Imagine you suddenly want to start playing hockey. You are going to need a stick.
Now I imagine most people know a little bit about how the sport is played, but under the surface it is a fairly technical sport. So, of course, you are going to need some help picking the right equipment.
Maybe you go to a hockey shop with a coach and get him to show you how to choose a stick .
Or you may just ask the shopkeeper who will maybe give you three to try, from which you can select one. Perhaps you will look on the internet and find out if any top players have got a list of the ones they like but, of course, what you do not know is if that person has actually been sponsored by the company who makes it.
In each of these three scenarios I would say that what you are seeking is advice. You are relying on an expert, who understands this specialism, to point you in the right direction. You see where I am going now?
When you see an adviser it is pretty clear that you are getting advice and, crucially, the person doling out that assistance is held accountable for it.
But we are in the middle of a boom for self-investing. It seems that almost every week a new firm crops up providing a service to plug the advice gap.
In one way or another these firms seek to be a low-cost way of steering those with a little confidence, but limited experience, to making investment decisions which fit their lifestyle.
One half of my brain thinks this is a great idea, but it is in danger of being drowned out by the loud alarm bell ringing in the other half. Where is the accountability?
The way many of these work is to ask a series of questions about your lifestyle and attitudes to risk. Your investment choices are then made on the way you answer these questions.
I would say that it is advice because you are being led down a particular path and given a recommendation. It does not matter that you are left to pick from one fund or three, the fact is the company has whittled down your options from thousands of funds and pointed you in one very specific direction.
To a lesser extent I have the same feelings about the best buys a number of fund supermarkets have, or the lists of promoted funds in their client magazines.
They are terrific pointers for those who are just starting out in this specialist area, but does this not also constitute a recommendation? It is, after all, a regulated firm giving the benefit of its expertise to highlight a fund you should invest in – one that has been picked over thousands of rivals.
Like the top hockey player who is promoting certain sticks, how do I know if there is a financial advantage to be made from these recommendations? I do not. And it may not matter but I certainly deserve to know in order to make my own mind up. The new rules of platform charges should bring greater transparency here.
But in all this is a thorny issue. And if we are to see more self-investing it is one that the Financial Conduct Authority needs to get its teeth in to pretty quickly.
If someone advises you to buy the wrong hockey stick, at worst you are likely to be £200 out of pocket. A poor investment choice could cost you your life savings.
If we are to see more self-investing it is one issue that the Financial Conduct Authority needs to get its teeth in to pretty quickly--------------------------------------------------------------------------------------------------------------------
Driving force behind car sales
Economist Berenberg Bank has noticed a staggering correlation between payouts from payment protection insurance mis-selling and new car sales. If you a plot a graph of the two since March 2010, their paths are almost identical.
Of course correlation does not necessarily mean causation, but car sales which had been falling suddenly picked up when PPI payouts really started.
If the two are linked it is a rather disappointing indictment of the way most consumers behave when a large lump-sum suddenly arrives in their bank account.
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Balancing act for politicians
I have to admit to a sneaky admiration for German chancellor Angela Merkel.
Her single-mindedness and frankness would be a breath of fresh air in British politics.
She recently received some stinging comments on the fall in confidence and output in Germany caused by budget cuts.
Ms Merkel brushed them aside by saying: “Everyone else calls it austerity. I call it balancing the budget.”
George Osborne should nick that now.
James Coney is editor of Money Mail at the Daily Mail
