How financially secure is investengine unless it raises fees?

General
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Trying to decide how much of various holdings (e.g. ISA, SIPP) my family and I should move across to Investengine.

Investengines fees are currently very low (which is great). But I’m concerned they may increase prices in the future. And the lack of support for in-species transfer out means losses from being out of the market could easily trump fee savings for being with Investengine for a couple of years. This is a huge barrier for me transferring more funds across.

To help with decision making, I thought I’d do some back of the envelope calculations.

According to Investengine’s annual accounts, it made losses of £2m in the year to April 2021, and £3m in the year to April 2022.

It also suggests it made only £16.8k in commissions in 2022, up from £3.4k in 2021. This would imply only around £6.7m in assets under managed portfolios on average in the year to April 2022, and £1.4m in the year to April 2021. That seems pretty small, given total assets under management according to this April 2023 article were £170m.

Lets say in order to be sustainably profitable once it has scaled a bit bigger, IE needs £10m a year in its managed portfolios. That would point to a need for around £4bn across its managed porfolios. As a comparison Vanguard, with its incredible brand name, has around £15bn in total on its white-labelled UK Investor platform.

How feasible is it that IE will achieve that sort of scale?

I’m personally a bit dubious that this can be achieved, and suspect adding fees for DIY GIA and ISA investors at some point is going to make a lot of sense! My experience of the DIY portfolios has been great. I’d happily be willing to pay a fee for the service, but also would like to have confidence that the fees won’t be excessive and would remain competitive with other providers.

Of course, IE is now charging 0.15% for SIPPs - and this could be a way of helping keeping GIAs and ISAs free. But SIPPs have a lot of admin costs compared to other products. And IE’s proposed fee cap is well above custody fees for pension investors only investing in ETFS (£90 for Fidelity, £120 Free Trade, £120 AJ Bell, £156 ii). This pricing model, coupled with a lack of support for drawdown, suggests to me IE will probably only attract customers with relatively low balances.

Interested if others have views on IE’s financial sustainability and the likelihood of fee increases. Would certainly help me make a decision!

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I can’t comment on the financial viability / security of InvestEngine but it is worth calling out a few thinggs the SIPP fees mentioned.

Fidelity is £90/year when you hold under £35k or 0.35% otherwise - this works out at 0.35% or higher so InvestEngine provides a better deal in this regard.

Freetrade is a better deal if you have more than £80k in your SIPP

AJ Bell I can’t find the £120 charge (although I may have missed something), they seem to charge 0.25% and charge for dealing too. Dodl is 0.15% with no Cap so InvestEngine is better with regards the cap.

II is better after £104k but charges fees for trading which are not insignificant if you trade more than a couple of times a month.

I do believe InvestEngine is quite competitive in the SIPP space and supports the smaller investor - whether the charges will change in the future, hard to tell.

SIPPs are a minefield with their charges, often way overcomplicated - everything depends on your circumstances.

Hope this helps a little! :slight_smile:

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I doubt you will find anyone on here inclined to predict the future for InvestEngine. If someone did make a prediction, I’d say ignore it and continue doing your own investigations - but (quote) ‘predicting is hard, especially when it is about the future’.

I would also say: all investing involves risks. Some we accept, some we reject and some we diversify. Platform choice is one of the risks.
Though bear in mind that we are investing in the underlying ETFs, not InvestEngine.

If investing for others as well as yourself, you do of course need to consider their capacity and tolerance for risk too.
Keep up the research, but consider that professional advice is available if it would help.

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@DarrenB - I think you are confusing SIPP platform custody fees for funds (typically uncapped % except at fixed fee brokers like iWeb and ii) against those for exchange traded securities like shares or ETFs which mostly based on %s, but are capped at a fixed amount at AJ Bell, Fidelity and HL.

Fidelity’s fee cap is definitely £90 if you only invest in ETFs. AJ Bell SIPP has a max charge of £10 a month if you are only investing in shares, gilts or ETFS. HL’s SIPP cap is £200 a year for shares, gilts and ETFs.

Of course, Fidelity, AJ Bell and HL charge explicit transaction fees (except for HL when doing regular investments), and none have rebalancing features that are as slick as Investengine. That said, I suspect for people making larger transactions, its possible that these will be offset by getting better prices/lower spreads (see this post about how a IE customer got charged much higher spread than similar transactions at the same time). IE routes its transactions via interactive brokers, but HL and AJ Bell are LSE members.

I agree that IE will typically work out cheaper for those with very small balances in their SIPPS.

But because IE is not super competitive for larger balances, I’m skeptical they will be able to grow SIPP balances large enough to be profitable without starting to charge fees on GIAs and ISAs.

