Introducing our pricing model


(Vladislav Kozub) #6

Great to see more updates coming from the team, I hope it is a sign of a soon-to-come roll-out!

The pricing model is very transparent and fair, truly reflects technological advancement as opposed to a need to cover manual-entry overheads (hello HL).

Apparently, the team has SIPPs on the roadmap, maybe other markets potentially (Japan/Hong Kong) so I believe it would be interesting to consider how they will tap into the pricing model. Would you inflate the Alpha cost slightly or implement an additional, more premium subscription? If the latter, it would be interesting to see all Alpha features + free SIPPs + other market’s free transactions and how those will be different to Alpha.

I am not sure what cost you as a broker would incur to administer SIPPs but all the other archaic brokers tend to charge 0.5-1% of the capital annually, hence if it must be %-based, it could be a benchmark to consider when modelling revenue forecasting with various pricing mechanisms (and indeed interesting to see what pricing structure Freetrade will come up with!).


#7

Admire the freemium model… gamechanger :clap:

  1. Whilst scrolling through Twitter, I noticed this response:


    Have you considered delineating this into a mid-tier Freetrade Omega that’s a halfway house between Basic & Alpha?

  2. Psychological pricing… did you deliberately not price your subscriptions at £9.99/month or £99.99/year? If so, why?


#8

Hey thanks Diversify

Interesting suggestion :thinking:

Personally I think Freetrade Basic with an ISA add-on (or expansion pack) makes sense, especially if you want a General Investment Account to trade over or alongside your ISA allowance

Plus two tier is just simpler for customers (and us)!


#9

Re psychological pricing, I can’t speak to the original rationale, but again personally not a fan of price rhetoric. Down with pennies!


(Viktor) #10

It never occurred to us to price as £9.99. @adam can talk to the rationale, but I personally find that type of pricing insincere.


ISAs sneak peak
(Viktor) #11

The verbatim rationale from Adam on our team Slack: “no BS”. :grin:


ISAs sneak peak
#12

Fair enough. I imagined it would come down to keeping things simple.

Personally, I think the ISA wrapper is something distinct & of importance enough to customers for it to be more than just a bolt-on/add-on/opt-in. Therefore, it maybe clearer, to differentiate a mid-tier option so as to not conflate Basic with anything else. Just a suggestion for your revenue model.

Example: For £5 per month, or £50 per year, Omega customers will get X amount of Instant Trades, trading/execution, tax-wrapped accounts (eg ISAs), custody and administration of their investments all included.


(Gareth) #13

I agree with Diversify, while keeping the model simple is great, somewhere in the middle would be good that offers the benefit of an ISA account for someone that say wants to get a few free trades a month for example.

Are there any plans to expand the pricing model after roll out?


(Christopher) #14

From my own point of view pricing is spot on for clarity, and fairness in particular if you grow your portfolio to your ISA limit.

Also with Freetrade in ditching the penny. Again, personally speaking those .99s seem disingenuous, and to a degree it suggests ‘cheapness’, which is distinct from affordable.


#15

I disagree somewhat. Yes, if you’re investing/trading a minimum of £10,000 through Freetrade, then £100/year for Alpha is cost effective as that works out at ~1% annual fee. This compares well with Robo-Advisors such as Wealthify, Moneyfarm etc.

However, as @Gaz92 alluded to, there is an area below £10k for those who want the peace of mind of the ISA tax wrapper (without having to worry about what the capital gains tax free allowance etc is) & who foresee making fewer trades. £100/year on anything substantially less than £10k - which given 3trade is democratising stockbroking is likely to many customers - maybe out of reach. Therefore, a clear mid-tier offering would be nice perhaps. This is just an idea for clarity as basic is very good anyhow.


(Vladislav Kozub) #16

@Gaz92 @Diversify Fair points raised, but let’s look at the actual figures too. Even with 10-15k capital, Alpha would not be as perfect because 0.67-1% are still relatively pricey fees comparing to the Basic option.

If an individual is having minor capital (0-15k), there is no point in either Alpha nor ISA for £36 a year. You would simply not reach your allowance in a few years. Can you imagine how long will it take to get to £11700 gain? Few years of lucky, 5-7 years if the market is favourable, by that time an individual would have accumulated a larger capital by monthly savings anyway, hence Aplha would be more or less justifiable. In my subjective opinion, 25k is a great start for annual Alpha for traders or normal ISA for those who don’t enjoy the fun and prefer 100% mutuals/ETFs

Oh, and dividends are also tax free up to 5k, therefore, you do not expect taxes on those with a capital below 100k.


