Best ETF Platforms In The UK - Our Pick (2024)

There are almost 9,000 ETFs available globally, according to Statista. Here’s a flavour of some of the ETFs on offer:

• Equities: may track an index such as the S&P 500 or technology stocks

• Bond/fixed income: hold a representative sample of bonds of certain types (such as government or corporate, high-yield or short-dated)

• Commodities: can include precious metals such as gold and silver, industrial metals such as lithium and copper, oil and natural gas and agricultural products such as wheat and coffee

• Currencies: may be based on a single currency, such as the US dollar, or a basket of currencies

• Speciality: inverse ETFs that rise as the index falls (similar to shorting) and leveraged ETFs that borrow money to increase the size of their investment (often shown as ‘x2’ or ‘x3)

• Sustainable: compliant with ESG standards.

It’s worth noting that not all ETFs are passively-managed. The number of actively-managed ETFs has increased since 2019, when the US Securities and Exchange Commission changed the portfolio disclosure requirements for ETFs.

Both ETFs and index-tracking funds (known as OEICs, or open-ended investment companies) may be passive investments that track an index, but there are significant differences:

• Pricing: ETFs are traded on a stock exchange using live prices whereas OEICs are valued and traded once a day, meaning that investors don’t know the execution price until after they’ve placed the trade.

• Spread: as with shares, ETFs have a ‘buy-sell’ spread meaning that investors pay slightly more for buying the ETF than they’d receive for selling it. Open-ended funds are usually ‘single priced’ without a spread.

• Fees: a trading fee is often charged for ETFs whereas this fee is generally lower, or zero, for OEICs. Both investments can incur a platform fee, however, this is often capped at a maximum amount per year for ETFs.

• Annual management fees: these are charged by the fund manager and are generally lower for passive ETFs, although this is not necessarily the case.

There are two main types of replication method for ETFs:

• Physical: the ETF holds all of the securities of the index they track in the same weighting as the index. For example, an ETF might hold shares in all of the companies in the FTSE 100.

• Synthetic: the ETF holds a derivative based on the index, rather than the underlying asset itself. For example, it might hold a FTSE 100 future or swap.

An exchange-traded commodity (ETC) is another form of exchange-traded product (as with an ETF) that generally tracks the price of commodities or indices. Examples include oil and gas, precious and industrial metals and agricultural products.

There are two main types of ETCs:

• Physical ETCs: these buy and store the commodity in physical form, often used for precious metals such as silver and gold.

• Synthetic ETCs: these use derivatives to track the price without owning the underlying asset. They’re often used when it’s difficult to buy and store the commodity, such as agricultural products and fuel.

We’ve looked at general investment accounts (GIAs) that allow investors to buy and sell investments, however, there are a variety of tax-efficient alternatives.

To help with this, we’ve also researched our pick of the best Individual Savings Accounts (ISAs), Self-Invested Personal Pensions (SIPPs) and Junior Stocks and Shares ISAs (JISAs).

These accounts act as ‘tax wrappers’, allowing investors to pay no income tax on dividends or capital gains tax on any profit made on buying and selling shares. However, in the case of SIPPs and JISAs, investors are not able to access the money until a certain age.

Some, but not all, of the providers listed also offer ISA and SIPP accounts, as well as general investment accounts.

There are various types of fees charged by ETF platforms:

1. Share trading fee

This is a flat fee charged by the platform each time an investor buys or sells ETFs. Some platforms charge no trading fee (often known as ‘zero commission’ platforms), while others typically charge between £5 to £10 per trade. More frequent traders may benefit from reduced trading fees.

2. Platform fee

This is an annual fee charged for holding the ETFs on the platform. Some platforms charge no fee, others charge a flat fee and some charge a percentage, typically 0.25% to 0.45% of the value of the portfolio, often capped at a fixed amount per year for ETFs (and shares).

There are two categories of percentage-based platform fees:

• Tiered fee: this is the most usual type of platform fee whereby different rates are charged on different ‘slices’ of the portfolio. For example, for a portfolio worth £300,000, a 0.45% fee might be charged on the first £250,000, then 0.25% on the next £50,000.

• Non-tiered fee: a small number of platforms charge a non-tiered fee, whereby the same fee is charged across the whole portfolio. For example, a 0.2% fee might be charged on the whole £300,000 of a portfolio.

