In July, the Financial Conduct Authority (FCA) published its Investment Platforms Market Study Interim Report, a 110-page assessment of investment platforms in the UK.
Between 2013 and July last year, online investment platforms collectively almost doubled their total assets under administration from £254 billion to £497 billion. [WN1] Direct to consumer (D2C) platforms have grown rapidly in that time, claiming to offer choice, convenience and low fees.
But do they add up in practice and importantly, do they provide real value?
The value of choice
One of the draws of online investment platforms is choice [WN2] , but more choice in itself isn’t necessarily a good thing, unless it’s met with sufficient understanding on the part of the customer and transparency on the part of the provider. TheFCA report finds that investors can struggle to choose a platform because of complex products, unclear pricing and a lack of transparency [WN3] around the objectives of model portfolios.
Some investors also struggle to differentiate between products and platforms, [WN4] while others may not realise they’re missing out on returns, losing interest and paying charges because of the way their portfolio is structured. For example, as of June 2017, customers held £16 billion in cash on D2C platforms. Even if customers want to hold cash, they may not grasp the costs of doing so [WN5] .
Fees and transparency
Another draw can be perceived value for money, but while customers may feel charges are a big factor in the decisions they make, the FCA report finds they tend to check them far less than they check overall performance. [WN6]Worryingly, 29% either don’t know whether they pay charges for investing through a platform, or simply assume that they don’t. Where people do recognise the charges, many aren’t clear on what they’re paying.[WN7]
The report also notes that leaving an investment platform is ‘complex and time consuming’ and of those surveyed, 7% who tried to switch eventually gave up. Exit fees were a big motivator to stay put, making shopping around for a better deal harder than it should be.[WN8]
Knowledge and experience
If shopping around isn’t as easy as it could be, it’s perhaps as much an issue of transparency as one of knowledge. However, investment know-how varies between consumers and whilst for many an online platform can be the right way to go, often the consumer doesn’t have sufficient experience to be able to operate effectively in this area.
Professional financial advisers offer a combination of knowledge and long-standing experience that can be a very important resource, especially if you’re new to investment. Even if you’ve been investing for years, having expert advice on hand can help you to sidestep many of the common (and not-so-common) pitfalls.
A clear, intelligent strategy
At Citywide we believe that everything starts with knowing what you want to achieve and for how long you plan to invest. It’s also about understanding the levels of risk and reward that you’re really comfortable with – for example, a recent piece from The Wall Street Journal asks where a strong appetite for risk leaves off and a tendency towards overconfidence begins. [WN9]
This kind of groundwork, along with ongoing rebalancing, as well as careful attention to the markets and your evolving needs, is what separates professional advice from the DIY approach. A good adviser will bring an experienced pair of hands to the table, helping you to be clear at the beginning on those essential points and giving you the best possible start.
Understanding your finances: the bigger picture
While online platforms offer one potential route to growing your wealth, they don’t deal with how you’d like that wealth to provide for your future and that of your family. That’s where professional tailored financial advice comes into its own.
At Citywide we pride ourselves on our relationships with clients, the quality of the ongoing support we provide and the understanding we achieve by getting to know you and where you want to go. We’ll work with you to understand your goals, your time horizons and how hands-on (or off) you’d like to be.
We’ll also ask the right questions to get an accurate picture of you as a person. We’ll explore how you approach risk and reward, as well as what’s important to you now and in the future. We’ll use what we learn to map out the right approach for you and your money across all the strands of your finances, whether it’s investment, retirement, or estate planning.
Your circumstances and goals are unique to you – they deserve the tailored solution that professional financial advice can provide.
Categories: Financial Planning, Wealth Management
