Almost every UK investment platform charges some form of custody fee, sometimes called a platform fee, service fee, or account fee, alongside the separate charges levied by the funds you hold. Because it is charged continuously on the value of your investments — rather than as a one-off cost — the custody fee is often the single largest ongoing cost a long-term investor pays, yet it is also one of the least understood. Understanding what this fee actually pays for, and how its structure can quietly favour or penalise different portfolio sizes, is essential to comparing platforms sensibly.
What a custody fee covers
A custody fee is charged by the platform (sometimes called the "wrapper provider" or "broker") for holding and administering your investments on your behalf. It is entirely separate from the ongoing charges figure (OCF) levied by the fund manager for running the underlying fund, and separate again from any dealing charges for buying or selling. In practice, the custody fee pays for a bundle of services that includes:
- Safekeeping of the legal or beneficial title to your investments, typically held in a nominee structure on your behalf.
- Administration of tax wrappers such as ISAs, SIPPs, and Junior ISAs, including reporting to HMRC where required.
- Processing of income (dividends and fund distributions), corporate actions (such as rights issues or fund mergers), and record-keeping.
- The online platform, mobile app, research tools, and customer support that most investors interact with day to day.
- Regulatory compliance, including the platform's own obligations under Financial Conduct Authority (FCA) rules and its contribution to the Financial Services Compensation Scheme (FSCS) levy.
None of this is directly related to how well or badly your investments perform — the custody fee is charged regardless of returns, which is precisely why it deserves close attention when comparing platforms.
How custody fees are typically structured
Percentage-based (ad valorem) fees
The most common structure charges a percentage of the total value of assets held, often on a tiered basis where the percentage reduces as the portfolio grows. A typical structure might charge 0.45% on the first £250,000, 0.25% on the next £250,000, and a lower rate or nil above that.
Flat fees
Some platforms instead charge a fixed pound amount per month or per year, regardless of portfolio size — for example, £10 a month, or a set of flat fee tiers based on account value (such as £4.99/month up to £50,000, £9.99/month up to £100,000, and so on).
Hybrid and capped structures
A number of platforms apply a percentage fee but cap it at a maximum pound amount once holdings reach a certain size, or apply different structures depending on whether holdings are funds, shares, or a mix of both (it is common for platforms to charge a percentage fee on fund holdings but a flat fee, or no fee, on shares and ETFs).
Why the structure matters more than the headline rate
A 0.25% custody fee sounds cheaper than a £120 flat annual fee — until the portfolio size is taken into account. Because percentage fees scale with the amount invested while flat fees do not, the relative attractiveness of each structure flips at a particular portfolio size.
A worked hypothetical example
Consider two hypothetical platforms, Platform A and Platform B, and two hypothetical investors with different portfolio sizes.
| Portfolio value | Platform A (0.25% custody fee, no cap) | Platform B (flat £120/year) | Cheaper option |
|---|---|---|---|
| £10,000 | £25/year | £120/year | Platform A |
| £50,000 | £125/year | £120/year | Platform B (marginally) |
| £150,000 | £375/year | £120/year | Platform B |
| £400,000 | £1,000/year | £120/year | Platform B, substantially |
This hypothetical illustrates a general pattern seen across the UK platform market: percentage-based custody fees tend to be more competitive for smaller portfolios, while flat or capped fees tend to become dramatically cheaper as a portfolio grows into six figures and beyond. Neither structure is inherently "better" — the right choice depends entirely on the size of the portfolio being held, and may change over time as that portfolio grows. These figures are illustrative only and do not reflect any specific platform's actual charges.
Custody fees within tax wrappers versus general accounts
Custody fees are usually charged in broadly the same way whether the underlying account is a Stocks and Shares ISA, a SIPP, or a general investment account, though some platforms charge slightly different rates for each, or apply a single combined fee across all accounts held by one person or one household. Because the current ISA annual allowance is £20,000 (across all adult ISA types combined) and the pension annual allowance is £60,000 (or 100% of earnings if lower, tapered for high earners), many long-term investors accumulate meaningful sums across ISA and SIPP wrappers over a number of years — precisely the scenario in which custody fee structure has the most cumulative impact. It is worth checking whether a platform charges its custody fee once across combined household or family holdings, since linked-account discounts can materially change the comparison.
