A quirk of many UK investment platforms' pricing is that investors holding funds often pay less, proportionally, than investors holding shares or exchange-traded funds — even on the same platform, with the same total portfolio value. The reason usually comes down to a "fee cap": a ceiling placed on the percentage charge applied to fund holdings, which does not always apply to other investment types. Understanding how these caps work can materially change which platform looks cheapest for a fund-focused portfolio.
What a fee cap actually is
A platform's standard charge is often a percentage of the value of assets held — for example, 0.45% a year. Without a cap, that percentage keeps applying indefinitely as the portfolio grows: a £20,000 portfolio pays £90, a £200,000 portfolio pays £900, and so on. A fee cap sets a maximum pounds-and-pence amount that will ever be charged, regardless of how large the portfolio grows beyond a certain point.
Why caps are often fund-specific
Platforms frequently apply fee caps only to open-ended funds (unit trusts and OEICs), not to shares, investment trusts, or ETFs. This is partly a historical and regulatory quirk: funds are traded and settled differently to exchange-listed securities, and platforms have tended to set pricing structures for each investment type separately rather than applying one uniform charge across the whole account. The practical effect is that two investors with identical £200,000 portfolios on the same platform can pay very different annual fees, purely based on whether their money sits in funds or in shares/ETFs.
A worked hypothetical example
Suppose a hypothetical platform charges 0.40% a year on fund holdings, capped at £200 a year, but charges 0.40% uncapped on shares, investment trusts, and ETFs. Two investors each hold a £150,000 portfolio:
| Investor | Holding type | Fee calculation | Annual fee |
|---|---|---|---|
| Investor A | Entirely in open-ended funds | 0.40% capped at £200 | £200 |
| Investor B | Entirely in ETFs | 0.40% uncapped | £600 |
In this hypothetical scenario, Investor A pays £400 a year less than Investor B, despite holding an identical portfolio value on the identical platform — purely because their money is held in a fund structure that benefits from the cap rather than in an ETF that does not. An investor who wanted the same underlying exposure (for example, a global equity tracker) available in both a fund share class and an ETF share class could, on some platforms, choose the fund version specifically to benefit from the cap.
Why this matters more as portfolios grow
For a small portfolio, a fee cap makes little difference because the uncapped percentage charge would be modest anyway. As a portfolio grows — particularly a pension pot built up over decades, potentially reaching into six figures — the gap between a capped fund fee and an uncapped equivalent can become substantial, as illustrated above. This is one reason fund-based portfolios are sometimes structurally cheaper on certain platforms for larger long-term investors, entirely separate from any difference in the underlying investment's own OCF.
How to check whether a cap applies
- Look specifically for the word "cap" or "capped" in the platform's fee schedule, rather than assuming a percentage fee applies without limit.
- Check whether the cap applies to the whole account, per account type (ISA, SIPP, GIA counted separately), or across a household if accounts are linked.
- Confirm whether the cap applies only to funds, or also to shares, investment trusts, and ETFs — this is the detail most easily missed.
- Check whether the cap is a genuinely fixed maximum, or a "tiered" structure where the percentage rate simply drops at higher thresholds (which is a different, though related, mechanism — see below).
Fee caps versus tiered percentage rates
It's worth distinguishing a true fee cap (a fixed maximum pounds-and-pence charge) from a tiered percentage structure, where the rate itself reduces at higher portfolio values but keeps rising in cash terms as the pot grows further. For example, a tiered structure might charge 0.45% on the first £250,000 and 0.25% on the amount above that — costs still increase with portfolio size, just more slowly, whereas a true cap stops increasing altogether once the ceiling is reached. Both structures can benefit larger investors compared with a flat uncapped percentage, but a genuine cap benefits them more, and more predictably, at higher pot sizes.
Why platforms structure charges this way
The historical reasoning often given is that funds and exchange-listed securities involve different back-office processes: fund dealing typically settles through a fund manager's own registrar system rather than a stock exchange, and platforms may see fund administration as less resource-intensive per pound of assets held at scale, especially for large, simple, single-price funds. Whatever the underlying justification, the practical result for investors is the same — the charging structure can differ meaningfully depending on which type of investment vehicle is used to gain a particular market exposure, even when the underlying economic exposure is virtually identical.
