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Outside edge

According to a JP Morgan Fleming Isa survey, 80 per cent of investors will not use their £7,000 allowance and, of the 20 per cent who would be investing in an Isa, 71 per cent will opt for a cash Isa. Let&#39s prove them wrong.

IFA: You don&#39t get opportunities like this too often. Did you know that the market is 50 per cent lower than it was at the end of 1999? If you saw a Mercedes at 50 per cent off you would bite the salesman&#39s hand off.

Client: That explains why all my Isa statements remain unopened. I&#39d rather open Inland Revenue envelopes.

IFA: Yes, but I really think that we are at the last leg of this downturn.

Client: You said that last year.

IFA: (Getting a graph out showing the long-term performance of equities over 50 years). On valuation grounds, UK shares yield just over 4 per cent, which is close to the 10-year gilt yield, the narrowest gap between these two for nearly half a century – this tells you that equities are cheap. You also have the prospect of a growing income.

Client: There are all these problems that the papers keep talking about with pension funds and insurance companies in trouble and Mr Bush is going to war with Iraq.

IFA: I am glad you mentioned that because wars are very good for equities. Did you know that from the start of 1939 to the end of 1945 the FT30 index grew by just under 60 per cent? You saw the same with the Gulf War in 1991, with equities rising because uncertainty is removed.

Client: What if it becomes a long conflict – surely that&#39s bad for oil prices?

IFA: Yes, but it will probably be a nice short, sharp war and UK equities always do well in a year preceding a US presidential election and the next election is in 2004. Also, I propose an equity income fund, because dividends give you an element of reliability. A Barclays Capital study showed that £100 invested in UK shares in 1899 would now be worth £815,000, with gross income reinvested – without compounding of reinvested dividends, that same stake would have only been worth £142.

Client: But the fund manager will leave and Abbey National halved its dividend last week.

IFA: You cannot put your money anywhere else because cash is poor, property is an accident waiting to happen and you don&#39t really want to buy antique furniture.

Client: This equity income fund idea sounds good but journalists keep mentioning charges. Are the returns worth it and you will discount your commission won&#39t you?

IFA: (Nostalgically thinking about the days when people queued to hand in Isa forms and some IFAs were seen in helicopters collecting them). Well, returns are going to be more modest but a 4 per cent yield with some growth could give a 6 per cent to 7 per cent overall return. This is very good in real terms and I can give you a 1 per cent discount.

Client: You are earning £140 from this Isa.

IFA: That isn&#39t much, considering we have been talking for an hour. Did you know we have to get PI cover (I hope by now our compliance officer has got some cover at five times last year&#39s premium) and that helps you make a complaint against us in the future, when conditions will have changed and everything we have said now will not be relevant.

Client: Haven&#39t you got an equity investment that just can&#39t go down?

IFA: Yes, I have a protected equity Isa that has just been launched this week.

Client: OK. I will sign the form and at least this thing cannot go down in value.

So, our IFA now believes the JP Morgan Fleming survey. He then hands the Isa application form to the open-mouthed back office and wonders about an alternative career as a compliance consultant, a regulator or a PI broker.

Michael Owen is joint managing director of Plan Invest Group


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