Other costs that sit alongside the custody fee
Dealing charges
Charged per transaction when buying or selling shares, ETFs, or investment trusts; open-ended fund dealing is very often free.
Exit and transfer fees
Some platforms charge a fee to transfer holdings away to a different provider, sometimes per holding (for example, £25 per fund transferred out). This is worth checking before committing to a platform, since it can act as a switching cost later.
Fund-level ongoing charges (OCF)
Charged by the fund manager, not the platform, and expressed as the ongoing charges figure — typically ranging from around 0.05% to 0.10% for a passive index tracker up to 0.75% to 1% or more for an actively managed fund. This is layered on top of, not instead of, the platform's custody fee.
Questions worth asking when comparing custody fees
- Is the fee a flat amount, a percentage, or a tiered/hybrid structure, and at what portfolio size does the balance of advantage shift?
- Is the fee capped at a maximum amount, and if so, at what level?
- Does the fee differ between fund holdings and direct shares or ETFs?
- Are ISA, SIPP, and general investment accounts charged separately, or combined for fee-tiering purposes?
- Are there family or household linking discounts available?
- What, if anything, is charged to transfer holdings away in future?
How custody fees are usually collected
Most platforms deduct the custody fee directly from cash held in the account, either monthly, quarterly, or annually, rather than sending an invoice. If there is insufficient cash in the account to cover the charge, some platforms will automatically sell a small portion of a chosen holding to raise the funds, which is worth being aware of if an account is normally kept fully invested with no cash buffer. Statements typically itemise the fee separately from fund charges, so it is usually possible to see exactly what has been deducted and when, though the format and clarity of these statements vary noticeably between platforms.
VAT treatment
Platform custody fees in the UK are generally treated as exempt from VAT when they relate to the management of funds within an ISA or SIPP, though the VAT treatment of investment platform services has been the subject of regulatory and industry debate over the years. This is a technical area, and the treatment can differ depending on how a particular platform structures its charges, so the fee actually deducted is usually the figure to focus on rather than trying to reverse-engineer a VAT calculation.
The long-term effect of custody fees on compounding
Because a custody fee is charged on the value of the portfolio year after year, its effect compounds in the same way that investment growth does — except in the opposite direction. A seemingly small difference in ongoing charges, sustained over a long time horizon, can add up to a substantial sum in absolute terms purely because of how compounding works on a growing asset base.
Suppose, purely as an illustration, that two hypothetical investors each start with £50,000 and add nothing further, and both achieve an identical hypothetical 5% annual return before charges over 25 years. Investor One pays a custody fee equivalent to 0.45% a year, while Investor Two pays 0.15% a year (perhaps because Investor Two's platform structure suits a larger, growing portfolio better). Over 25 years, that 0.30 percentage point annual difference, compounded, could plausibly amount to a difference of somewhere in the region of £15,000 to £20,000 in the final portfolio value, entirely due to the fee drag rather than any difference in underlying investment performance. This is a simplified, hypothetical illustration assuming constant returns and charges for clarity, not a forecast — real portfolios experience variable returns, and real fee structures often change as the portfolio grows through different tiers. It nonetheless illustrates why custody fee structure is worth revisiting periodically as a portfolio's size changes, rather than being chosen once and forgotten.
Key takeaways
- A custody fee (also called a platform or service fee) pays for safekeeping, administration, and the platform's technology and support — it is separate from fund charges and dealing charges.
- Custody fees are typically structured as a percentage of assets, a flat pound amount, or a hybrid/capped structure, and each can suit a different portfolio size.
- Percentage-based fees tend to be cheaper for smaller portfolios; flat or capped fees tend to become far cheaper as a portfolio grows into six figures.
- The same custody fee structure usually applies across ISA, SIPP, and general investment accounts on a given platform, though household-linking discounts can reduce the total further.
- Custody fees should always be compared alongside dealing charges, fund OCFs, and any exit or transfer fees to get a true picture of total cost.
- Always check a platform's current fee schedule directly, since structures and rates change periodically.