Platform friendly?

David Prosser shares his thoughts on investment company platforms and the recent Alliance Trust Savings sale.

For an industry sometimes characterised as old-fashioned and behind the times, the investment company sector has a pretty decent record of innovation. This, after all, is the industry that first popularised collective investment funds more than a century ago. More recently it pioneered regular savings schemes and dividend reinvestment plans – and it has also taken the lead on platforms.

In recent times, we have come to think of platforms as the internet-enabled fund supermarkets that provide easy access to almost any investment product you care to look for. But the idea really dates from the platform set up by Alliance Trust in 1986: it launched a service enabling investors to buy shares in rival investment companies, which at the time seemed novel to say the least.

More than 30 years on, Alliance Trust announced this week that it is selling its platform service to another platform provider, Interactive Investor. That has worried some commentators, who rightly point out that many platforms don’t have a great record of supporting investment companies; many have only recently begun making closed-ended funds available on their sites, while others are still to do so.

It is a reasonable point to make, though Interactive Investor’s performance in this regard has been better than many. Still, more generally, the good news is that it has become much easier to access investment companies through platforms. The resurgence of the closed-ended fund sector since the retail distribution review six years ago, with both advisers and investors substantially increasing their purchases, has forced the leading online players to raise their game.

Indeed, in several cases, platforms are effectively offering investors a financial incentive to put their money into closed-ended funds rather then their open-ended equivalents. That’s because they apply different charging structures to these two vehicles: very often, platforms charge fixed cash sums each year for holding investment companies, but levy percentage charges on open-ended vehicles. For investors with medium-sized or large holdings, the latter can work out much more expensive, particularly over time.

Naturally, you won’t hear platforms shouting about this distinction. But advisers and investors who do their research will very quickly find that there are material savings to make by buying investment companies through the right online platform.

The service launched last year by the AIC – powered by The Lang Cat consultancy, which does much of the best work analysing investment platform charges – can provide real value here. It analyses more than 40 platforms – including sites targeted at both consumers and advisers – to provide a one-stop-shop for those looking for data on where investment companies are available and what it will cost to buy and hold them online.

It has to be said that the diversity of the platform sector does not make comparisons easy. With a plethora of different models in place, the most affordable platform for any given investor depends on all sorts of factors, including the mix of the investment portfolio, its value and the frequency with which the investor deals. And cost, of course, is not the only factor to consider – good service, useful facilities and a host of other issues may be relevant.

Still, this is a sector where competition is strong. For advisers and investment company investors prepared to put the legwork in – and to use sites such as the AICs’ – good value is now available. Alliance Trust’s sale of its platform should not jeopardise that.