Investing through your high street bank was once a big no-no. Known for their high costs, poor performance and limited choice, they rarely offered the best option for investors. But if they cut costs and fine-tune their offering, would investing where you do your day-to-day banking finally make sense?
All of the big five major banks – NatWest, Lloyds Bank, HSBC, Barclays and Santander – operate investment platforms for clients.
The banks are well placed to record their habit. They have brand power, high street exposure – and customers already trust them with their money.
Money in the Bank: All the Big Five – NatWest, Lloyds Bank, HSBC, Barclays and Santander – operate client investment platforms
Major banks now also offer ready-made options for investors who have neither the time nor the inclination to research investment funds, choose stocks or reposition a portfolio in periods of constant economic change.
This month, NatWest increased the stakes by cutting service costs – from 35 cents per £ 100 invested to 15 cents, in an effort to entice more customers to invest.
Dylan Williams, head of wealth at NatWest, says: “We need to make investment more accessible to everyone – cost shouldn’t be a barrier. This is an opportunity for individuals and families who can, to invest and safeguard their long-term financial well-being. ‘
With ready-made investment funds, you can choose the level of risk you want to take with your money and the bank will take care of the rest from that moment on.
You can choose from a basic menu of three to five funds, ranging from a low risk to a bolder long-term strategy.
Lloyds Bank has three different funds to choose from, Santander four, while Barclays, HSBC and NatWest each have five.
Alternatively, you can hold on a bit more with an advisory service that helps people decide which fund to put their money into.
All of them offer this, except Lloyds Bank, which shares guidance, but no advice.
Typically, investors can start with as little as £ 50 a month – at Santander it’s just £ 20 and at Lloyds Bank it’s £ 100.
NatWest, Barclays, Lloyds Bank and HSBC only allow their own online banking customers to sign up for their no-nonsense investment plans. But Santander welcomes customers who bank elsewhere.
Customers with a current or savings account at a high street bank will find their way to investing easily. The fame can also be attractive if they have never invested before. A
An uncomplicated way to invest is welcome if it translates into more people doing it.
Holly Mackay, of the straightforward investment website BoringMoney, says: ‘Some traditional financial advisors will not see clients with less than £ 100,000 in investment and so people need a credible digital alternative.
“For those people who want help – and are hesitant – I think digital advisory services from banks are worth a look.” But investors can be forgiven for wondering if investing through their bank is good value for money.
Justin Modray, of independent advisor Candid Financial Advice, says: “Banks have traditionally had little value for investment, with clients typically experiencing high costs and poor performance. Fortunately, that is changing to some extent. ‘
Modray points out that most banks also provide a platform with a wider range of investments from all over the market, allowing more engaged private investors to choose their own funds or individual company shares. He adds, “If your bank does this, the days are gone when you should avoid investing money with them at all costs.”
However, for people who pursue an easy life, it will be the ready-made funds that will appeal. And some experts argue that these ready-to-use funds still don’t provide good value.
Damien Fahy, founder of personal finance website MoneytotheMasses, says, “NatWest offers five investment choices, all of which have underperformed their respective benchmarks since launch.”
For ready-to-use “medium risk” portfolios, the Santander fund also underperformed its benchmark.
Established investment platforms offer an alternative to large banks. They usually offer more choice and can be cheaper.
Modray says, “There are plenty of investment platforms vying for your business, such as AJ Bell, Fidelity and Hargreaves Lansdown.
They all do essentially the same thing, but costs and service, along with bells and whistles, vary. It pays to compare your bank with this and find a platform that suits you best. ‘
These long-established platforms offer a comprehensive range of investments and the ability for investors to choose funds for themselves.
For those who prefer less choice, they also offer suggested fund portfolios depending on your risk appetite.
Modray adds: ‘A wide choice of investments is great, but not if it is confusing or leads you to make a bad decision.
“Recommended fund portfolios are a sensible starting point.”
Robo advisers are another alternative. These are online companies that ask customers a series of questions and, based on their answers, find a suitable portfolio for them.
Fahy says, “The fees are broadly similar to NatWest, but they offer more fund choice – often including ethical options – and in many cases, better investment returns.”
Examples include Nutmeg, Wealthify, Wealthsimple and Moneyfarm. Robo consultants often come up with state-of-the-art apps for smartphones or tablets and modern branding.
But Mackay doesn’t write off banks completely. She adds, “Banks may not have the same sexy apps as some of the newer robo-advisors, but they provide a credible way for less confident people to put a toe in the world of investing.”
She highlights a handy tool from Santander’s ‘digital investment advisor’ that walks clients through a series of questions to determine a person’s risk profile, how to deal with financial loss – and then comes up with a personalized suitability report.
If a client chooses to buy the £ 20 report, they will also recommend which of the four funds to invest in.
Mackay says, ‘It’s up to you whether you continue with Santander or another provider. But that report in itself is useful. Most people just want someone to tell them what to do – if that sounds like you, at least look at the tools and fill out the questionnaire. ‘
Investing with the bank may be an imperfect start for investors, but sometimes the most important thing is getting started.
Mackay adds, “It’s affordable and will often beat the long-term alternative to savers – who won’t do anything with your money there for another year while worrying about what to do.”
HOW THE FUNDS MEASURE
Each bank offers between three and five mutual funds, ranging from risky to adventurous. They mainly invest in index tracking funds, which helps keep costs down.
For each bank, we have provided details on the mid- or balanced fund.
The five funds range from ‘cautious’ to ‘daring’. They are all managed by Coutts and consist of bonds, stocks and cash.
NatWest describes its balanced fund as’ like the first dive into a lake. It could be colder and get your heart rate going, but there should be some nice views’. The largest holding is Vanguard FTSE UK All Share Index Fund. This includes all companies listed in the UK.
If you had invested £ 5,000 when the fund launched in June 2016, it would be worth £ 6,758 today.
The five funds consist of cash, stocks, bonds and real estate.
The largest holding in its Global Strategy Balanced Portfolio is HSBC American Index Fund. The largest equity interests are Apple and Microsoft. An amount of £ 5,000 invested five years ago would be worth £ 7,800 today.
It offers five funds, all managed by Barclays Investment Solutions. The middle fund is Barclays Wealth Global Markets 3 (Balanced). The risk level is described as ‘cycling on the road, but still on the cycle path’. It has 12 percent cash, 38 percent bonds, and 50 percent stocks. If you had invested £ 5,000 five years ago, it would be worth £ 6,792 today.
The four funds are called Multi Index Fund 1, 2, 3 and 4.
Santander’s Multi Index Fund 2 has its largest holding in British pound corporate bonds (43 percent), followed by British equities (18 percent). It will never invest more than half of its portfolio in global equities. The fund was launched in 2016. An amount of £ 5,000 invested three years ago would be worth £ 5,392 today.
The three turnkey funds are managed by Scottish Widows, part of Lloyds Banking Group. Managed Growth Fund 4 consists of 49 percent equities, the remainder mainly bonds and real estate. The fund was launched last September and the largest holding is Scottish Widows UK All Share Tracker.
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