WATCH: What investment fees do I need to know about… and how can I avoid them?

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CMC Invest

10 October 2022

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When you invest, your capital is at risk.

"The bad news is that fees also compound over time and reduce the amount of money in your pot"

Important: This article is for general guidance purposes only and should not be considered investment advice. If you are unsure about the suitability of an investment, please seek out advice. When you invest, your capital is at risk.

If you’re investing in the stock market, the chances are that you want to make money, not lose it. But, to do this effectively, it’s not just about navigating the markets: there are a whole host of investment fees and watchouts you need to be aware of, too.

Here, we walk you through the different types of fees you might encounter, we look at why a ‘zero-commission’ promise might mean a host of hidden fees, plus we discuss why the amount you like to buy and sell might dictate the platform that’s right for you.

You can also check out our videos below, where CMC OPTO’s Head of Content, Haydn Brain, and independent financial journalist, Michelle McGagh, dig deeper into the world of investing, fees and what’s right for you?

Does it really matter?

The majority of investment fees are only half a percent here and half a percent there, so it might not seem like a big deal on the face of it. However, over a longer period of time they make a big difference due to the effects of ‘compounding’.

When you invest, you don’t just earn returns on the sum that you put in, you also make returns on the returns that you’ve made. Over time, this gives you a larger and larger pot of money, which is known as a compound effect.

Learn more about compounding here.

The bad news is that fees also compound over time and reduce the amount of money in your pot. As an example, say two people invest £10,000 and enjoy returns of 5% a year before fees. However, one person pays an annual fee of 1.25% and the other pays 0.5%...

Over 20 years, the person paying 1.25% in fees has an investment pot of £20,696, while the person paying 0.5% has £24,014. That’s a difference of almost £4,000. And the more you invest, the heftier that difference becomes.

Now to the fees you may encounter…

1) Platform fees

If you’re using any type of investment platform, there will inevitably be a charge involved, which basically covers the cost of using the platform and all the resources it offers you.

This is very much standard practice, so there’s no getting around it. Depending on the platform, this may be known as a platform fee, account fee, management fee or – if you’re holding your investments in an ISA or a pension – an ISA or pension fee. On occasion, these fees may be served up as monthly subscription plans, offering additional services for a set price.

Platform fees: digging deeper

“It would be great if all platforms charged fees in the same way and called them the same thing so they could be easily compared,” says independent financial Journalist, Michelle McGagh. “But unfortunately it’s not that easy - and this is where it’s worth paying attention.”

“The platform fee could be a flat fee charged each month or it can be a percentage of the value of your investments,” continues Michelle. “When it’s a percentage fee, some brokers may have a cap on how much you pay, and others don’t.”

2) Commission

“The platform fee is the base level charge you’re going to pay for holding your money on the platform,” explains Michelle.

“If you want to do anything with your money, such as buy shares and funds, then you’ll probably have to stump up again – and this second level of charges is known as dealing fees, trading fees, commission or transaction costs.”

As with platform fees, commission varies depending on the platform, but it can also vary within a platform depending on what investment type you’re buying and selling.

Commission: digging deeper

Platforms offer a huge host of investments, but the main ones are…

  1. Stocks or equities: This is where you use a platform to buy shares in individual companies.

  2. Funds: This is where a fund manager invests in various types of assets on your behalf.

  3. Trackers / ETFs: A commodity, bond or composite of products that tracks stock market index, rather than being managed by a person.

  4. Investment trusts: A special type of fund listed on the London Stock Exchange.

Regardless of how you choose to invest your money, you’ll have to pay a fee to put these investments in your portfolio – and this is where it’s important to consider the type of investor you are now or you intend to be.

“If you’re really keen on trading, you’re active in your investments and you like to switch your portfolio around multiple times a month,” says Michelle, “then rather than getting charged for each deal, you’d be better off picking a platform that offers you a flat rate for commission per month.

