Financial companies are like awful neighbours, who introduce themselves and force you to explain that you’ve already met – several times – and have lived next door for a decade. But while it feels like rudeness, in the case of financial companies they often don’t have any choice: the regulations mean they have to treat you like a stranger.
It comes down to the difference between advice and guidance. Advice is provided by someone who is regulated and recommends a specific course of action based on a full understanding of your circumstances and goals. Guidance, meanwhile, provides information to help you pick a sensible option, without making a recommendation. It can be provided by a huge number of people or organisations who might not be regulated.
If you’re managing your own investments on a platform, it can provide guidance, but unless you specifically pay for it, it can’t offer any advice.
On the surface, this makes perfect sense. However, your dealings with the platform means that while it doesn’t know everything about you, it’ll know about your investments and your investing habits. It can also see if there’s strong chance you’re doing something that’s not necessarily in your best interests.
10 things you might be surprised your platform can’t tell you
1) If your portfolio is too heavily weighted towards a particular sector or geography, your platform can send you diversification messages but can’t say it has noticed a particularly heavy weighting that they feel you ought to know about.
2) If you have investments in a general investment account, it can’t specifically tell you that you should consider tax wrappers.
3) If you have invested in a high cost index tracking fund, it can’t tell you that there are cheaper alternatives available.
4) If you have held high levels of cash in an investment account for a prolonged period, it can’t let you know, tell you about the risk you’re taking, or suggest you do something else with it.
5) If you tend to trade investments far more than usual and are spending a lot on fees, it can’t tell you this is a drag on your performance and suggest a different approach.
6) If you have most of your portfolio in a small number of high-risk investments, it couldn’t tell you about the risk you’re taking.
7) If your portfolio has drifted away from your original balance of investments, due to outperformance in some areas and underperformance in others, your platform can’t nudge you to rebalance.
8) Open banking allows you to share your finances with your investment platform. This could be used to check if you have sufficient emergency savings before you consider investment, but the rules mean it couldn’t warn you this is a risk.
9) Open banking means your platform could see a full picture of your finances, to establish how much you should draw from your retirement pot. But currently your platform couldn’t warn you if you were taking too much or too little.
10) If your platform asks about your objectives and your timescale, and your investments aren’t suitable for either, it can’t tell you.
What the experts say
Sarah Coles, personal finance analyst, Hargreaves Lansdown says: “Unfortunately, if a fanatical company contacts you, and mentions any of the things it knows about you, it crosses the line from guidance to advice.
“So, for example, someone might have their money in a normal trading account and be paying tax on it, but their platform couldn’t tell them they might be able to save money if they moved it into an ISA, because that level of personalisation isn’t allowed within guidance.
“While nobody wants a financial company to sidle up to you as if they’re your best friend just because you’ve had an account with them for a few years, it would be more sensible all round if they didn’t have to behave as if you’re a total stranger.”