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Early warning on retiring at 50

London York Asset Management has introduced the select income fund, a fund of funds that invests in a range of unit trusts in the UK and overseas. London York manages the fund and City Financial Managers administrates it.

Examining the market suitability of the product Posner says: “This is a relatively high-yield fund of funds incometrust which can be included in an Isa or Pep transfer. It also accepts regular savings.”

Wilkinson says: “It is a useful package for a client looking to improve income but who is uncertain of the market. Funds of funds or managed funds have tended to be the domain of insurance companies and, because London York is an IFA, there may be resistance from other IFAs to marketing this scheme.”

Chitroda says: “The product fits in reasonably well, offering an acceptable and attractive yield of 4.8 per cent.” Gardner feels that the fund should find support in the market.

Looking at the type of client that the product is suitable for, Gardner says: “This is for the client seeking a higher yield than is available from equities and who also requires an element of growth.”

Chitroda says: “It is for someone who is looking for a reasonable income, comparable to the return in a building society savings account, but with the prospect of modest capital growth over the long term.”

Posner says: “The prod-uct is aimed at a balancedrisk profile investor looking for income and some capital growth over the medium to long term.”

Wilkinson says: “This is for the type of client who feels safe with a broad spread holding. The type who has a need for high income but who does not want full equity exposure, and is attracted to the bonds/fixed interest elements. Also, the person who might otherwise be attracted to a distribution bond. Isa clients may be attracted to an investment covering a range of &#39known&#39 names.”

Turning to the marketing opportunities the product offers, the panel are split. Chitroda says: “There are no marketing opportunities for my organisation, as there are already good well-known fund management groups offering similar sorts of funds with consistent long-term track records.”

Posner says: “I do not see any extraordinary marketing opportunities from this fund although it is a useful addition to the sector.”

Gardner comments: “There are limited marketing opportunities here. There are better-known fund managers offer-ing established funds witha track record.”

Wilkinson disagrees. He says: “There are marketing opportunities for those not concerned with capital growth but instead with immediate income, who accept the risk of capital loss and who like the idea of a shares/bond mix. The ability to offer a spread of fund managers and investment fund types is beneficial.”

Examining the strong points of the product, the panel focus on different aspects. Chitroda says: “The strong points include the initial charge of 4.5 per cent, which is 1 per cent below the typical charge and the annual charge of 1.25 per cent, which is 0.25 per cent below the norm.”

Posner comments that there are a relatively broad spread of income-producing funds which are offered under one umbrella at a contained cost. Gardner considers the product&#39s strong points to include ease of administration, capital gains shelter and an attractive yield.

Wilkinson says: “The strong point is that there is a spread of funds and managers within one plan, which makes it a convenient package.”

Turning to the drawbacks of the product, Chitroda comments there is a lack of brand awareness.

Posner says: “The drawback is that there is a charge on capital rather than on income.”

Gardner says: “The drawbacks include an element of double charging and the lack of name awareness for London York.”

Wilkinson says: “There is a risk to capital. Clients may be seeking high income due to a shortage of capital and they need to be aware of the risks. The key features document does refer to &#39modest capital growth&#39 and how charges from capital may erode value.

“There is also the possibility that clients will view the plan as having too many middlemen – the introducing IFA, London York, City Financial. Who is making the investment decisions and how are they being made?”

Examining the investment strategy, Wilkinson says: “The strategy appears to put approximately half in equities and half in bonds/fixed interest, using well-rated funds. But there was nothing in the literature to tell me how the selection is made, how it may vary and what the actual strategy is.”

Chitroda says: “It is a fund of funds income fund and perhaps relies on the fund manager&#39s skill in picking the right funds to invest in.”

Posner says: “As the fund offers a reasonably broad spread of respectable managers, hopefully the yield is achievable and in the current economic climate will be continued.”

Looking at the reputation of London York, the panel find it hard to comment. Gardner and Chitroda know little about the company and are unfamiliar with its products.

Posner says: “London who? While it may be on the tip of everyone&#39s tongue in North Yorkshire, I regret that its reputation has not percolated on to Aequos or any other research material.

“However, in this fund, it is linked with City Financial, which is well-known.”

Wilkinson says: “London York has a good local reputation. However, I have seen no national comment about it, good or bad.”

The panel agree the charges and commission are fair and reasonable.

Turning to the product literature, the panel are lukewarm. Wilkinson says: “The key features document is well produced and clear – better than those companies which use small, close print.”

But Gardner feels the product literature is poor.

Chitroda says: “It is very plain and bland and appears to be more like a Civil Service document than a marketing document. My clients would be bored to death to go through it.”

Posner comments: “The literature is adequate, if unexciting. However, I defy anyone to convert unit trust and Isa rules into a form of language less Byzantine than Parliament has achieved.”

Summing up, Wilkinson says: “I would have liked to have seen some information from London York about what it sees as the target market. What about a product brochure on how it selects fund managers and what reviews of holdings will be made?”

Posner says: “I consider there is an unacceptable risk to capital. If one looks at the capital risk then it is not vastly more attractive than other high-yield funds. However, there is abroader spread of risk, which does compensate a little.”

Michael Posner l Principal, Charter Devon Law & Co

Peter Chitroda l Chief executive, Allied GrosvenorFinancial Management

Stephen Wilkinson l Partner, Charles Wilkinson

Investment Brokers

Nick Gardner l Managing director, DHC Financial Services.


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