Don't Get Trapped in a Theme Park ; Buy an Isa and You Can Find Yourself on a Themed Ride, Writes William Kay. but Some Managers Do Not Care Whether You Are on a Merry- Go-Round, Helter-Skelter or the Dodgem Cars
Kay, William, The Independent (London, England)
The biggest retail stockbroker on the London stock market launched a stinging attack on rivals for trying to shepherd people into tax-free individual savings accounts each year "like lambs to the slaughter" by selling them an investment theme.
Alec Morley, 37, chief operating officer of TD Asset Management, part of the Canadian-owned broker TD Waterhouse, said: "Investors have been suckered by these City folks sitting in the wine bars and trying to come up with a theme that will sell.
"I don't think this does anyone a great service. Look at the emphasis on technology funds two years ago. Many people would not be in the hole a lot of them are in now, but for that sales drive then, and the much- touted corporate bond funds could be a mistake this year, if you have a high level of corporate defaults."
Like his counterparts at Barclays and Natwest Stockbrokers, the other big retail broking operations, Mr Morley prefers the flexibility of self- select Isas, which have the same pounds 7,000 limit each year but allow the holder to wait for up to another year before deciding where to commit the money.
Waterhouse is an execution-only broker so it cannot give advice directly. But it does issue a questionnaire to customers designed to clarify their priorities. The firm's self-select Freedom Isa has a portfolio planner asking investors to choose from a range of goals, such as retirement or children's education, and asks how much risk individuals want. This results in a recommended portfolio for each type of investor profile.
Mr Morley, a British-born emigrant to Canada with his parents, says: "We tell clients to keep buying, but regularly. Pound-cost averaging and compound interest are powerful wealth-builders that need no theme. Investors' greatest enemies are fear and greed, and regular investing takes the emotion out of the decision. Themed Isas play on emotion."
Do people dream up themes to push sales? Patrick Connolly of the independent financial adviser Chartwell Investment Management says themes often create themselves. "We didn't promote technology funds two years ago, but people went into them because demand was there," he says.
"I agree there are fund managers looking for a theme, and it can be a cynical exercise, asking what people are going to buy, rather than what is going to be useful to them." No one would admit placing sales targets above customers' best interests, but Mark Dampier, of the Bristol-based discount broker Hargreaves Lansdown, said: "It's very tough this year and everyone is out to sell. A sales director would get the bullet if he or she didn't have any ideas for selling Isas, and investors need to be aware of that. But two years ago our advisory side was taking 6,000 calls a day from people wanting to put technology shares into their Isa.
"We are not there to say, `You shouldn't buy this', and I don't think tech stocks were the wrong thing to buy as part of wider portfolio.
"At the time, equity income funds were the thing to buy, but you couldn't have sold them for love or money. It's very hard to be a contrarian with your own money, and it's even more difficult when you see your friends getting rich very quickly by taking a particular line."
Hargreaves has a self-select Isa, Vantage, which offers up to 5.25 per cent discount on the initial purchase, and up to 0.375 per cent loyalty bonus each year. You can also hold shares in it, but If you want to delay your choice you can take the cash option, paying up to 3.75 per cent gross (3 per cent net), while you make up your mind.
But that and other self-select Isas seem to have been trumped by a new Gilt-to-Equity Isa launched this week by Germany's Dresdner RCM. This will put the whole investment into British Government bonds through Dresdner's Gilt Yield Trust, from where it is automatically drip-fed in three …
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Publication information: Article title: Don't Get Trapped in a Theme Park ; Buy an Isa and You Can Find Yourself on a Themed Ride, Writes William Kay. but Some Managers Do Not Care Whether You Are on a Merry- Go-Round, Helter-Skelter or the Dodgem Cars. Contributors: Kay, William - Author. Newspaper title: The Independent (London, England). Publication date: February 2, 2002. Page number: 1. © 2009 The Independent - London. Provided by ProQuest LLC. All Rights Reserved.
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