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Moore&#39s code

Fear and greed rule the markets as ever – and for now fear is the dominant emotion among most IFAs&#39 clients. The old truism that retail investors pile in at the top and stay buried in their holes like frightened rabbits when times are bad has been more than proven over the last 12 months.

With the markets so far showing little sign of recovering from their current malaise, it is difficult to see this year&#39s Isa season being any better than the frankly dreadful 2001. So choosing a fund manager that can make the best of the current conditions will be the dominant factor when IFAs advise their clients on where to invest – and rightly so.

There are, however, one or two other issues which IFAs may wish to bear in mind when dealing with fund managers. Fund managers, particularly active ones, will now no doubt be pulling out all the stops to try and persuade advisers that they have the know-how to prove to the man in the street that investing in the stockmarket is a good idea, despite all the evidence to the contrary.

Their desperation for business could give IFAs more leverage on the way they behave than at other times. I would like to suggest a way for them to use this influence. Last year Gerald Corbett, former chief executive of Railtrack, resurfaced as head of Woolworths, pocketing a nice bonus from its successful spin-off from Kingfisher.

To be fair to Corbett, Woolworths&#39 flotation last summer was remarkably successful, given the market&#39s travails. But there was a fly in the ointment in the form of Friends Ivory & Sime. FIS decided to get all stroppy about the share option scheme proposed for Woolworths executives.

The scheme was, shall we say, rather less demanding than good practice suggested it should be. FIS, which then held about 1.5 per cent of Kingfisher, and therefore Woolworths, chose to register its opposition publicly by demanding a count of all the votes cast on the issue of options at the EGM called to approve the spin-off.

Of course Woolies, and Corbett, won but FIS very effectively made its point. While the spin doctors tried to say that it was not due to FIS&#39s intervention, pledges to review the scheme were made. FIS&#39s behaviour was admirable and entirely correct. It was behaving as a responsible steward of its clients&#39 money by publicly making a stand on a part of the spin-off which, it could be argued, was not in the best interests of shareholders.

Hermes, a pension fund manager, recently did the same over what it sees as the poor record of Six Continents, the leisure group, on acquisitions. Unfortunately not all fund managers chose to replicate this behaviour. Now, it may well be that much can be achieved by a fund manager in holding private discussions with management. Some argue that this, in the long run, will accomplish more than going public.

But FIS and Hermes have both taken this route. And they have obviously decided that there comes a time when you have to make a stand and nail your colours to the mast. Contrast this with rivals such as Jupiter, or Credit Suisse Asset Management, which, when I have asked them about controversial situations involving companies in which they invest, have responded with the pat reply: “We do not comment on individual stocks.”

There is a depressing finality to this comment. It appears to mean: We do not comment on individual stocks ever, whatever the circumstances. Now this, on its own, is not a reason to avoid advising clients to invest in these groups&#39 funds. Performance is all, particularly in the current climate.

I declare an interest here. I have an investment with Jupiter and am reasonably happy with the performance it has produced. The fact that I find Jupiter&#39s refusal to pass comment on a controversial situation deeply disappointing is not a reason for me to cash in my investment with the firm.

But it is an issue senior figures at firms of financial advisers may like to consider when they get together with fund managers for their regular chin wags. Active managers charge high fees for their services. It is comforting to see that companies such as FIS, and Hermes, are doing something to earn those fees.

With distribution becoming ever more important to fund managers, IFAs have an opportunity to help push their rivals into showing us that they also earn their high fees.


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