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A consumer&#39s view

Unless the stockmarket perks up, which seems highly unlikely all the time that war with Iraq overshadows the investment scene, fund managers and IFAs are going to have a tricky time trying to sell stocks and shares Isas in the run-up to April 5.

A recent survey by JP Morgan Fleming reveals that investor confidence has dropped to its lowest point since the terror attacks of September 11, 2001. In January 2003, the JP Morgan Fleming Investor Confidence index stood at 42 points compared with 44 points in September 2001 – after the attack – and 83 points this time last year.

In addition, about 42 per cent of those interviewed believe that the stockmarket will be lower in six months and 37 per cent are undecided.

This is not a happy picture for those trying to persuade savers that this is a good time to invest, which in many respects it is.

But many fund managers and IFAs, in particular, stockbrokers who run Peps and Isas, are not making the most of the situation.

The problem is that most fund managers and stockbrokers have a vested interest in coercing their Isa clients into investing in shares or mutual funds now because they earn commission on funds invested.

In fact, there is nothing in the rules to prevent savers from putting their £7,000 into this year&#39s Isa and simply leaving it in cash until the investment climate looks a little rosier.

There are plenty of individuals who are quite happy to invest in equities but not just yet. Stockbrokers in particular have used the Inland Revenue&#39s lack of clarity on just how long cash can be held in a Pep or Isa to insist that clients are practically 100 per cent invested all the time.

As one stockbroker with big Pep and Isa investments put it: “The Revenue has never given us a straight answer. They put the responsibility with the individual manager. They will not give us any indication on what is acceptable in terms of the proportion held in cash and how long it can remain in cash.”

The upshot has been that most Pep and Isa managers press their clients to invest for fear of having their clients&#39 Peps and Isas disqualified. But things have changed and the Revenue has now clarified the situation.

Last November, the Revenue spelled out its approach to cash holdings in an Isa so there is no excuse for not making the most of the situation. “The basic rule about cash held in stocks and shares Peps or Isas is that it must be held for the purpose of investing in shares and securities,” said a Revenue spokesperson.

But this is the interesting bit. “Provided that it is held for this purpose, there is no time limit for holding cash or limit on the proportion of the fund which may be held in cash.” This may be news to many Pep and Isa managers but they would be idiots to ignore this information.

The Revenue goes on to say: “We do expect managers to monitor the situation and our published guidance makes it clear that where a manager has reason to believe that cash may not be held for investment purposes, the investor should be reminded of the rules.”

Fine but at the moment, millions of potential investors are put off investing in this year&#39s Isa because they are under the impression that the money has to be invested more or less immediately.

This is definitely not the case and the first fund manager or IFA to spell this out to clients and offer a wholesale interest rate for money on deposit will clean up.

For some fund managers, this will mean launching a cash fund but this should be an option anyway.

As clients become more sophisticated and take a real interest in managing their money, the ability to be out of the market altogether at some stages is essential.

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