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Inside edge:

“We&#39ve got really nice brochures.”

“Our buildings are very tall and in lots of different cities.”

“Here&#39s a picture of a man with a computer and glasses on. Believe me, we are all very bright.”

One year from now, these are the sort of bold advertising straplines that we will all be brainstorming as we contemplate trying to advertise unit trusts, Oeics and Isas without being able to make past performance the predominant message.

The outcome of the FSA&#39s CP132 document is likely to have far-reaching consequences for our industry at a time when we are all dealing with the fallout from the more notorious CP121 paper on the future of depolarisation. How have we got ourselves into this position?

The use of past performance has always been a problem due to the focus on cumulative performance over the longer term. We are obliged to show five-year numbers and this was all very well when fund managers many years ago stayed in the same place for a long period of time.

However, as recent Credit Suisse Asset Management research shows, of the 2,120 unit trusts/Oeics available at the end of 2000, a colossal 1,349 of them had changed manager in the previous three years. This means if you show three-year track records in advertising, then 64 per cent of those records are partly generated by different managers.

On the other hand, after two terrible years of stockmarket returns, the regulators and the Government are more eager than ever to protect investors and to give them as many warnings as possible about the suitability and the risks that they may be undertaking.

Forgive me for saying so, but you could have put 27 different warnings in lime green paint on technology Isa application forms in February and March 2000 and yet investors would still have written out those cheques as they chased the returns available from the new golden internet world.

As a non-smoker, I am always stunned by the severity of the warnings on cigarette packets. We have moved over the last few years from gentle suggestions that maybe smoking is not so smart to the current state where it is guaranteed that you will die earlier if you touch the outside of a cigarette packet. Every restaurant and pub I go in has crowds of intelligent people making up their own mind about what they want to do and cheerfully puffing away.

Past performance is no guarantee of future returns but surely it has been proved beyond doubt that good fund managers with consistent track records do have a better than average chance of performing better in the future. If performance advertising is completely outlawed, how are investors to find these managers?

The problem with past performance is that the wrong question is being asked. What we should be asking ourselves is “how can we use past performance records in a consistent way across the industry so that we can give the potential investor more information and a more enlightened view before they make their choice?”

And how do the regulators plan to police such a subjective directive as “past performance should not be the predominant message?” What exactly is “predominant”?

The answer is to have an industrywide agreement on the use of discrete performance so that each product provider quotes performance in an identical way. This should be year by year on a stand-alone basis and we should also link this in with an indication of whether the current manager has been resp-onsible for this performance.

It cannot be beyond the imagination and brain power of all the mutual fund marketing departments to come up with some relevant criteria as a response to CP132.

Otherwise it will be a battle of the brands and we will all be choosing as our image a bird, an animal or an aeroplane. This sort of imagery is supposed to draw investors towards our funds. Is it a bird or is it a plane? No it&#39s a dodo.

Ian Chimes is managing director of Credit Suisse Asset Management

The implications of depolarisation for the investment sector will be the subject of a day-long conference in London on Wednesday, May 22.

Speakers will consider whether the proposals amount to a 15-year step back in time, how mergers and alliances will develop in the future and whether there are any alternatives to the FSA&#39s proposals.

Cofunds chief executive Clive Boothman will speak about the implications of depolarisation for fund supermarkets and Charles River Associates principal Tim Wilsdon will discuss whether the tiered adviser system will work for the low-income consumer. Other speakers include Sofa chairman John Porteous, LIA head of public affairs John Ellis and AITC director general Daniel Godfrey.

The event takes place at the Café Royal in London. Contact 01932 893854.


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