Investment platforms and first time investing

u0362565

Hi all,

I've been reading about investing but i'm a bit confused when it actually comes to investing in a particular fund. From what i understand, you find a fund you want to invest in and say its offered by a major bank. I could apply directly to the bank to invest in that particular product although some products require you to already have a current account with the bank so that would have to be opened first if not already a customer. An alternative to this strategy is to use an investment platform such as Hargreaves Lansdowne to buy into funds? If i was looking to buy into an index tracker fund only should i apply directly to the bank or go through a platform such as HL? I'm not looking to invest in lots of products so to me the most "tidy" thing to do would be to go straight to the bank? If you have to be an existing current account holder with the bank then presumably i can't buy into the fund through HL? Although on there website it seems that i could apply to open an ISA and apply for the fund..

I'm new to Stocks and Shares ISA's too or NISA's as they're now known, the process would be to apply to open a stocks ISA and then you must get an option to add products to it especially if the ISA and fund were coming from the same bank? I already have a cash ISA for this financial year but can i also open an ISA to hold funds? Or am i stuck with my current isa and i can now add a fund to that?

I think a breakdown of the process of getting an isa then adding a product would be useful to know i'm sure many of you have gone through this.

Thanks for the help!

jimjames

I wouldn't ever use a bank for investing.

Fund platforms are cheaper and better choice.

u0362565

But presumably there's no problem investing in a fund created by a bank? It's just you wouldn't buy it through the bank?. I'm looking at index trackers so fees are not as high as actively managed funds as I understand.

How can platforms be cheaper? Does the bank not charge them a fee for giving access to the fund? For a bank to let you invest as a customer of there's there must be some advantages for doing so? Otherwise they'd be flogging a dead horse.

Archi_Bald

jimjames wrote: »

I wouldn't ever use a bank for investing.

Fund platforms are cheaper and better choice.

Halifax Sharedealing are ok from a charge point of view for larger investments if you don't deal very frequently. They offer the same range of investments as any of the larger platforms does. snowman's spreadsheet can assist in choosing a provider for your investment (S&S) ISA.

Archi_Bald

u0362565 wrote: »

But presumably there's no problem investing in a fund created by a bank? It's just you wouldn't buy it through the bank?. I'm looking at index trackers so fees are not as high as actively managed funds as I understand.

best funds rarely come from banks - more likely from specialist fund firms (Blackrock, Vanguard etc). http://monevator.com/what-is-an-index-tracker/

u0362565 wrote: »

How can platforms be cheaper?

In the same way as a supermarket like Tesco can sell a pint of milk cheaper than a farmer could. Volume, supply chain efficiency, customer reach[ability] etc etc

u0362565 wrote: »

Does the bank not charge them a fee for giving access to the fund?

You seem to be assuming funds are owned by banks. Banks might market their own funds but there are many more outfits that offer funds, and most funds are not created/owned by any bank. Lots of materials about funds on the web, may be start here: http://monevator.com/get-the-very-best-stock-picking-fund-managers-cheap-but-theres-a-catch/

Banks are, in general and with just one or two exceptions, just about the worst place to buy funds from.

moxter

Some funds "owned" by banks are pretty cheap, like some of the HSBC trackers. Others are very expensive (eg Virgin). But as stated above, the Fidelity/Blackrock/Vanguard trackers do the same job (or as good as) and are generally cheaper.

Cash and S&S ISAs are different entities entirely and you can contribute to one of each per calendar year. With a S&S ISA the money will just sit there doing nothing until you give instructions on how you want it invested. You could just specify a single fund but more common (and advisable) is to go for multiple funds.

jimjames

Archi_Bald wrote: »

Halifax Sharedealing are ok from a charge point of view for larger investments if you don't deal very frequently. They offer the same range of investments as any of the larger platforms does. snowman's spreadsheet can assist in choosing a provider for your investment (S&S) ISA.

That's true although Halifax Sharedealing are owned by the bank group they are a separate platform from the retail arm. I was going to mention exceptions but for a newbie that then gets confusing.

I wouldn't buy an investment ISA sold by Halifax bank or another bank via their retail channels.

moxter wrote: »

Some funds "owned" by banks are pretty cheap, like some of the HSBC trackers. Others are very expensive (eg Virgin). But as stated above, the Fidelity/Blackrock/Vanguard trackers do the same job (or as good as) and are generally cheaper.

HSBC funds are a good example of ones that are cheap. However buying them from HSBC isn't cheap as far as I'm aware. Buying from a platform also gives the flexibility to get other fund manager products in the same ISA.

u0362565

Ok thanks all i'll bear all your comments in mind, i was actually looking at the HSBC FTSE 100 trackers as they came up as one of the cheapest according to thisismoney.co.uk. But looks like i should find a cheap platform-get an isa from them and take it from there.

Does anyone know if there are websites where they give a measure of tracking error as a way to compare tracker accuracy-some trackers are surely more reliable than others, i'll checkout vanguard and blackrock as these names seem to keep popping up.

As a first time investor with little knowledge i thought a FTSE 100 tracker would be a reasonable choice, how to build on that and create a portfolio is not something i'd feel confident in doing at this stage.

TCA

Back to Monevator, there was an article yesterday on comparing index trackers and tracking errors:

http://monevator.com/how-to-compare-index-trackers/

There's plenty good reading on that website regarding passive investing, trackers and asset diversification. On that last point, you needn't be restricted to the FTSE as products such as Vanguard LifeStrategy are a combination of trackers giving worldwide coverage. There are also global index trackers and ETFs which do much the same thing.

princeofpounds

Something to understand is that banks do banking, and fund management firms do fund management.

Sometimes a fund management firm will be owned by the same company has the bank and use the same branding, but they will be largely separate, if very 'friendly' operations.

The banks' role in this is actually one of distribution and sales, as they are one of the most frequent 'touchpoints' with consumers thinking about their finances.

The sad thing is that because they are the most accessible sales points for financial products outside of regular banking, they are often one of the most expensive places to buy.

Or, in less kind words, if you are coming to them you are likely to be a lazy or ill-informed customer who can be ripped off a little, as you clearly aren't shopping around.

It's a bit like going to the flagship gucci shop opposite your office to buy some designer kit, when it's available cheaper at the retail park out of town (ok, I don't know much about fashion shopping, but you get the idea!)

That doesn't mean the fund management product they are selling is necessarily bad. Some banks do have perfectly decent fund products, although there is generally a bigger range of decent fund management products outside of the bank's own operations.

Often the banks will sell these products from other third parties anyway, as they care mostly about the sales commission. Sometimes they even 'white label' and brand third party products as their own.