| Full marks to the Government who stuck to their guns and
insisted on introducing a system of kitemarking ISAs (Individual Savings Accounts). In mid
September the new rules were published and if anyone wants the full story just click here. The reason for ISAs was clear; to raise
standards in the Industry to encourage a greater degree of trust and confidence amongst
the public which will lead over time to everyone saving more. The Unit Trust Industry was
lobbied against the introduction of CAT Standards for the stocks and shares component
largely because the normal charges for unit trusts are too expensive for them to qualify
for inclusion in a CAT Standard ISA. They argued that the effect would be to limit the
choice of CAT Standard ISAs to Tracker Unit Trusts isolating the vast bulk of unit trusts.
The argument between active and passive (Indexed) investment management is sure to hot
up in the coming months. The active managers who charge higher annual fees to afford the
high salaries of so-called "star" investment managers to beat the index reckon
that the recent turmoil in the stockmarkets will have allowed them to catch up with the
Trackers. If they have increased their liquidity to the maximum permitted before the
fall, this may well prove to be the case. But historically, their market timing (i.e.
buying low and selling high) has not been good on a consistent basis. And if they have
built up liquidity now, how can anyone be certain they will catch the bounce when markets
recover. Sceptical investors may well prefer to stick close to the Trackers and be sure
that they get the market performance. |
Investors can’t expect to get any encouragement to
invest in Trackers from Independent Financial Advisers (IFAs). Trackers are low cost funds
so there is little or no scope for the payment of up-front commission on which IFAs
heavily depend. The same goes for CAT Standard ISAs because unless the IFA charges for
giving advice on a fee basis it is difficult to see how they can afford to stay in
business advising CAT Standard ISAs. It will be interesting to see how the retail
financial services market changes over the next few years. IFAs have been the biggest
distributors of personal financial services in the UK and since CAT Standard ISAs and
Stakeholder Pensions rule out the payment of up-front commission, somebody else or
something else will need to take their place. The Internet is almost certain to play a
major role in the delivery and collection of a wide selection of products and services
including financial services. The Internet is so flexible and its efficient delivery via
the net will have the effect of not only cutting costs but also of raising the service
quality. All that remains to be seen is whether the general public will get connected as
quickly as experts predict. |
