OpinionMay 9 2013

Self-investment is simply advice without the accountability

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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.