How the Internet can replace your financial adviser

21st April 2009

There is no denying that the growth of the Internet has created opportunities for DIY financial planning.  It is now easier than ever before to find answers to money-related questions, research different products and implement them online.

DIY financial planning can replace the need for the services of a professional financial adviser.  It can also reduce the costs involved, but never confuse cost and value.  Doing your own financial planning using the various resources you can find online should come with a serious ‘wealth warning’.

Here are some of the things you can easily do yourself online, and some of the things you should definitely avoid.

1 – Keeping up to date with personal finance news

Frequently updated news is a 24/7 occurrence online.  By the time traditional newspapers and magazines are available to buy in the shops, a financial news story is likely to have been reported and debated online for hours if not days.

With a greater frequency of reporting on financial stories, it becomes important to only use news sources you know and trust.  The well established news agencies generally carry a very high standard of reporting.  It makes real sense to read stories from the online journalists you would usually read in print.

The Internet enables everyone to become a journalist, and the rise of ‘citizen journalism’ can lead to potentially misleading stories being published online.  No where is this more risky than in the world of financial journalism, where (rightly or wrongly) readers often rely on what is written to make decisions about their own finances.

2 – Comparing products and finding the best rates

One thing the Internet is great for is online price comparisons.  Whether it is finding the most competitive interest rates for your savings or reducing the cost of your utility bills, there is a range of websites enabling you to do this research online.  In many cases you can even implement the product directly from the price comparison website.

When using online price comparison sites, there are a number of important points to consider.  Firstly, they can only ever display the cost of a product.  Just because something is the cheapest does not necessarily make it the ‘best’ or actually suitable for your personal circumstances.  Being able to identify the lowest cost financial product is one thing.  Understanding how it might fit with your own financial plans is another thing entirely.

There have been questions raised in the past about the independence and coverage of some price comparison sites.  When using them always keep in mind that they are typically paid a commission when you click through to buy a product. 

Some product providers do not submit their details to price comparison sites, preferring instead to deal directly with consumers, so the results you get by using these online services is not always representative of the entire market.

3 – Checking valuations

The rise in popularity of online banking has reduced the burden on local bank branches.  It is the ability to check your bank statement or make money transfers at 3am on a Saturday morning which has transformed the way we interact with our home finances using the Internet.

The technology behind online banking has long since been extended to cover a whole range of other financial products.  It is now increasingly common to be able to check up on your investment and pension portfolio values at the click of a button.

Some financial product providers have taken things a step further by creating what we call ‘wrap’ platforms which enable you to hold a whole range of tax wrappers within a single administration platform.  Doing this allows you to check one website to get instantly updated valuations on all of your financial holdings.

This ‘wrap’ technology is still in its infancy here in the UK , but well established and commonly used in the US and Australia .  It is likely to become more popular here as more of us demand this sort of functionality for managing our financial plans.

4 – Arranging financial products or investments

The actual implementation of a financial product or investment has theoretically become easier due to the Internet.  Because retail financial services in the UK operates within a heavily regulated framework, there are still some restrictions on the types of product you can implement yourself without the assistance of an approved financial adviser.

If you do not need financial advice to make investment decisions, it is possible to save money by doing your own implementation online.  Various discount brokers offer preferential terms for investments transacted directly without the aid of an adviser. 

Remember that if you implement investments or arrange financial products yourself, without advice, you receive less protection in the event of things going wrong.  If the investment or product you select turns out to be unsuitable, there is little or no recourse for putting things right.  Using a financial adviser to arrange things at least gives you that additional layer of protection.

It is also worth noting that it is not always cheaper to implement every financial product online.  Some product providers are still very much geared up to transact business using the more traditional paper-based application method.  Never assume that it is better value just because it is done online.

5 – Finding investment opportunities

This is one area of the Internet where things risk becoming quite dark and murky.

Because the Internet is a global entity and largely unregulated, more or less anyone can set up shop and attempt to entice novice investors into parting with their hard-earned cash.  The Internet is awash with ‘get rich quick’ schemes and scams.

As a UK resident, the golden rule is to only ever invest money through someone who is authorised and regulated by the Financial Services Authority (FSA).  Always check the FSA Register at www.fsa.gov.uk to confirm they are a legitimate authorised adviser.

Another unfortunate use of the Internet is by so-called ‘boiler room’ scams who attempt to lend more credibility to their claims by setting up fake websites.  It can be very difficult to tell the difference between a credible and fake financial website.  The best approach here is to use your common sense and always follow the rule that if something appears too good to be true, it usually always is!

6 – Getting a second opinion on advice

In addition to news and information, there is a growing number of places on the Internet where you can ask questions and get answers about your financial planning.  Again, this will never replace the services of a qualified financial adviser but it can be a good place to go for a second opinion if you are unsure of the advice you have received elsewhere.

Because these websites often take the form of a community environment, you might expect to receive a response from more than one source.  This can serve as a useful backstop to ensure the accuracy of information provided or simply a way to get a more diverse set of opinions.

At all times keep in mind that these services provide information only and not advice.  Financial advice in the UK can only ever be delivered in a regulated environment where the adviser first takes the time to properly understand your personal circumstances and objectives.  

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how the internet can replace your financial adviser