Why Use An ISA Discount Broker?

Everyone can have an Individual Savings Account (ISA).  It’s a tax-efficient savings scheme that allows you to save up to £7,200 each tax year without declaring it for tax.  It’s not an investment in itself – it’s a tax-free wrapper in which you can put different kinds of savings.  You can use all of your £7,200 allowance for shares, unit trusts and investment trusts – this is known as a Shares ISA.

If you are interested in a shares ISA you may be looking at various types of fund to start you off.  Perhaps you feel that unit trusts are a less risky investment method, or you may be interested in a particular fund because someone you know has found it a good investment.  What you may not realise is that you can save money on your ISA investment by going through an ISA discount broker and gaining ISA discounts, rather than buying your fund directly from the fund provider.

In fact, there are quite a number of advantages in using an ISA discount broker. 

• When you buy directly from the fund provider, you will usually pay an initial charge of around 5% of the value of the fund, sometimes up to 5.25% or more.  The ISA discount broker will remit most of this fee – sometimes all of it – which of course means you get a much better return on your fund.  Discount brokers can do this because like Independent Financial Advisers (IFAs) they receive commission on the sale, but unlike IFAs they don’t offer advice, so their costs are much less and they can afford to pass on the commission to you.

• You get much more choice.  When you buy direct from a fund manager, you can usually only put funds from that manager into your ISA.  An ISA discount broker will usually allow you to pick and choose from the fund supermarkets. (A fund supermarket is a web site where you can go to pick from a large selection of popular investment funds.)  You can choose from several funds and put them into your ISA, usually at no extra cost, and this provides a much better spread of risk.

• You can switch funds much more easily.  If you buy the funds in your shares ISA direct from the fund manager, switching can be awkward and can take several days because you have to wait for the money.  With an ISA discount broker, because you are using a fund supermarket you can do it at the click of a button.  Plus of course it’s much cheaper, since with the direct method you would have to pay the full charges on your new fund.

• A good ISA discount broker will provide research information and regular bulletins about fund performance.

With all these advantages, it’s surprising that large numbers of people still go direct to fund managers to buy the funds to put in their ISAs.  Of course, if you really don’t feel confident about choosing funds from a fund supermarket, you probably would be better using an Independent Financial Adviser.  But with the help provided by a good ISA discount broker, plus the ease of switching, you could give it a try – you could learn a lot, develop in confidence, and soon become a seasoned investor!

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