Mixed blessings of the internet

Brokers have rushed to set up websites, but costs for most funds have yet to come down

The internet is an electronic paradise for bargain hunters. CDs, computers, books, wine, holidays, cars are all sold at hefty discounts via websites. But when it comes to investments, the discounts are few and far between.

The internet is an electronic paradise for bargain hunters. CDs, computers, books, wine, holidays, cars are all sold at hefty discounts via websites. But when it comes to investments, the discounts are few and far between.

Investors who want to put money into the stock market, either directly or through a product such as a unit trust, will find plenty of valuable information online. Most fund management groups now have websites with performance statistics, information on their investment philosophies, history and interviews with the managers. The smarter sites have electronic application forms and some even allow investors to move money between funds at the click of a mouse.

This summer has seen a rush by stockbroking companies to embrace the web. From just a handful of online brokers at the start of the year, the number of companies offering net-based trading has grown so much that there is now real choice and the cost of buying or selling shares has fallen as low as £5.

Last week Halifax became the latest, and so far cheapest, company to offer share dealing. Halifax ShareXpress is offering trades for £5 until mid-January. After that the charge rises to £12.50 for trades up to £2,500 and £22.50 for larger deals.

Halifax's move is the latest in a net price war that has driven the cost of dealing in shares down to about half the cost of using a phone-based broker. The cheapest deal on the market, excluding special offers, is with Barclays Stockbrokers, with a 1 per cent charge but a minimum of £11.99. E*Trade charges £14.95 for trades under £1,500, or on any amount for frequent traders doing more than 25 deals.

"The low entry tariff means that smaller investors are catered for," says Julian Costley, managing director of E*Trade. "Electronic broking is much simpler to administer: we have elected to allow people to apply online, hold stock in a nominee account, and open a direct debit online."

Shaving administration costs and reducing the number of dealing errors mean that online stockbrokers can cut charges to the bone. They have little choice: there will be at least a dozen companies offering internet share dealing by the end of the year.

Brokers' commissions are a relatively transparent cost. Commissions and charges are rather harder to identify for collective investments, especially unit trusts. There, investors have to allow for up-front commissions, annual management charges and the spread between the buying and selling costs of the units in the fund. The fact that a large percentage of unit trust business goes through independent financial advisers adds another layer of complexity.

So far, only a handful of fund management companies seem to appreciate the full potential of the internet, even though the scope for savings is considerable. The Government has even made the process easier by allowing investors to open individual savings accounts (ISAs) over the net without the need for a paper application or physical signature.

Fidelity is one of the most internet-aware of the large fund management groups. The company supports online applications, and its website gives investors a high level of control over investments. The company also offers occasional discounts for investors - currently, there are reduced initial fees of 2 per cent for several funds including IT and telecommunications -- but otherwise its charges are in line with other fund management houses. "We tend to use the internet to promote specific funds, although 30 per cent of our online ISA applications are new to Fidelity," says Tristan Brandt, senior manager for electronic channels. Prices for managed funds will fall, he suggests, as more companies enter the market. But for now the scope for discounting is limited.

"In managed funds, the back office is not automated, so cutting costs is difficult," he says.

Tracker funds, with their low management charges, ought to offer more scope for discounts. The specialist tracker fund company, NetISA (formerly NetPEP) is only sold through the net. Other popular trackers, such as those from Virgin or Legal and General, cost the same bought over the net or over the phone.

Internet experts believe that there are simply not enough people investing online to force financial companies to offer meaningful discounts. "It will take time for cost savings to show through, and it will depend on the take-up of online investment in the UK," suggests Alan Griffin, finance channel director for AOL UK, the internet service. "Savings will initially come in banking and in share trading, but technology and competitive markets will mean cheaper pricing."

John Blowers, managing director of the personal finance website Interactive Investor, agrees that there are still few examples of meaningful discounts. But he believes they will come. Financial services companies need to link with websites that generate traffic. In turn, Mr Blowers suggests, this will give popular websites the power to negotiate better deals on behalf of their users. "Websites will be able to ask the product providers for deals that are internet friendly: simple and convenient to buy on the net," he says.

Investors can make use of all the research facilities the net has to offer. Information that was expensive or only available to professional brokers and financial advisers is now on the internet, free of charge. Sites such as Interactive Investor and Money- world have stock portfolios and information, including performance tables, for unit and investment trusts. MoneyeXtra is a good source of comparative prices and interest rates for a range of financial products from a basic savings account upwards.

Hemmington Scott's valuable range of company information is accessible, much for no charge, on the company's website or through its free internet service provider arm. Free quotes gives real time share prices to subscribers of its associated internet service provider, themutual.net. Sites such as UK Invest and FT.com have good investment information and articles. Investors who make full use of the internet will be better placed to manage their own finances, saving money on commissions and financial advice.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Sport
football
News
Hillary Clinton comments on viral Humans of New York photo of gay teenager
Arts and Entertainment
The gang rape scene in the Royal Opera’s production of Gioachino Rossini’s Guillaume Tell has caused huge controversy
music
Sport
wimbledonScot will face Ivo Karlovic next
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Assistant / Buyer

    £15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

    Recruitment Genius: Compliance Manager

    £40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

    Day In a Page

    Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

    Is this the future of flying?

    Battery-powered planes made of plastic, and without flight decks
    Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

    Isis are barbarians

    but the Caliphate is an ancient Muslim ideal
    The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

    Curse of Brink's Mat strikes again

    Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
    Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

    'The ministers talk to us about miracles'

    Why Greeks are cynical ahead of the bailout referendum
    Call of the wild: How science is learning to decode the way animals communicate

    Call of the wild

    How science is learning to decode the way animals communicate
    Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

    'The economic collapse has happened. What is at risk now is democracy...'

    If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
    The science of swearing: What lies behind the use of four-letter words?

    The science of swearing

    What lies behind the use of four-letter words?
    The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

    The Real Stories of Migrant Britain

    Clive fled from Zimbabwe - now it won’t have him back
    Africa on the menu: Three foodie friends want to popularise dishes from the continent

    Africa on the menu

    Three foodie friends want to popularise dishes from the hot new continent
    Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

    Who will fill Donna Karan's boots?

    The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
    10 best statement lightbulbs

    10 best statement lightbulbs

    Dare to bare with some out-of-the-ordinary illumination
    Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

    Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

    Briton pumped up for dream meeting with world No 1
    Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

    Nick Bollettieri's Wimbledon Files

    It's time for big John Isner to produce the goods to go with his thumping serve
    Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

    Dustin Brown

    Who is the German player that knocked Nadal out of Wimbeldon 2015?
    Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

    Damien Martyn: 'England are fired up again, just like in 2005...'

    Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test