So, can the internet really answer all your money worries?

The Independent's guide to personal finance on the web. We sort the good from the bad and the plain ugly.
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The Independent Online

Personal finance on the internet looks like a complete jungle. Hundreds of sites are launched every month, and each of them seems to have their own high profile advertising campaign. Whether it's banking, buying shares, looking for cheap loans or a better insurance quote, there seems to be a host of new websites eager for your attention.

Personal finance on the internet looks like a complete jungle. Hundreds of sites are launched every month, and each of them seems to have their own high profile advertising campaign. Whether it's banking, buying shares, looking for cheap loans or a better insurance quote, there seems to be a host of new websites eager for your attention.

Where do you start?

Don't panic. One good aspect of the growth of websites is that there are several excellent guides on the web which should get you off to a good start. You could try a Net directory like Find. It's a kind of electronic Yellow Pages, where the sites are listed under Centres such as "Insurance", "Investment", "Advice & Dealing" and so on. You can link to any listed site without actually having to enter the URL.

General information sites are all free so you can browse at will until you find one you like. If you are a financial novice, avoid the heavyweights like FT.com or Interactive Investor International to start with.

Try This Is Money and MoneyeXtra, or MoneyNet if you want data only. Explore the site gradually until you are thoroughly acquainted with content and where to find it on the site.

What are the best features of these information sites?

The search tools are top of the list. You use them to simplify complex product choices in areas like mortgages, credit cards, personal loans, savings and investment funds. Search tools are also being applied to share picking. UK-iNvest (www.uk-invest.co.uk) has a pretty comprehensive "Stock Screener" as does online stockbroker Self Trade (www.selftrade.co.uk). Then there are the discussion forums where you can ask questions and exchange experiences with your peers. However, beware of share tipping which can be very self-serving.

Is online financial information reliable?

The internet is not infallible and the editorial content is no more reliable than anything you can get in print. Generally speaking, hard data comes from unimpeachable primary sources like Reuters, S&P Micropal, TrustNet and MoneyFacts. The most important point to realise is that the financial content is not in fact complete.

Where is content strong?

Investment is a very strong area. Sites like Interactive Investor International, S&P Micropal, TrustNet and comdirect are superb for researching unit and investment trusts. Many information sites have copious performance data with wonderful interactive charts. You can now routinely compare the performances of any four-item combination of shares, funds and indices on one graph.

The funds supermarkets look very interesting (see Virgin Money, Fidelity Funds Network, Interactive Investor International FundsNow and Egg Invest). The resident search tools let you to filter out shortlists of suitable funds by multiple criteria. The downside is that they currently have narrow panels of providers with whom you can transact.

The Net is also very strong in mortgages. E-Loan and Charcol Online were once the leading sites, displaying and launching applications in mortgage products from around 50 lenders. Now NetMortgage claims to be able to transact with 120 lenders.

Where is it weak?

It is pretty weak on personal protection products such as life assurance, critical illness cover and income protection. Life and critical illness quotations seem to be geared towards the mortgage market, hence the concentration on level and decreasing term assurance. It is scandalous that only about four sites have life assurance calculators for working out adequate sums assured in non-mortgage situations.

How about pensions?

At present it's execution-only dealing from narrow provider panels on sites like ins-site. There will be a lot of activity in this product area in the lead up to Stakeholder Pensions next April. However, I think that buying pensions without advice online or off is risky. There is no such thing as a simple pension plan and Stakeholders are riddled with anomalies.

How should people use the internet to manage their finances?

In view of the incompleteness of financial information on the Net and the complexity of most financial planning, it is probably best used together with independent advice.

The spirit of the times suggests that financial advice is dispensable, but that is a false nostrum. Use the Net, rather, to improve the quality of advice that you receive by ensuring you are well informed.

How about getting advice online?

It is a virtual non-starter under our present regulatory system. You can count the number of accountable advisory sites on one hand. Even then they simply reproduce their fact-finds online and proceed by e-mail, telephone or post thereafter. Believe me, there is nothing sexy about completing a six-page fact-find online.

