In light of the recent FSA report, Saving for Retirement, do you expect to
see greater use of Isas in retirement planning?
MD: Isas are already used extensively in retirement planning. The FSA
report will, however, add more weight to the use of Isas first before a
pension. However there are two problems associated with an approach which
seems sensible on the surface. First, investors have access to the money.
This means many are likely to have spent the money before retirement. Also,
should you wish to claim benefits, for example, if you become unemployed, a
pension fund will not count toward eligibility but an Isa will. This is
something that needs to be addressed.
GH: Theoretically, yes. But, performance being a function of costs and
performance, judging the specific pro-duct will be difficult.
From an IFA perspective, and all other things being equal, it is difficult
to recommend an alternative to a product offering 22 per cent tax relief at
the front end. You can almost see the headlines in 10 years time, can't
you? “Isa sales scandal deprives pensioners of lifetime income.”
GB: Isas already have a big role to play in the advice we give clients on
retirement planning. Unfortunately, many people still automatically think
retirement planning is just about pensions. Pensions do have the advantage
of up-front tax relief on contributions but they can lose out in the
However, people are increasingly being educated to look at using other
vehicles in addition to pensions. The recent FSA report helps to underline
the fact that pensions and Isas can be used together in order to achieve
Has the sell-off in technol-ogy stocks resulted in tech funds being a
no-go area or a good opportunity?
MD: The investment case for technology stocks remains intact for the long
term. The majority of these companies are simply growing more strongly than
other sectors in a low-inflationary environment. But this doesn't stop
overvaluations. This year will prove to be a consolidating year for tech
stocks. This summer will prove to be a major buying opportunity,
unfortunately missed by many clients.
GH: The long-term story for technology funds remains valid. What it should
have taught investors is not to over-commit too much to one particular
GB: Many investors using technology funds to utilise their Isa allowance
in March and April will have been hit hard by the sell-off. However, the
vast majority of investors who bought funds on the advice of an IFA will
not be too concerned. The risks will have been fully explained and the
funds will have been recommended for the right reasons.
It is investors who bought purely on the back of spectacular past
performance who may feel badly burnt. However, the fundamental reasons for
investing in technology have not changed. The fall in technology fund
prices just means that you can now buy in at a more reasonable price.
What is the your stance on active versus passive investment strategies in
light of current stockmarket volatility?
MD: Passive will remain an investment force. However, the changes in the
FTSE 100 over the last three months clearly highlight the problem for
passive funds, in that they have to buy what is fashionable and sell what
is unfashionable. Not a great long-term policy, really. The best active
fund managers should be able to give the passive funds a run for their
GH: We have long been advocates of both, depending on a client's specific
circumstances. Since the recent re-rat-ing of the FTSE 100 index in favour
of technology stocks, it is fair to say we are very much in favour of more
active fund management.
GB: It is interesting to look at this issue in relation to the FTSE 100.
Some stocks elevated to the index in March will be ejected in the June
review. These stocks were bought by tracker funds when they were high and
will be sold when they are low. Buy high and sell low does not make good
Another consideration is that trackers have to buy the replacement
constituents just after they have had the good run which has elevated them
into the index. I think the climate of volatility presents some good
opportunities for active managers to outperform their benchmark indices.
Has the AITC's “its” campaign resulted in a greater use of investment
trusts in your business?
MD: It has not made any big difference. We have been and remain big
buyers of investment trusts.
GH: Not really. The campaign has been excellent in terms of content and
structure but we have not seen clients storming the ramparts and demanding
to buy investment trusts.
GB: There is no doubt that the campaign resulted in greater interest in
investment trusts from clients. However, as advisers, we were already using
them and the campaign has not resulted in a significant increase in our
investment trust business levels. I think the educational benefits of the
campaign extended both to advisers and investors. I am also in no doubt
that some advisers who previously did not use them will now be dipping a
toe in the water.
Fixed-term stockmarket-linked high-income products have become popular
with investors but do they really understand them?
MD: I doubt it very much. So far, none of these have failed because of
the strength of markets but the law of averages suggests one day there will
be a failure. Then all kinds of misselling arguments will come out. There
are accidents waiting to happen.
GH: Generally, clients do understand them. What gets confusing for them is
when the return of capital gets dependent on more than one event – that's
when investors could be seduced by the high rate of return and overlook or
not fully understand what factors affect the return of capital.
GB: I think that when investors are presented with such a product, their
focus is on the income level. They often ignore the finer details and
simply select and buy on the basis of the income. Investors do need to be
made fully aware of any capital risk associated with these products. It is
important to discriminate as they are not always linked to a UK index.
They could be linked to a European index or even a technology index. These
indices have differing levels of risk, so it is an aspect that needs to be
Another concern is that some of these products have ridiculously short
terms such as one year. The risk to capital is higher when you are looking
at such a short-term equity-linked investment.
Do you have concerns about online investment advice?
MD: I remain somewhat sceptical about how it will work. It may be fine on
very simple cases but clients usually wish either to receive advice over
the phone or person to person. This is still a people business. It remains
a new source of distribution but it will not take over all other channels
GH: The point about advice is that, in its purest form, it is specific to
the individual. That may be difficult to deliver online. Any move away
from that idea needs to be closely examined.
GB: As long as communications between the investor and the adviser's site
remain secure, there isn't a problem. It is about investors having the
choice to obtain advice in the manner that they prefer. There will be
circumstances where the benefits of face-to-face advice cannot be replaced.
Bigger, more complex cases can probably be handled better on face to face.