3. Foreign exchange fee

If ETFs are denominated in a currency other than pounds sterling, the majority of platforms charge a foreign exchange (or conversion) fee of around 0.5% to 1.5%. Some providers also charge a higher trading fee for non-UK ETFs.

A small number of providers allow investors to hold their funds in a foreign currency, which enables them to convert it once and use this ‘pot’ for buying and selling ETFs in the same currency (reducing the foreign exchange fee on subsequent trades).

Holding non-UK ETFs also carries exposure to foreign exchange risk. For example, if the pound strengthens against the dollar, shares in US ETFs will be worth less in sterling (and vice versa).

4. Other fees

Some platforms charge other fees, such as inactivity fees, withdrawal fees (for accounts held in a currency other than sterling) and higher fees for trading by telephone (rather than online).

Although not technically a fee, platforms also make money on the buy-sell spread on ETFs. For example, an ETF might have a buy-sell spread of 110-113 pence. This means that investors would pay 113 pence to buy a share in the ETF and receive 110 pence to sell it.

Some platforms offer more competitive buy-sell spreads than others, and less-traded ETFs, such as ones tracking FTSE Small Cap companies, typically have wider spreads than ETFs tracking FTSE 100 companies.

Accounts can usually be opened online in as little as 10 minutes. Applicants will need to provide some basic information, such as their bank account and National Insurance details.

Electronic checks may be carried out during the initial application process, although applicants may have to supply further documents to support the verification of their identity.

When these checks are complete, and funds have been received, investors are able to start trading. Shares in UK ETFs can be traded live from 8 am to 4.30 pm when the London Stock Exchange is open.

Investors are not required to pay Stamp Duty Reserve Tax (SDRT) on the purchase of ETFs (unlike shares in UK companies).

Investors may have to pay capital gains tax if they sell ETFs for a higher price than the purchase price. However, investors have a capital gains allowance meaning that they only have to pay capital gains tax on any profit earned above this allowance in a year.

In addition, investors may have to pay income tax on any dividends received from ETFs. However, in addition to the personal allowance, there is an additional dividend allowance.

As mentioned earlier, income or capital gains tax is not charged on ETFs held in ISAs, SIPPs or JISAs.

A limit order is an order to buy or sell shares in an ETF at, or better than, a specified price. So if a buy limit order was created at 100 pence, the trade would only be executed if the price was 100 pence or below. Similarly a sell limit order is only executed at that price or higher.

A ‘stop loss’ is an order to sell shares in an ETF if the price falls to, or below, a set level. It can be a useful tool to limit downside exposure from investing in ETFs.

These trading tools can be a good way of achieving a target price for an ETF trade without having to monitor share price movements in real time.

Some providers offer monthly investing, usually based on a minimum of £25 per month. Funds are transferred into the account by direct debit and used to buy the maximum number of shares in an ETF possible each month.

If the price of the ETF is higher than the funds in the account, the money will accumulate until it is sufficient to buy at least one share in the ETF.

The benefit of monthly investing is ‘pound-cost averaging’, which smoothes out the fluctuations of the stock market as investors pay the average price of the ETF over the whole period.

However, it’s worth checking the trading fees on monthly investing. Many providers charge no, or a lower trading fee, for this option but if not, the trading fee can become disproportionately expensive for smaller monthly contributions.

Investing in equities and other assets always carries some degree of risk, as the ETF may lose some, or all, of its value. That said, investing in a broad-based ETF such as the S&P 500 tends to be lower-risk than investing in individual companies.

In terms of the platform, investors should check the FCA register to ensure that the provider is authorised. This provides access to the Financial Ombudsman Service and the Financial Services Compensation Scheme (FSCS) if an issue arises.

The Financial Ombudsman Service will consider complaints against providers and may be able to resolve a complaint if the firm fails to deal with it adequately.

The FSCS will consider claims if the provider goes out of business and owes investors money, however it only relates to certain investment products. If the product is covered, the FSCS may pay up to £85,000 per investor.

It’s also worth checking the protection offered by the general investment account. Some accounts are structured so that investments are held in ‘trust’ to protect investors if the firm runs into financial difficulties.