Moneyfarm was launched in Britain in 2011 following a successful period of operation in Italy, and since then it has grown from strength to strength. From maximising the value of your ISA to making a General Investment Account work for you, the platform offers a lot of value for those looking to make the most of their money and their tax-free government savings allowance.
With a particular eye on Moneyfarm fees and charges, this guide will carry out a stock broker comparison and help you discover whether or not Moneyfarm really is the best stock broker out there.
- Your choice of a do-it-yourself ISA or a General Investment Account
- Fees competitive for some investment amounts but not for others
- FCA-authorised platform with membership in the Financial Services Compensation Scheme
- Minimum deposit of just £1 for those who wish to start small
Building Your Own ISA
Everyone in Britain has an ISA (Individual Savings Account) allowance, which is a government-set savings limit – currently £20,000 – under which the money is exempt from tax. Moneyfarm specialises in the stocks and shares ISA, and acts as an Internet-based wealth management service designed to take the hassle out of constructing a DIY portfolio that works with this type of ISA. While constructing your own portfolio may seem difficult, Moneyfarm makes it easier by giving you the chance to deposit just £1 when you begin – so you can start small and scale upwards as you become more confident. This is particularly useful when compared to other products on the market. Nutmeg, for example, offers a similar service but it requires the saver to pay in a much larger amount of cash.
More broadly, the Moneyfarm fees for their stocks and shares ISA product currently sit at 0.7% of the invested amount for sums of between £0 and £20,000, 0.6% between £20,000 and £100,000, 0.5% between £100,000 and £500,000 and 0.4% over £500,000. This is a very competitive fee structure, especially when compared to the wider wealth management industry – meaning that Moneyfarm is a cost-effective disruptor. According to estimates, investing say £15,000 would require monthly fees of £12.50 (or £150 per year) with Moneyfarm – but up to £32 per month with the average wealth manager, according to figures from professional services firm Grant Thornton. Ultimately, Moneyfarm is likely to save some customers money.
General Investment Account: An Alternative
Moneyfarm’s other main product is the General Investment Account, which operates in largely the same way as the stocks and shares ISA product. The difference with the General Investment Account, however, is that the interest you earn (or the returns you accrue) are all taxable, which means that you’ll lose more of your cash to the Exchequer – and that’s even before Moneyfarm fees have been taken into account. If you have a moderately-sized investment amount available and you’re looking to minimise your tax liability, then the General Investment Account may not be the right move, and a stocks and shares ISA may be more appropriate.
- All General Investment Account returns are taxable
- No upper limit
- Alternative to stocks and shares ISA
- Fees are the same
Despite the limit and the taxable nature of any earnings, though, the positive side of the General Investment Account offered by Moneyfarm is that there is no upper limit on the deposit amount as there is with the stocks and shares ISA – so if you have a large amount of cash to invest it may be worth looking into a General Investment Account as well. The Moneyfarm fees for the General Investment Account are also the same as the fees for the stocks and shares ISA account so there is no need to factor fees into your product decision. Instead, it should be taken on the basis of tax liability requirements and how large your investment amount is.
Moneyfarm Fees: More Information
In addition to the competitive basic fees, Moneyfarm charges are also cost-effective in other ways. By far one of the most appealing aspects of Moneyfarm’s offer is the fact that investments of between £0 and £20,000 are management fee-free for the first year, meaning that you can use the service without any Moneyfarm charges whatsoever until you’ve decided if it’s for you. Because the customer base of the stock broker market treats fees as inevitable, it’s very unusual to see this kind of offer – and it’s a major reason to consider using Moneyfarm for your investment needs. The basic fees also cover a wide range of services from Moneyfarm, including all of the costs associated with trading, managing your account and the development of the original investment advice tools in the first place.
However, it’s important to remember that there are some additional costs to using Moneyfarm, as well as the headline fees. Everyone who uses the platform, for example, will have to pay an additional fee to cover the underlying exchange-traded fund (ETF) costs, as these instruments are a way for Moneyfarm to facilitate passive investment. At the moment, these fees sit at around 0.3% on average. But while this may at first seem a little like an unnecessary cost, it actually saves the trader cash in the long run because it avoids the more expensive active funds used by many wealth management organisations – which can sometimes cost closer to 2%.
Risk Assessment: Moneyfarm’s Methods
As well as deciding how comfortable you are with paying Moneyfarm’s range of charges, you’ll also need to think about the degree to which you’re comfortable with being exposed to risk. The Moneyfarm system, which is known as a source of “robo-advice” thanks to its digital-first approach, asks you a series of questions to determine your appetite for risk. That way, you can ensure that the computerised investment service only invests at a level you’re comfortable with and does not expose your cash to unnecessary danger. Unlike some robo-advice brokers, Moneyfarm carries out this assessment itself using internal teams rather than outsourcing this to a third party.
