Managed stocks and shares ISAs

If you’re thinking of opening a stocks and shares ISA, you might be wondering whether it’s best to go it alone with a DIY ISA, or to get someone to manage it for you. There are pros and cons to both options. If you’re considering the managed stocks and shares ISA route, read this guide first so you understand your options.

What is a managed stocks and shares ISA?

If you’ve read our introductory guide, you’ll already know that a stocks and shares ISA is a type of ISA that lets you hold investments, such as funds or stocks and shares, and pay no tax on your investment returns.

A managed stocks and shares ISA is a version of this whereby a portfolio manager selects and manages your stocks and shares portfolio on your behalf. The alternative to a managed stocks and shares ISA is a DIY stocks and shares ISA. As the name suggests, with a DIY ISA you pick the specific assets you want to invest in yourself, and decide when (and how much) to buy and sell.

Typically, the extra work involved for them in a managed stocks and shares ISA means that providers will charge higher fees than for a DIY version.

How does a managed stocks and shares ISA work?

While you won’t be responsible for choosing specific assets or balancing your portfolio over time, the manager won’t make their initial investment selection without any input from you. Depending on how the managed ISA works, you’ll either pick a type of portfolio (cautious, or moderate risk, for example) or answer some questions that help the manager make their selections based on your circumstances and appetite for risk.

While the detail may be different, typically you’ll go through the following basic steps:

1. Open an account. You’ll need to supply some basic personal details, including information to verify your identity.
2. Add funds to the account that can be put into appropriate investments. You can put in a lump sum, drip feed smaller amounts in regularly or do a combination of both.
3. Choose a type of portfolio or answer some key questions to help inform the investments that are selected for you.
4. Sit back and let the investment manager do their job.

We say “sit back”, but don’t detach yourself entirely from proceedings. You’ll need to keep an eye on your investments on an ongoing basis, to monitor performance and where your money’s been invested. If you have concerns about either, it’s better to flag this to the stocks and shares ISA provider sooner than later.

Types of managed stocks and shares ISA

You can choose between different types of managed stocks and shares ISA, depending on your preferences. And, unfortunately, your budget, as some options are pricier than others. In each case, as time goes on the make-up of your stocks and shares ISA will be periodically balanced by the manager to ensure it continues to meet the criteria you’ve selected (low-risk, for example).

Ready-made stocks and shares ISAs

This is the most affordable, but least nuanced, form of managed stocks and shares ISA. Ready-made portfolios are bundles of investments that are put together by experts. They’re diversified, in that they hold lots of different assets that are pre-selected to suit different customer profiles. Often, you’ll need to choose the portfolio that sounds best for you by reading the blurb about it. Your chosen platform may offer quick questionnaires or other tools to help guide your decision.

Some platforms will let you tweak the details of your portfolio – by asking to invest more in one asset and less in another, for example. Others are less flexible – everyone who picks the same portfolio will get the same balance of assets.

Robo-advisor stocks and shares ISAs

A step up from simply choosing your own ready-made portfolio, and typically pricier as a result, are robo-advisors.

There are 2 key differences between robo-advisors and the ready-made portfolios offered by regular investment platforms. Firstly, robo-advisors may have a larger range of portfolios, including additional options such as ethical portfolios or portfolios that focus on tech firms. That’s because they usually don’t offer a DIY option, so portfolios are their bread and butter.

Secondly, rather than choosing a portfolio based on the blurb about it, a robo-advisor will typically guide you towards a suitable option by asking you to fill in an online questionnaire about your risk appetite, how comfortable you are with different styles of investing and levels of loss, and potentially your investment goals. You don’t have to go with the recommendation, if you don’t think it’s quite right. Ultimately the choice is yours.

While the initial recommendations will be made by a “robot” (essentially a clever algorithm that analyses your answers), a human committee behind the robo-advisor will decide on how money is allocated to funds in the different portfolios and rebalance customer portfolios periodically.

Investment adviser-led stocks and shares ISAs

As with any type of investment, you can employ a human financial adviser to gather a detailed picture of your risk appetite, goals and personal circumstances, recommend a bespoke stocks and shares ISA portfolio and – if you wish – invest and manage your money on your behalf.

This approach is likely to be much more tailored and flexible, as the adviser will be able to take a holistic approach to the questions they ask and your wider personal circumstances and preferences. But you’re likely to pay a pretty penny for this, and may need to have a fairly high minimum amount to invest (across your stocks and shares ISA and any other accounts) for the adviser to take you on.

Which is best – managed or DIY stocks and shares ISAs?

Without wishing to sound like a broken record (we know we answer a lot of questions this way): it depends! Neither is better or worse, it’s all about what’s best for you.

A managed stocks and shares ISA might be better suited to those new to investing and/or short on time, as it takes the effort and hassle out of choosing and balancing the assets in a portfolio. But you may need to accept higher fees.

If you are experienced with managing your own investments, or have the time, inclination and confidence to give it a try, opting for a DIY stocks and shares ISA will give you more control and could save you money.

Who are managed stocks and shares ISAs suitable for?

If you’re not confident about managing your own investments, or simply don’t have enough time to do the legwork required to choose individual investments and buy and sell them to keep your portfolio balanced, a managed stocks and shares ISA could be suitable.

If, on the other hand, you enjoy getting into the nitty gritty of investments and appreciate nuanced control, you might be better off with the DIY approach.

How to choose a managed stocks and shares ISA

If you decided to go for a managed account, you’ll need to spend a bit of timing picking the right provider for you. Things to consider include:

• The type of account that’s best for you. Review the options we’ve outlined above to help you choose between a standard ready-made portfolio, a robo-advisor or, if you want tailored recommendations and can afford the higher costs, full financial advice.
• The fees you’ll pay. As well as the fees for managing your portfolio, check if any additional charges apply (such as a platform fee or individual fund charges).
• The range of portfolios on offer. Some investment platforms will offer more choice than others.
• The tools and advice available to help you make decisions and to monitor your investments.
• Past performance. Most platforms will let you see the track record of their portfolios over time periods such as 1, 5 or 10 years. Past performance isn’t necessarily an indication of how a portfolio will fare in the future, as a lot will depend on wider market conditions, but it can give you an indication of what to expect.

Pros and cons of managed stocks and shares ISAs

Bottom line

Managed stocks and shares ISAs can be simpler and less time-consuming than DIY alternatives, but they do mean you’ll be surrendering control of your investments to a third party. They can be more expensive too. These factors mean they won’t be right for everyone, so consider your options carefully before making a final decision.

Have a look at our table of providers that will invest on your behalf – you’ll be able to choose between portfolios that have been made by professionals and will be fully managed going forward.

Frequently asked questions

• Can I change my stocks and shares ISA provider?

  Yes. While you can only pay into one stocks and shares ISA at a time, if you’re not happy with your current provider you can transfer your investments to another platform. Our guide on transferring a stocks and shares ISA outlines what you need to know.

• How much money can I put into a managed stocks and shares ISA?

  Your total ISA allowance is £20,000 per tax year. This allowance applies across all types of ISA you own. If you only have a managed stocks and shares ISA, you can put the full £20,000 per year into it. If you also have a cash ISA, for example, you’ll need to share that £20,000 across both types of ISA.

• Can I have more than one stocks and shares ISA?

  Yes. You can only open and pay into one stocks and shares ISA per tax year, but it’s fine to continue to hold other ISAs from previous tax years at the same time without paying into them.