Not every platform applies a cap
It's worth being clear that fee caps are a feature of some platforms, not a universal standard across the industry — plenty of platforms charge the same uncapped percentage rate on funds, shares, and ETFs alike, or use a completely flat fee structure that makes the whole question of caps irrelevant. The presence or absence of a cap, and where it sits, needs to be checked individually for each platform under consideration rather than assumed.
Household and family account considerations
Some platforms extend a fee cap or a favourable tiered rate across a household's combined accounts — for example, treating a couple's ISAs and SIPPs together for the purposes of calculating whether a cap has been reached, rather than assessing each account individually. This "family linking" can bring a cap within reach for a household that wouldn't qualify individually, and is worth asking about specifically, since it isn't always advertised prominently. Junior ISAs are sometimes included in this kind of linking and sometimes not, so it's worth checking the specific terms rather than assuming.
Practical implications for fund investors
Choosing between a fund and an ETF tracking the same index
Where a platform's fee cap applies only to funds, and an investor is choosing between an open-ended index tracker fund and an ETF tracking a similar or identical index, the platform fee cap can be a legitimate factor in that decision — alongside other differences such as minimum investment amounts, dealing costs, and whether the investor wants to use a regular monthly investment scheme (which is more commonly available, and often free, for funds than for ETFs).
Combining a fee cap with the fund's own OCF
A platform fee cap only addresses the platform charge; it says nothing about the underlying fund's own ongoing charges figure. An investor should still compare the fund's OCF separately, as covered in the companion articles on the OCF and on calculating a true all-in cost combining platform and fund charges.
A worked hypothetical example showing the crossover with dealing costs
Fee caps rarely exist in isolation from other charging decisions, so it's worth considering a slightly fuller hypothetical comparison. Suppose an investor with £180,000 is deciding between holding a broad global tracker as an open-ended fund (capped platform fee, free fund dealing) or as an ETF (uncapped platform fee, a small per-trade dealing charge, but a marginally lower underlying OCF):
| Structure | Platform fee | Dealing costs (illustrative, occasional trading) | Underlying OCF | Approximate total annual cost |
|---|---|---|---|---|
| Open-ended fund, capped platform fee | £200 (capped) | £0 | 0.15% (£270) | £470 |
| ETF, uncapped platform fee | 0.40% (£720) | £30 (a few trades a year) | 0.12% (£216) | £966 |
In this hypothetical case, even though the ETF carries a marginally lower OCF, the uncapped platform fee dominates the comparison at this portfolio size, making the capped fund route roughly £496 a year cheaper overall. This illustrates why the platform fee structure, not just the underlying fund's own OCF, needs to be part of any fair total-cost comparison — a theme explored further in the companion article on calculating platform fee plus fund fee total cost.
What to do if a current platform doesn't offer a cap
An investor who discovers, after reading this, that their current platform charges an uncapped percentage fee on a fund portfolio that has grown substantially isn't necessarily facing an urgent problem — the maths simply needs to be checked against the alternative. It's worth calculating the current annual cost, comparing it against what a capped-fee platform would charge on the same portfolio (after accounting for any differences in dealing charges or fund range), and weighing that saving against the practical cost and effort of switching, using the same framework set out in the companion article on switching investment platforms. For a modest-sized portfolio, the saving from a cap may not yet justify the effort of switching; for a larger one, it very often will.
Key takeaways
- Some platforms cap the percentage fee charged on fund holdings at a fixed pounds-and-pence maximum, while leaving shares, investment trusts, and ETFs uncapped.
- This can mean two investors with identical portfolio values pay very different platform fees, depending purely on whether their money is held in funds or other investment types.
- The benefit of a fee cap grows as a portfolio grows, making it particularly relevant for long-term pension and ISA investors with larger pots.
- A true fee cap (a fixed maximum charge) is distinct from a tiered percentage rate, which reduces the rate but still allows the cash charge to increase with portfolio size.
- A fee cap addresses only the platform charge — the underlying fund's own OCF still needs to be compared separately for a full picture of total cost.