In the run up to the end of the tax year there will be plenty of adverts around from providers wanting you to invest your money in their ISA products. Of course, you can invest in your ISA all year round, but many people forget and leave it until the last minute.
Equity ISAs can be bought from many different sources, through several different channels, and there are various reasons for going down one route or another:
Banks & Building Societies
As well as offering cash ISAs, banks & building societies may also be able to provide equity ISAs. However, they will usually only be able to provide you with their own products, which may or may not provide you with the choice you want, or indeed the best returns.
Direct from a fund manager
There are many fund managers out there, with a multitude of funds available to invest with. By going direct to a fund manager, you may not receive the best “price” (for price here I really mean that you will be charged more on your initial investment), so you may wish to consider using a discount broker (see below).
By the way, fund managers are unlikely to be able to offer you cash ISAs, although you might be able to find an equity fund that invests in cash and which gives you some of the security that a normal cash ISA would give you.
Discount Broker / IFA
Discount brokers and IFAs will generally be able to offer you a better deal on your equity ISA than if you were to go direct to the provider.
If you are prepared to make your own decisions about where to invest your money (called “execution-only” investing), most discount brokers will give up the commission they would normally get from the provider in order to reduce the initial charge that you pay. This means that more of your money gets invested, rather than swallowed up in charges.
If you’re not sure about what investment you wish to make, or which fund to invest in, an IFA will give you advice, but will usually do this either for an agreed fee or for part of the commission.
Brokers and IFAs make their money from “trail commission”, which is payed to them on an annual basis, out of the fund manager’s standard annual management charge (generally around 1.5% of the value of your ISA). So there should be no extra costs in going through a broker, although there may be some exceptions.
Traditionally, as you are only allowed to have 1 ISA provider per tax year, you could only invest in one fund manager’s funds for your equity ISA.
Over the past few years though we have seen the rise of Fund Supermarkets, which allow you to invest in more than one fund managers’ funds. The largest fund supermarket is Fidelity’s FundsNetwork which has around 55 fund managers and over 900 funds available. Another big fund supermarket is Cofunds. Fund Supermarkets skirt the 1 provider rule as the overall supermarket is classed as the provider, so you can have any number of fund managers’ funds making up your ISA (in practice, there are limits on how many you can invest in).
Fund supermarkets, and the FundsNetwork in particular have other benefits which I will cover in another post. One big plus is that you can invest up until midnight on April 5th on the FundsNetwork website, so it’s great for those who like to leave their ISAs until the last minute. (Believe me, I know from experience that there are people who do leave it this late).
It’s worth noting that you can invest in a Fund Supermarkets directly or through a broker, so it’s possible to combine the benefits of the Fund Supermarket with the cheaper pricing of using a discount broker.