Independent Advice That's Not Always Impartial; as the End-of-Tax-Year Deadline Looms and the ISA Selling Frenzy Begins, Investors Need to Be on Their Toes When It Comes to Seeking Professional Counsel

Article excerpt


OVER the next six weeks an estimated [pound]5 billion will be invested in individual savings accounts (ISAs). Between them the providers will spend around [pound]100 million trying to grab a share of this lucrative market. At the same time independent financial advisers (IFAs) will be contacting their clients and offering advice about their ISA services. But who can you trust and how independent is the counsel you will be given?

This time last year technology was all the rage and much of the money that poured into the sector came from ISA investors persuaded by glossy adverts and IFAs that this was the right place to be.

Maybe that advice was correct on a five-year view but there were also a lot of people on both sides of the Atlantic who were saying that the technology bubble was about to burst, as it did during March and April.

Investors would have been much better off if they had waited or chosen a different sector.

One fund that was heavily promoted by many IFAs early last year was the CGU Monthly Income Fund.

However, since then, the dividend has been cut by 20% and the fund has been a terrible performer.

In fact, both technology funds and the CGU offering were featured prominently in many of the ISA guides produced by IFAs and circulated to existing and potential customers.

These guides are usually produced around September of the previous year and four or five days can be a Preview Not long time in investment, let alone four or five months.

It would be nice to think that the IFAs who produce these guides would advise clients of any change in circumstances when they decided to buy.

However, most work on an "execution-only" basis, which means advice is not provided.

One IFA firm last year was still accepting applications for a fund which had changed managers in the meantime. It was giving warnings about this in its newsletter to existing clients but new customers would not generally have seen that until after their applications had been processed.

What may not have escaped the notice of some people is the correlation between the funds that are recommended in many of these guides and the adverts that appear alongside.

Strictly speaking an IFA cannot receive a payment from a fund to cover his costs of acquiring new business.

However, adverts can be charged at "commercial" rates, quite legitimately.

In fact, fund managers are more than happy to pay up to [pound]10,000 for the chance to reach one million potential customers and, given that some of these guides reach six or seven million, it is easy to see how much the "commercial" rate for an advert in a guide might be. …


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