Imagine a world in which everything is ideal. Trains arrive on time, mobile phones do not have irritating ring tones and the Welsh woman on Big Brother is not on your telly every night.
Now take a deep breath and imagine even harder – think of a world in which instead of routinely misleading their clients, investment companies make every effort to fairly explain the features and limitations of their products. Am I being a little harsh? Er, no I don't think so.
From selective use of past performance data on unit trusts to the one size fits all mentality of with-profits bonds, fund management groups and life offices are consistently guilty of flouting the spirit of the rules.
If you are still not with me, consider the position from an investor's perspective. Put yourself in the shoes of a 65-year-old woman who has been advised to invest £10,000 in a with-profits bond. How likely is it that she has been told that this product is as secure as cash but also has the growth potential of the stockmarket? I think very likely.
Even if this has not been the IFA's message, most companies' product literature makes claims that will be understood in this way. Clever use of “potential” and “may” might mean that in the literal sense the claims may not actually be this wild but for a less informed investor this may be the interpretation.
Turn the clock forward five years and the client wants to cash in the investment. Last year's statement (if it ever arrived) suggested that bonuses had led to the bond rising in value to £12,500.
How surprised, not to mention disappointed, is the investor going to be when she learns that a market value adjuster is to be applied because she has chosen to surrender at this time?
All the spiel about bonuses once added cannot be taken away may be true.
But what can happen is that an axe is taken to the entire bond. Of the many companies in the with-profits bond market, I wonder how many have been as quick to change their product literature as they have been to cut ret-urns as equity markets have remained flat? And what is the ABI going to do about it?
The Saltr “initiative” promises to raise standards in the insurance industry. One welcome outcome is that MVAs are to be known as market value reductions, a term that probably more accurately describes the product feature.
However I wonder if the non-legislation will go as far as to say that companies must also make clear the likelihood of an MVR being applied and the kind of impact it might have on an investment.
As annual bonus rates continue to fall – I expect to see them under 3 per cent within two years, the toxic combination of charges and a 10 per cent MVA (as some companies are currently applying) could see five years' bonuses wiped out completely. Not only would investors have got more if they left their money in cash but they would have been able to sleep easy throughout in the knowledge that there were no surprises in store.
With-profits bonds are just one example. The Isa season is dominated every year by huge headline figures and shrunken small print. Needless to say the big numbers highlight what the funds have achieved – the smaller ones point out what you might not get.
There has to be a better appreciation of what should be in the small print and what should be made clearer up front. Even a straightforward quantitative measure of volatility described in straightforward graphical terms against benchmark assets such as cash and the UK market would assist greatly.
Perhaps all the poor inv-estors who were seduced by tech funds last year would have been more cautious if they had appreciated just how volatile these funds could be. There is no reason why the investment industry cannot put its house in order if the will is there. Otherwise I fear for the future.
David Ferguson is a director of product design and marketing consultancy the abacus