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You are right, I really need to pay more attention to the fine print on the charges - need more coffee… I did say it was a minefield :slight_smile:

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Some of your comments, that I don’t find supported :-

AJB and HL don’t guarantee Direct Market Access on all transactions, according to their order execution policies.

Regarding the link implying potential spread manipulation. If IE achieved anything other than ‘the best possible result on behalf of our clients when executing orders’ (from IE T&Cs) they would breaking their own T&Cs and the law (mifid ii regulations).
I have experienced spreads open on SONIA trackers for short periods, particularly when rates were lower and there was less volume.

The transaction costs for AJB, Fi, HL can be material for those saving regularly or rebalancing across a portfolio of funds and accounts (eg. ISA, SIPP, DD, GA). So it depends on the individual’s circumstances. Though, could be irrelevant in your case of course.

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Thanks!

Sorry wasn’t intending to imply IE is seeking to make money by manipulating spreads (though I see that is implied by the link), I was simply making the point that the price you pay for a given security may not be as good with IE as with other brokers, and this may partially offset some of the transaction costs they charge.

That said, I can also see how batch dealing (as IE does) can work out favourable to a customer.

For very large one-off transactions, I’d personally value being able to see a live quote before transacting and declining if it seems the spread is ridiculous! With IE, you don’t really have that control.

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For me, you hit on a big psychological hurdle with IE for those coming from ETF trading on the alternative platforms mentioned - no longer seeing a price before buying.
Spreads do spike at times, regardless of whether buying DMA or 3rd party.

It can be diversified to some extent by splitting the order, but if inclined to avoid that risk, you would indeed have a problem with IE.

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I came over to IE from Fidelity who charge 0.35% irrelevant of investment size if you set up monthly savings plan with them for £25 minimum per month.
Legal and General cost 0.25%
Vanguard 0.15% capped at £375
With IE, they have been solid since I joined back in 2021.
If you invest in Liquid ETFs with invest engine then at least you can sell them and move your money elsewhere.

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My view too: don’t look a gift horse…etc

and don’t stress about time in the market if the party ended, just liquidate and move on.

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It’s a good question and something that I’ve pondered.

I’ll be honest that I don’t fully understand how FSCS protection works with S&S ISAs but at the core I think it protects an investor up to 85k in the event that the S&S provider goes under and the investments vanish/diminish due to failings on the provider’s part - for example incorrect/incomplete record keeping with respect to nominee accounts, clients assets not segregated properly, other irregular behaviour on part of the provider, administrator using client assets to cover their costs (Berkeley Applegate order).

Just to be clear, I fully understand that it doesn’t cover any losses in the value of the ETF itself. Also, I’m not entirely sure that the FSCS protection will cover any losses from a Berkeley Applegate order where the administrators get permission to sell client assets to cover their costs.

I don’t think it would be controversial to say that the probability of a small loss-making startup going into administration is a LOT higher than the likes of iWeb, II, HL, etc.

Given the above, until IE is profitable and grows to a size somewhat comparable to the big-bank backed players, I personally would not go above 70k or so invested through IE.

However, my real limit is much lower (no more than 2 years worth of ISA contributions) because IE doesn’t allow in-specie transfer outs and I wouldn’t want to be stuck inside IE simply due to the volatility risks involved in transferring out in cash.

I love IE as a platform, the low fees and the features it offers but they don’t take away from the relative fragility of their business as it currently stands.

Edit: As per HL, the FSCS does cover the costs involved in a Berkeley Applegate order during administration. That’s a great relief.

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IE has been around since 2019 I think. It is still scaling up. Start-ups in the Fintech space usually run at a loss, untill they get a lot of users then introduce a fee…pretty much what Free Trade did. Tbh, if IE introduce a low fee, I will have no hesitation in paying it. If you hold liquid assets, if IE goes up in smoke for some reason, then your money is ring-fenced and all will happen is that the ETF will be transferred to another company, IE don’t have access to your ISA or SIPP funds. Or you just sell-up and move on. I understand the anxiety around this, but I think that IE opperate on the cheap…such as once daily execution orders. So maybe they don’t have so many overheads as say Fidelity or Vanguard? From April 2024, you can use more than one ISA provider at a time so maybe spit your contributions between a few providers for piece of mind.

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This is pretty good summary

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The Founder Simon Crookall is also part of these stock brokers which have £1Billion AUM…
My point is I think that IE has some experienced people at the helm…

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I’d feel more confident if the company wasn’t making losses, of course, but I don’t concern myself too much with IE’s internal decision making.

I will say that I’m not surprised relatively few people use the managed portfolios. IE’s appeal is the no-fee DIY portfolio option.