When at the risk profile stage, it’s likely that you’ll be asked questions which help the system work out how much risk you’re willing to take on, such as whether you’re inclined to want to sell as soon as you see the market trend dip or to what extent you consider risk an inevitable part of the profiting process. At this stage, it’s likely that you’ll be asked questions about your knowledge of the investment world as well. You may be asked whether you’re familiar with ETFs (exchange-traded funds), for example, or how knowledgeable you are about mutuals. This may seem like a waste of time, but it’s for your own benefit as it prevents you from falling into the trap of making unsuitable decisions at the outset.
The Cost of Moneyfarm: A Contrast
Overall, the cost of using Moneyfarm is clearly low. But in a crowded market what’s most important is actually how low (or high) it is compared to the other alternatives available. Luckily for those who are so far persuaded by Moneyfarm, though, a broker comparison reveals that the platform is actually one of the best when it comes to portfolio management. Moneyfarm’s highest fee, 0.7% on the smallest deposits, contrasts to 0.75% for the same amount on Nutmeg – and Moneyfarm’s second-highest fee, 0.6% for £20,000 to £100,000, is dwarfed by Nutmeg’s fee of 0.75% for the same amount.
- Nutmeg is Moneyfarm’s major competitor
- Moneyfarm costs are lower when you’re investing under £100,000
- But fees end up higher if you’re investing over £100,000
- It’s worth scrutinising the market carefully before making a decision about where to invest
It’s when it comes to higher investment amounts, however, that Moneyfarm lets us down. Where Moneyfarm will charge a 0.5% fee for investments between £100,001 and £500,000 and a 0.4% fee for investments of over £500,000, Nutmeg charges 0.35% for both – meaning that the hoped-for higher returns from higher capital investment could actually be eaten into quite substantially if left on Moneyfarm. As with any investment decision, then, the smartest thing to do is take a good look at a range of providers, take into account the variety of services on offer and then assess how they meet your needs before making a firm choice.
Safety and Security
No matter how much cash you choose to invest in your Moneyfarm portfolio, it’s important to familiarise yourself with the safety measures in place designed to protect your investment in the unlikely event of Moneyfarm going out of business. Although the company is well-established, reputable and appears – at least from the outside – to be a success, it’s never possible to tell the future, especially in the sometimes volatile finance industry. However, Moneyfarm has taken a number of steps to ensure that client investments are protected in case the worst does happen. In the event that Moneyfarm went out of business, investments of up to £50,000 would be reimbursed by a body known as the Financial Services Compensation Scheme – so investors with small to medium-sized pots can feel reassured.
- Safety measures in place
- Moneyfarm deposits are FSCS-backed up to £50,000
- Cash held in segregated accounts
- Platform is FCA-regulated and authorised
As is good practice in this industry, meanwhile, cash invested by customers is held in a separate bank account to cash belonging to Moneyfarm – such as any profit it might make and reinvest, or any cash it requires to cover staff costs. And given that Moneyfarm is authorised by the British government body the FCA (Financial Conduct Authority), its affairs are subject to regulatory analysis. As a result, it receives scrutiny on a regular basis – a big vote of confidence in its practices and a way to reassure investors.
Moneyfarm: Our Verdict
Overall, Moneyfarm is an excellent choice of platform for those who want a stock broker service which does not require extensive participation but which can often deliver lower fees, approved regulatory/safety measures and sensible risk assessment and profiling. As our Moneyfarm review has shown, the platform comes with a lot of advantages – including a choice of products to fit your circumstances as well as innovative, in-house risk assessment methods which help tailor your profile to your own investment needs. It does, however, have some pitfalls, such as particularly high fees compared to its competitors when it comes to investing larger amounts of cash as well as additional fees (to cover the platform’s use of ETFs) that you might not be expecting.
Whether or not you see it as the best provider on the market will depend on your exact requirements, but what is clear is that it is providing many people with the chance to earn decent returns without being hit by exorbitantly high charges thanks to a clever fee structure, the use of passive funds and more sensible strategic decisions. In particular, for those who have a five-figure, mid-range sum of cash to invest Moneyfarm can provide a sweet spot in which a product with competitive fees, deposit safety and no ISA cap all combine to make a very appealing investment prospect. Ultimately, Moneyfarm is ideal for many – so it’s certainly worth considering if you’re looking to grow your portfolio.
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