#17

There’s a lot in your post.

But as far as I’m aware, an all in one sub-1% fee to passively invest is the opposite of pricey.

We must remember FreeTrade is effectively under the bracket of active investing - albeit self-selecting - but their fees are massively disrupting to this entire sector.

ISA-wise… it’s just a smart thing to do if you’re here for the long-term. £36 per year for a Stocks&Shares ISA beats what you’ll get from your high street bank all day long (unsure about elsewhere though).

Also, it’s worth noting Alpha has a lot more on offer that may justify the price… which Freetrade say they’re aiming to make it so good that it only makes sense to upgrade. As you say, whatever plan is suitable depends on the individual and their circumstances, but a mid-tier option would be viable imho.


(Vladislav Kozub) #18

@Diversify Totally support the point, particularly the mid tier option.

But speaking strict maths, £36 a year is still less cost effective than £0, don’t you agree? In a bigger scheme of things, of course the entire business model of Freetrade is unique (for Europe) and extremely appealing for the customer, especially the newcomers.

But if you simply want to test the idea of investing without incurring a penny of expense, purely for the sake of understanding whether it is right for you - Basic account is for you. Little capital. Fractional shares. No capital gains and dividend tax due to allowance. Only the end-of-the-day trades.

And I believe that would be the best starting experience for those who never invested/traded before.


#19

I definitely agree & for now Basic would be my option.

However, I’m sure it gets more complicated when your capital is invested across several platforms. The ISA allowance can be split across all the ISAs that exist of which you can open 1 of each per year (cash, S&S, Peer2Peer, etc)

But I’ll just cross that bridge of what plan makes sense when I get to it I suppose. Definitely good food for thought :thought_balloon:


(Gareth) #20

@Vlad I see your point, but I’ve always read that Freetrade wants to help millennials start investing, and that’s what I hope the focus will be on. I don’t know about you, but I don’t know many millennials people have £10-15k or more ready to invest? Also, even if I’m under the 10k CGT allowance, I’d rather have it in an ISA so I don’t have to worry about any self assessment tax stuff.

Right now I’m nearly 100% certain that I’ll have a free account and pay £36 a year for an ISA, plus maybe £12 for 1 investment per month.

Now, if there was something that would cost maybe £50-60 per year that included a few extra free trades or features, I’d be all over it.


(Vladislav Kozub) #21

@Gaz92 certainly it makes it a peace of mind knowing that you have no need to associate yourself with HMRC when using ISA, but again, you only need one if you gains exceed £10,700 or you sell annual allowance x 4 (even not making any gains) - which is at least 43k.

Hence if I was a starter myself, I would have gone for Basic until I realise I am getting close to 20k, and then transfer all into ISA before the 5th of April.

But anyway, I am only saying all of it because I work in a finance related field so this £36 saving is just more efficient than £0 :grin:

I guess if I was not acquainted to the HMRC regs, maybe would have gone for an ISA straight from the start!


(Viktor) #22

Well put, this. :+1:


#24

Excuse my ignorance on the matter - I’ve only just started to look into this kind of thing properly.

When it comes to ISA’s, having just signed up to Wealthify (it became available on the Starling Marketplace, so I thought I’d give it a go) - Can you only have 1 per year?

Does signing up to Wealthify impact my use of FreeTrade?

Thanks


(Kenny Grant) #25

The Dividend Allowance is now £2000 for the 2018 tax year. Of course if your pay is already partly dividends (company directors for example), you’ve probably used that allowance so an ISA makes sense even if it costs you a little money. I think for most people an ISA is the simplest route, and the one they should be encouraged into.

It’s a shame freetrade couldn’t find a way to make the ISA free - that would be an incredibly attractive offer and clearly differentiate them from other services. Looks like the ISAs will be ready for next tax year though, which is good news, even if they do have a small charge.

I’ll probably try out the Alpha service when it comes along as it looks interesting and once you have saved a decent amount the cost is negligible and not comparable to percentage fees charged elsewhere. Again, would be nice if the first x trades were free in a month perhaps for UK too, just to make it really simple.


#26

If you signed up to Wealthify this current tax year, post April 5, then you can’t open an another Stocks&Shares ISA till next tax year.
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Is it possible to have more than one ISA?