Incidentally, watch out for the launch of Cofunds later this year which will work through IFAs. The private consumer will get a funds supermarket with independent advice. It will be like going on a shopping trip with your own personal adviser. Now that re-ally is progress.

What about transacting online?

The hype is still outrunning the reality. Share dealing is one area where it has been a success in terms of volume, but activity has dropped since the markets peaked. Some of the dealing systems haven't been too resilient under pressure.

There have also been problems with some of the online banking systems. First-e is a favourite whipping boy, Cahoot has teething problems and even Smile is looking a bit stretched. And as for IF - it's more a question of "when?" Mortgages are more promising, but then the websites are simply conduits for directing the applications to the providers themselves who do all the processing work.

As for buying financial services online, it is still in its infancy. Interactive Investor International has blown a small fortune promoting its one-stop transactional site but you can still only buy a pension from one provider. Others like ins-site have narrow panels for transacting in life assurance and pensions. General insurance (motor, property, travel and pets) is transacted through a few panel sites like Screentrade, 1st Quote and InsuranceWide.

Is it cheaper to transact online?

In some cases it is. The internet has certainly brought down the cost of share dealing. You can now trade from about £5 for the smallest deals (www.comdirect.co.uk) and at £8.95 for frequent traders (PowerTrade on www.etrade.co.uk).

Funds supermarkets are cutting the initial charges on unit trusts but the annual charges remain. I am not so sure whether you get better terms on life assurance and mortgages than you get offline. Remember, too, that low charges often go at the expense of advice and investor protection.

General insurance quotes don't seem particularly cheap to me. My own distinctly terrestrial motor renewal quote came in at significantly below anything offered on the Net.

Is transacting online safe?

In some respects it's safer than transacting offline. No one encrypts your card details in a restaurant or a shop. On the other hand, the Barclays and Egg episodes have created legitimate doubts about security although the so-called Egg bank heist turned out to be a rather more traditional credit card fraud.

In reality, the credit card companies are more at risk than the consumer who is only liable for up to £50. The real hole in the system is that the merchant cannot be sure that the person ordering online is the legal owner of the card. At the moment, Secure Socket Layer (SSL) encryption simply scrambles the information. Digital signatures, however, associate the scrambled message with the identity of the sender (or rather the computer where the private key resides). This is the basis of the Secure Electronic Transaction (SET) system. SET may well be more secure but it means that we will all have to buy digital certificates (i.e. electronic ID cards).

How do you find out about an online bank or share dealing service before you sign up?

I recommend the discussion forums on Interactive Investor International for some real state-of-the-art whingeing. You can easily pick up the tread of the argument by trawling the archives.

Has the internet created anything new?

I can't think of any financial products that are the exclusive creation of the Net. However, there are a few services that depend on the internet. Auctioning has been given a whole new dimension and the "Reverse Auction" (where the sellers do the bidding) is an authentic creation of the Net. American sites like Travelbids (www.travelbids.com) and Priceline (www.priceline.com) are revolutionising the way in which we buy consumer goods and services. You can now transact in airline tickets, hotel accommodation, motor vehicles, groceries and even mortgages by reverse auction on Priceline. Incidentally, Priceline.com Europe is scheduled for a September launch.

One of the most revolutionary sites that I have come across in the UK is PropWatch, a real estate auction site that could put an end to gazumping and gazundering.

What impact will WAP and broadband technology have?

Wireless Application Protocol (WAP) and broadband are all about improving access rather than content. WAP enables you to perform certain banking and share dealing functions from your mobile telephone. Broadband means faster access to information, making the Net less frustrating to use. However neither WAP nor broadband will make you rich on its own. Don't mistake convenience for a revolution.

David Emery is the author of The Good Web Guide to Money published by The Good Web Guide Ltd at £12.99. Available from bookshops or from www.thegoodwebguide.co.uk

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