These days, there are loads of companies out there offering different ways for you to invest your money. But did you know that there are certain things that your investment platform might not be telling you?
Read on to find out exactly how and why you might be kept out of the loop when it comes to your investments.
How investment platforms work
The easiest way to think of an investment platform is as a go-between. It provides a safe and secure way for you to invest in stocks and other assets. Doing this saves you the trouble of trying to invest directly.
However, because your platform facilitates your ability to buy and sell investments, it is not allowed to give any personal advice unless it’s paid for. In some areas, it can feel like a poorer service because the platform’s hands are tied. This is because sometimes it has to keep you at arm’s length, even if there is a simple solution available.
Sarah Coles, personal finance analyst at Hargreaves Lansdown explains the relationship between you and an investing platform: “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 mean 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 a strong chance you’re doing something that’s not necessarily in your best interests.
“Unfortunately, if it contacts you and mentions any of the things it knows about you, it crosses the line from guidance to advice.”
Things your investment platform won’t tell you
Regulations mean that there are certain things your investment platform is not able to tell you. Here are ten things Sarah Coles says cannot be shared. Some of them might surprise you.
1. Portfolio diversification
If there is too much concentration in your portfolio, your investment platform may send you diversification messages or reminders. But it can’t tell you there is too much weighting in a particular industry or country.
2. Tax efficiency
If you hold your investments in a general investment account, your platform cannot tell you that you should consider a more tax advantageous account like a stocks and shares ISA.
3. Cheaper options
For those of you who are passive investors, your investment platform won’t mention whether there are cheaper index funds available. So you may find yourself paying a higher cost for a similar investment.
4. Idle cash
Most investment accounts will let you hold cash, which can, of course, be helpful. But if that cash sits stagnant for a long period, your platform can’t remind you or let you know about the potential risk inflation could have on your savings.
5. Fee efficiency
If you’re not using a cheap share dealing account, the fees can sometimes add up. But if you’re spending a lot on trading fees, your investment platform cannot suggest a more efficient approach.
6. Risk warnings
As an investor, you get to decide how much risk you’re happy with. However, if the majority of your portfolio happens to be made up of a few high-risk investments, the platform can’t give you any warnings about the risk you’re taking.
7. Portfolio rebalancing
Portfolio allocation means deciding how much of your total balance you want to invest where. As investments all perform differently, you may find that over time your portfolio strays from your original investing strategy. If this happens, your investment platform can’t let you know that you should consider a rebalance.
8. Open banking
If you happen to use open banking, your platform can see some of your other finances. It might seem that you don’t have a sufficient emergency fund, but it is not allowed to warn you about the risks of investing without proper savings.
9. Retirement withdrawals
Open banking also means that your investment platform could see how much you should be withdrawing from your retirement pot, but regulations prevent them from saying whether you’re taking too much or too little.
10. Investing goals
Your platform might ask you about your goals and timeframe for investing. This is somewhat pointless because if your investments aren’t suitable, the platform can’t tell you!
Where to find a good investment platform
Finding the best investment platform to use can take a lot of work and research. Why not start by taking a look at The Motley Fool’s top-rated share dealing accounts?
Just remember that when it comes to investing, you may get out less than you put in. So make sure you’re on top of the rest of your finances before you consider putting money to work elsewhere.
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