat, break down charges across mainstream providers. I hope this article goes some way to explaining why the “free” platforms don’t sit neatly side by side. Remember, “free” only means something once you understand what else you are paying.
Five ways “free” platforms get paid
- FX charges
Buying overseas shares involves currency conversion. Fees can be explicit or embedded in the rate. Costs can apply when buying and selling. - Interest on cash balances
Platforms can earn interest on client cash and keep a margin. Some share more back than others, sometimes depending on account tier. It’s worth saying that this is prevalent in mainstream platforms too. Who said life was straightforward? - Subscriptions and paid tiers
Basic access may be free, with charges for ISAs, SIPPs, enhanced features, better FX rates, or higher interest rates. - Share lending
Some platforms lend out shares held in custody and earn income from that activity. Terms and opt-in or opt-out rules differ by provider. - Other product lines
Some firms make revenue from products such as CFDs or margin through spreads and financing charges. If used, these costs can dominate the overall picture.
