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Charging tables could be FSA&#39s biggest blunder

The FSA would be the first to admit that it has made some mistakes during its short existence – the handling of the Equitable Life case, decision trees, the delay of N2, to name but a handful.

But since its latest project – the comparative tables – went live two weeks ago, there has been a growing feeling across the industry that the regulator may have well sown the seeds for yet another error.

For an organisation whose mission statement includes that it aims to “promote public understanding of the financial system” and “to secure the right degree of protection for consumers”, its latest project appears to be well off the mark.

The biggest concern from providers is that despite the FSA&#39s efforts to persuade investors that the tables are merely a point of reference, any set of tables compiled by the regulator is likely to be perceived as a safe way for investors to choose their investments. The rubber stamp of the FSA is extremely powerful.

With the tables&#39 filters pushing investors towards the cheapest products, the first concern is that they will inadvertently spread the false message that cheap means good – a fact which is not just wrong but is also completely contrary to the truth.

Money Marketing research released in July, conducted by the investment selection service Shouts, showed that over the past five years it has been funds with the higher annual management charges which have performed better.

Jupiter joint managing director Steve Glynn believes it will be very dangerous for investors to select funds based on cost alone. He says: “It is like buying a car and only knowing the cost, not what is under the bonnet. You just would not do it.”

Jupiter has come out particularly badly from the tables. Its UK growth fund has consistently been one of the UK all companies sector&#39s best performers but in the FSA tables it is simply listed as one of the most expensive funds on the market. The tables calculate cost based on a modest projection of 7 per cent growth a year while Jupiter&#39s fund has averaged annual returns of more than 12 per cent.

But while Jupiter is furious with the format of the tables, like most of the industry it has been unwilling to get on the wrong side of the regulator by going ahead with a boycott.

Glynn says: “We are happy to put our data on the tables, we have nothing to hide. We know we are not the cheapest. The most important factor has got to be value for money. If you look at Jupiter UK growth over the last decade, it has significantly outperformed the index.”

The only company to have boycotted the unit trust tables has been St James Place Capital. With its business almost entirely based on advice from its salesforce, it has little to lose by not being on the tables.

St James&#39 Place director of product marketing and development David Lamb says: “We have decided not to participate in the FSA comparative tables as they have been compiled solely on the basis of charges and do not reflect the considerable value and comprehensive advice offered by the St James&#39 Place Partnership, an example of which is our investment monitoring committee.

“This is chaired by Sir Mark Weinberg and employs the services of an independent professional investment consultant to select fund managers on the basis of substantial analysis of both qualitative and quantitative data. In addition, investors can only buy our products with advice.”

If the tables are to stay, then most providers would at the very least like to see some measure of risk and past performance. In reality, there are few that would put up a fuss if the whole project was ditched.

Even with risk and performance included, the tables are encouraging investors to go it alone and make their own investment decisions.

Glynn points out that the focus on which funds are Catmarked is basically a move to phase out the adviser. FSA tables – and Government Catmarked funds appearing on them – will inevitably be seen as safe investments when there is no guarantee that this will be the case.

PlanInvest joint managing director Michael Owen says: “I am very uneasy with the concept of a regulator moving over towards giving advice. They would say that they are not, but if you put a table up with the cheapest funds, you are definitely slowly moving over into a different world.”

The FSA is adamant it is not giving advice. The tables&#39 website says as much on its front page.

Hargreaves Lansdown head of research Mark Dampier says he is not too concerned about the tables and believes they are unlikely to be seen by many people as they are on the internet.

While providers are concerned that the FSA carries weight with the consumer, Dampier points out that it is not particularly well respected.

He says: “The regulators have not got a very good reputation. There would have been no pension misselling scandal if it was not for them. And look at the way the Equitable disaster was handled.

“I think these tables have been a lot of fuss. They have spent far too long putting them together when they should have been looking at the bigger picture. But as a financial adviser, they are not going to worry me. If there is a scandal on the back of this, it is going to be the FSA&#39s fault and not mine.”


Peter Barrett

Lives: Buxted, East SussexBorn: 1966, West SussexEducation: Left comprehensive school to go to college in East Surrey to study for a diploma in business studiesCareer: Started with admin role with subsidiary of Signa US, Crusader Insurance, In 1989 joined Inter-American International as a director of offshore operations. In 1990 set up his own brokerage in […]

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