DIY investing through an online platform is a cost-cutting option that does not come without potential pitfalls.
Many businesses benefit from saving money by cutting out a middleman, and as DIY investor you are doing away with an investment adviser.
While you may save some money on fees, investing without the help of a qualified professional is risky.
And you will stay pay fees to fund managers and their teams even if you invest direct.
Unscrambling who you are dealing with online is no easy task either.
Working out who you are dealing with
Online platforms come in lots of guises – from white label to execution-only brokers.
Execution only brokers give no advice, but merely facilitate the buying and selling of financial products.
This is how platforms save money. They give no advice, so if an investment fails, the risk sits with the customer and the platform takes no blame whereas a regulated professional shoulders the risk for a DIY investor.
An independent complaints and compensation process is available if money is lost due to poor advice.
White label platforms are branded as if they are provided by the company you are dealing with, but are technology supplied by a third party.
Think of investing on a white label platform like buying car insurance from the Post Office. The web site and paperwork is branded as the Post Office, but another company working behind the scenes acts as a broker and pays the Post Office for referring business.
Problems with platforms
This highlights another problem with platforms. If you do not know how the business model operates, the platform may only offer products from a broker or group of brokers and not opportunities from the whole market.
This limits available investment options.
Choosing the right investment platform is important vital because each levies charges in different ways. The charges will reduce the total return on an investment.
Finding the cheapest and best platform will depend on the services that you want, the products you want to buy, hold and sell, and how often you trade.
Platforms are useful for the DIY investor, allow access to the latest technology providing somewhere to keep your investments together in one place.
But they are not all the same and it is important that you understand how they function and charge for services and whether they are better than a professional adviser.