“The other option is a platform that reduces the dealing charge for multiple trades, so the more you trade, the cheaper it gets.”

“If you know performance fees exist, you can make sure there are no surprises later down the line”

3) Fund fees

For those of you who aren’t keen on picking your own company shares or stocks to invest in, you have the option of choosing actively managed funds. This is where a fund manager will invest in a range of stocks for you.

“As with everything, there’s a fee for investing in a fund, but there are two key things to be aware of,” says Michelle. “First, there’s the fund fee or Ongoing Charges Figure (OCF). This is the fee that the fund management company sets company wide and covers the annual management charge – or AMC – as well as all the expenses of running the fund, such as dealing costs.” This should be obvious on their website and easy to find.

“Then there are any discounts that the investment platform has managed to wangle on fees for specific funds,” continues Michelle.

The reason why this is important is that you could have a scenario where one platform has a higher platform fee than another, but it might be offering a lower charge for a particular fund that you want to invest in. If that’s the case, you may be better off going with the higher platform fee, because the fund discount makes it more attractive for you.

Fund fees to watch for

Watchout 1: “Just because a fund has a high fee, it doesn’t necessarily mean that the fund manager always knocks it out of the park and it’s a star performer,” says Michelle. To keep on top of this, your best bet is to make sure you look at the track record of the fund manager managing your fund and decide if their hefty fee is worth paying.

Watchout 2: “In addition to charging the standard set of fees, some funds plonk a performance fee on top if a fund manager clears a pre-set target,” says Michelle. “Now, good performance isn’t necessarily all bad, as it means the manager has done a good job and you’ll enjoy the return, but you will have to pay for it.”

The key thing here is that if you know performance fees exist, you can be sure you’re happy to pay them before they surprise you later down the line.

4) Hidden fees

We’ve covered the main fees that you’ll have to pay, including a few watchouts. But there are a whole host of hidden fees that you’ll want to be aware of, too.

  1. Account opening fees – As the title suggests, a fee for opening an account.

  2. Withdrawal fees – If you want to dip into your investment pot for whatever reason, you may be charged for withdrawing your money.

  3. Dividend investment charge – If you have invested in shares or funds that pay dividends and you elect to reinvest those income payments automatically, you could be charged for doing that.

  4. FX fees – If you choose to invest directly in companies listed on stock exchanges outside of the UK, you won’t be able to invest and receive returns in sterling, which means you’ll likely pay a foreign exchange charge to move, for example, US dollar returns back into sterling.

  5. Switching or exit fees - If you decide you want to change platforms, move your money elsewhere or switch your pension or ISA, then you might be hit with an exit fee.

Of course, hidden fees are only ‘hidden’ if a platform doesn’t tell you about them. Platforms can, and do, offer transparency around whether they are going to apply any of the above charges.

What’s best for me?

There’s no such thing as the ‘cheapest’ or ‘best’ platform because it depends on how much money you have to invest, either as a lump sum or as a regular amount, and how often you plan to change your portfolio. With this in mind, there are two key questions you need to ask yourself…

1) How much can I afford to invest each month? If it’s quite a high amount each month, you don’t want to be paying a percentage of that each month as a fee, so you probably want to settle on a platform that offers a flat fee .

2) How much do I want to tinker with my portfolio? If you’re going to go in and out of funds and in and out of shares, the dealing charges we mentioned above are going to hit you, so it’s worth considering a platform that accommodates your style of investing.

All in all, you’re never going to avoid investment platform fees altogether, but if you know what you’re looking for, do your research and pick wisely, you can almost certainly limit the impact they have on your portfolio.

With CMC Invest you can invest in US and UK shares, ETFs and Investment Trusts with £0 commission and no monthly fee for a general investment account. Learn more about our fees here.

General investment account

Platform fee (monthly fee)


Dealing fee (commission)


FX fee


Account opening fee


Withdrawal fee


Dividend investment fee


Switching or exit fee


Capital at risk.