The hidden downside to using investment platforms

Investment platforms have revolutionised investing, enabling millions to take the plunge. But in terms of enabling shareholder participation and monitoring, their record is patchy. Thankfully, the situation is improving: many platform investors now can engage directly with companies.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When I first began buying and holding shares, there were no investment platforms. 50 years ago — and yes, alas, it was that long ago — Hargreaves Lansdown, AJ Bell, Interactive Investor and the like simply hadn’t been invented.

Full-service stockbrokers, and banks, were pretty much the only option. Real-time pricing? Or even near real-time pricing? You could pretty much forget it.

And as far as ordinary investors like you and I are concerned, I’m convinced that investment platforms have been a huge force for good.

Here be dragons

Back then, buying shares was expensive — I have no record of trading costs back in the early 1970s, but I’m looking at a dealing note from 1993, noting a commission of £31 for a £1,000 share purchase. What you got was a share certificate, which it was important not to lose.

Dividends were paid by cheque, requiring you to queue at the bank to pay them in. 

And stockbrokers — frankly — were a bit off-putting, and most ordinary folk had no idea how to go about dealing with one. Consequently, most people didn’t.

Banks were more familiar, but one needed to visit during banking hours to trade. And by ‘trade’ I mean signing a form to instruct them to buy shares, or handing over a share certificate and signing another form. And, as I say, forget real-time pricing.

Rightly, investment platforms such as Hargreaves Lansdown — which claims 1.7 million clients — have been credited with democratising investing.

Thud, thud: something heavy this way comes

But there’s one important way in which, in my view, investment platforms don’t democratise investing.

Sure, they enable investors to buy and sell at the click of a keyboard, 24 hours a day. Sure, they provide oodles of free information about shares and funds: yield, P/E ratios, price data, dividend histories, core financial data, and so on. And sure, there’s page after page after page of user-friendly educational materials.

The exception is company reports. Years ago, they used to arrive in the post: big fat envelopes, thudding on the doormat. If you held a share certificate, you got company reports — and with them, cards to vote on shareholder resolutions, and invitations to company annual general meetings.

All of which very largely doesn’t — or at least didn’t — happen with investment platforms.

Do-able? Yes. Investor-friendly? No.

Now, let’s be clear. It would be wrong of me to say that the large investment platforms are disenfranchising ordinary investors — even though last year, consumer rights champions Which? used that very word.

But you have to go looking for annual reports, and then download them, and then read them. And many people don’t. You can register to vote — but the process has traditionally, when offered, been cumbersome and awkward. And most investors haven’t bothered, even if they knew it was possible. And while it is often possible to attend company meetings, the same comments apply.

Consequently, actual shareholder participation is low. Quoting research by shareholder group ShareSoc, Which? reckons that just 1% of ordinary shareholders vote. (And that includes those holding share certificates, who return those cards.)

So two recent developments are to be lauded.

Platforms get the message

First, investment platforms — or at least some of them — are starting to make shareholder participation easier.

Last year, Interactive Investor — the UK’s second-largest platform — changed its systems so as to automatically opt all of its clients into its voting and information service.

You don’t have to vote, but you can if you want.

And Hargreaves Lansdown — the UK’s largest platform — has this year made its existing shareholder voting process easier to use, by developing an online service specifically to handle it.

Both brokerages, in my view, are to be commended.

You don’t invest through those particular platforms? Not to worry: that Which? article contains a handy table, detailing the situation at several others.

Virtual engagement

But what about company meetings themselves? These are more problematic for many investors — unless your holding in a company is worth many thousands of pounds, London-based meetings are not very feasible for investors in the regions.

(Granted, not all meetings are in London, but you get my point. And even worse are meetings held in the Channel Islands.)

Yet here, too, help is at hand. Lumi, a firm which manages investor meetings for most of the Footsie, reports a growing number of meetings now being held in hybrid format — that is, in-person and virtually. Globally, around a third of investor meetings are now hybrid.

And it’s not only investors who benefit, notes Lumi. Companies see benefits in terms of more attendees, more questions during meetings, and the opportunity to access investor viewpoints that they might otherwise not hear.

Again, this is a development to be applauded.

Digital enfranchisement

All in all, it’s a far cry from 1973, when I first went on a company’s shareholder register. (Westland Helicopters Ltd, in case you were wondering.)

As I say, investment platforms have transformed investing, and removed much of the trading ‘friction’ that reduced the likelihood of ordinary investors engaging with the stock market to build wealth. They’ve been a huge force for good.

But that engagement is a two-way process: having all these individual shareholders on the shareholder register — albeit by proxy — brings responsibilities in terms of communication and investor democracy.

It’s been a while, but it’s good to see that progress is being made.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Collective

Value Shares

Up 10% in days, what on earth’s going on with the Diageo share price?

The Diageo share price has perked up in December. This shareholder takes a look at what's behind the Guinness maker's…

Read more »

Collective

Could popular index trackers derail your retirement?

Betting your retirement plans on the Magnificent Seven is fine if that’s what you want to do — but don’t…

Read more »

Collective

Could Labour actually be good for your wealth?

It’s early days, granted, but the signs are positive. A FTSE 100 re-rating — upwards — could be on the…

Read more »

Collective

What makes for a good investor?

Good investing isn’t so much about brilliance, as discipline.

Read more »

Collective

The tax-free route to millionaire portfolios

• Although annual ISA subscriptions are capped, ISAs are an undoubtedly serious wealth-building tool: you can build serious wealth.

Read more »

Investing Articles

Will a longer-term mortgage jeopardise your retirement?

Monthly stock market investments, over the long term, can build up a portfolio designed to pay off those mortgages on…

Read more »

Investing Articles

3 FTSE 100 takeover targets

The FTSE 100 is on a tear, and so is takeover activity. Here are three Footsie firms where premium bids…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The investing question that many don’t ask

Being diversified means looking at different sectors, and different countries: London is just 3% of the global equity market.

Read more »