Secrets Of Success: The online boom has only just begun

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In the 10 years I have been writing this column, the biggest single change that ordinary investors have experienced has been the arrival of the internet. The web is well on the way to transforming how people search for and choose their investments, just as the early pioneers insisted it would do.

In the 10 years I have been writing this column, the biggest single change that ordinary investors have experienced has been the arrival of the internet. The web is well on the way to transforming how people search for and choose their investments, just as the early pioneers insisted it would do.

Over the last 10 years, the markets have waxed and waned in dramatic fashion, with all the hype and hoop-la of the internet bubble distorting valuations in a way that future historians will find quite extraordinary. But the reality of what the internet can now do is in many ways more interesting and exciting than even that wild, anticipatory phase suggested.

The internet is, at heart, a transforming technology, which both increases the ease and speed with which we can transfer information and reduces the cost of that information, in many cases to virtually nothing. It is no surprise that its arrival has coincided with a period of exceptional productivity and low inflation: they are the consequences you would expect to see follow from such a powerful technological breakthrough.

Two things have forcibly reminded me this week of how the internet has changed the investment scene. One is the sale of Lastminute.com to an American company for £577m - a tidy sum for a start-up business, to be sure, though not as large as some once dreamed it might be.

It was bad luck in some ways for the company that its flotation in 2000 had come to be so closely associated in the public mind with the excesses of the internet bubble (though the publicity surrounding that hype and co-founder Martha Lane-Fox has been wonderful for spreading awareness of the name).

In 2000, the Lastminute prospectus sticks in my mind for the quite remarkably lengthy list of "risk factors" that the promoters felt obliged to write into the document. Historians will surely want to keep it as a symbol of the crazy things that went on. At least those involved in the flotation can say that the company survived and made a few bob for its backers, unlike most of the exotic creations that came to the market at the same time.

The second thing that struck me this week - and it's a piece of information that's much nearer to my own interests - was the news that Fidelity Funds Network, the online fund supermarket, has started to post online the half-yearly and annual reports of all the 900 or so funds it sells.

This might not seem a huge step forward - much of the information is already summarised in other places - but it is symptomatic of the huge informational power that is now available to investors at no cost.

The emergence of the fund supermarkets is an interesting story in its own right. You may not realise, for example, that in a little over five years, online fund supermarkets have gone from nowhere to become the dominant force in the sales of individual savings accounts (ISAs). According to David Cowdell of Fidelity, some 70 per cent of ISAs sold on the recommendation of advisers now go through the supermarkets.

Funds Network is one of the two market leaders in the online fund supermarket business - the other, Cofunds, is less well known because it sells only to professionals. Since Funds Network was launched in 2000, it has clocked up some $6.5bn in fund sales. About 80 per cent of this business is placed through IFAs and other intermediaries, while the remaining 20 per cent is sold direct to people such as you and I.

This is about the same proportion as in the market for fund sales as a whole, which underlines how rapidly the online supermarket has become a mature and accepted channel for doing business. In that respect, what is happening over here is mirroring what has already happened in the United States, where fund supermarkets have been established for longer.

It is not too difficult to explain why fund supermarkets have done so well. The main reason is that they now provide a range of information and choice that is, finally, what any sensible fund buyer needs. For years I have complained about how hard it is for consumers to lay their hands, in one place, on the basic information that they need to make sensible decisions about which funds to buy.

But if you go to Funds Network's website now, you will find pretty much all of the information you are likely to want in making a decision - reports on the funds, a stack of performance data, fund ratings, planning tools and a newsletter giving details of what fund managers are saying - all now (mercifully) in one place, rather than scattered across lots of different sites. All the top 50 fund providers offer funds through the site, and you can look at and analyse all the funds you own in one go.

It is an impressive example of what technology can do, and comes to you at virtually no cost. Like most of the advances in the internet, development has largely been paid for by somebody else. Most investors will be able to get a rebate on the initial commission on funds if they use an adviser.

The reason that so many advisers now use an online supermarket is that, in effect, it allows them to outsource a lot of the boring information collection and report preparation that they once had to do themselves. That leaves them more time to concentrate on what they should be doing, which is giving advice to their clients.

Whether either advisers or direct investors in fact make sensible choices with all this information remains another matter. There is a limit to what even transforming technology can do. The single-volume handbook that tells you how to use all this information remains to be written. It may never get written officially, since one of the keys to long-term investment success lies in taking a contrarian stance, an approach that no regulator is ever, I suspect, going to feel able to endorse.

Perhaps the most exciting thing is that the technology revolution has not yet run its course. That will come in the next 12 months when the fund supermarkets and a host of other contenders will attempt to create an online "platform" that will genuinely allow you to record and adjust all your financial assets - your property, your pension, your investments, your loans, your cash - on one single, interactive site. It is a much bigger technological challenge, but you can be sure it will happen soon, to everyone's potential gain.

jd@intelligent-investor.co.uk

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