Costs
Flat fees and percentage fees cross over somewhere
Two platforms can charge very different amounts for the same portfolio. The point where one becomes cheaper is arithmetic you can do once.
This is less a set of instructions about flat versus percentage platform charging than an argument, and it is worth saying so at the start.
The argument in brief
- Divide the annual flat fee by the percentage rate to find the crossover balance.
- Caps and tiers move that crossover substantially.
- Compare using your own contribution pattern, not the headline rates.
Two different charging shapes
A percentage platform fee grows with your balance, so the amount you pay rises every year even if you never contribute again. A flat fee stays constant whatever the balance, which makes it expensive on a small pot and progressively cheaper on a large one. The two structures cross at a balance you can find by dividing the annual flat fee by the percentage rate.
Below that balance the percentage platform is cheaper; above it the flat-fee platform is, and the gap keeps widening from there. This is one of very few investing questions with an exact answer available in advance of making any decision.
Caps and tiers complicate it
Many percentage platforms cap the fee above a certain balance, or reduce the rate in tiers as the balance grows. A cap effectively converts a percentage charge into a flat one above that level, which moves the crossover point substantially. Tiered rates usually apply the lower rate only to the portion above each threshold rather than to the entire balance.
Reading whether a tier is marginal or applies to everything is the difference between a rough estimate and an accurate one. Caps sometimes apply only to certain asset types, a detail buried in the charges schedule rather than the summary page.
Dealing charges sit on top
Platforms charging per transaction add a cost that depends on how you invest rather than on how much you happen to hold. A monthly contributor makes twelve purchases a year, and a fixed fee on a small monthly amount is a large percentage of it. Scheduled or regular investment deals are frequently priced far below ad hoc ones, which changes the whole comparison.
Where it helps most, somebody investing one lump sum a year faces almost no dealing cost regardless of what the per-deal rate happens to be. The right comparison therefore uses your own pattern of contributions rather than the platform's headline figures.
The charges that only appear when you leave
Exit fees, per-holding transfer charges and account closure fees still exist on some platforms and are set out in the schedule. A per-holding transfer charge makes a portfolio of many small funds expensive to move, which functions as a form of lock-in. Simplicity therefore has a second benefit, because a portfolio of two funds costs almost nothing to transfer elsewhere.
Put simply, some platforms have removed exit charges entirely, and that is worth confirming rather than assuming in either direction.
A platform that is cheap to hold and expensive to leave is a different proposition from one that is cheap on both.
Fund charges are a separate layer
The platform fee pays for administration and custody, while the fund charge pays the manager, and both are deducted from you. Comparing platforms on total cost requires holding the same funds on both sides, or the comparison measures two things simultaneously. Some platforms negotiate cheaper share classes of the same fund, which can offset a higher platform fee completely.
Where it helps most, others restrict which funds are available, and a cheap platform that does not offer what you want is not actually cheap. Add both layers together for your intended holdings before concluding anything about which provider costs less.
Some of this will suit you and some will not, and that is the point.
How often to redo the sum
The crossover matters more as the balance grows, so a decision made at the start deserves revisiting once the pot has multiplied. Providers change their charging structures periodically, usually announced in an email that reads like routine administrative housekeeping. An annual check of what you actually paid, taken from the statement rather than the published rate, catches most surprises.
Switching for a small saving rarely pays once transfer time and effort are counted, while switching for a large one frequently does. The calculation takes ten minutes and is one of the few in investing where the answer is not a matter of opinion.
The takeaway
Work out the crossover once, write it down, and check the statement against it when the balance has grown.
Small and repeatable beats ambitious and abandoned, almost every time.
Questions readers ask
Which structure is better?
Neither in general. Percentage charging is cheaper below the crossover balance and flat charging above it. The crossover is a division you can do in seconds.
Should I switch as soon as I pass the crossover?
Not automatically. Weigh the annual saving against transfer costs, time out of the market and the effort involved. Small differences rarely justify the disruption.
