This summer’s Bestinvest Spot the Dog guide once again makes grim reading. The funds that are named and shamed are not small. They have been sold to tens of thousands of investors by household names, including Axa, Canada Life, Co-op Insurance, Henderson, Norwich Union, Prudential and Scottish Widows.The culprits have all underperformed their benchmark in each of the past three years and underperformed their benchmark by at least 10 per cent over the past three years cumulatively. Bank salesforces and door-to-door salespeople of the Eighties and Nineties have long been blamed for luring investors into these funds but they are not solely to blame. I was surprised to learn that funds heavily sold by IFAs such as the 282m Norwich Union UK growth, the 240m Invesco Perpetual US equity, the 113m Threadneedle Japan smaller companies and the 443m First State global emerging markets have also been outed as dogs. Clients left holding these funds have every reason to feel shortchanged by their adviser and, of course, the fund manager. The excuses from the fund groups have been predictable, the most common being “but our other funds are doing well” or that the management style of the fund “has not suited the investment conditions”. For example, Henderson, with its growth & income and UK equity funds totalling 500m, says it recognised that some of its performance was not good enough and boasts that it brought in a duo from Invesco last year to turn it all around. Quite why it took them or others so long to recognise its bad performance is anyone’s guess. Bestinvest looks at three-year numbers but if you go back further, you will see that both funds have failed to deliver above-average performance since around 1998. The Pru says it has taken positive steps to improve the performance of its 2.2bn UK growth fund with a change of manager this year but having delivered above-average performance just two years out of the past 10, one wonders again why it took so long to address the issue. It would be intriguing to learn IFA excuses. After all, they have been raking in trail commission off the back of the investments. I agree that deciding whether to ditch a fund is not always clear-cut. Different stock-market cycles can play against a strategy set by a fund manager, which can lead to a period of relative underperformance. But many of the dog funds in the 2006 guide are not showing for the first time – they have appeared in past editions. Any IFA who has clients in these perennial under-achievers needs to ask themselves why. If they have not got the resources to monitor funds, they are probably considering multi-manager funds instead. I am sure that IFAs have enough on their plate with compliance checks and the day-to-day care of clients without having to find time to analyse stockmarkets, fund performance, make asset allocation calls and monitor the never-ending stream of fund managers jumping ship. Multi-manager funds are a solution. Despite higher charges, they are proving their sceptics wrong by delivering above average long-term performance across most leading sectors. In the global growth sector, the average multi-manager returned 71.7 per cent for the three-year period to the end of June 2006. In comparison, the sector average, which is dominated by the performance of single manager funds, was just 49.6 per cent. Similarly, in the active managed sector, the average fund of funds manager offered up a performance of nearly 71 per cent over the period, with the general sector return lagging at 51.8 per cent. But even IFAs who decide to recruit the multi-managers would do well not to take their eye off the ball completely. Multi-manager products may ease the workload for IFAs but analysis of charges, processes and performance is still crucial if they want to keep their clients happy. Just as with traditional funds, there will be plenty of dogs around. Money Marketing50 Poland Street, London W1F 7AXMoney Marketing has raised the issue of undisclosed commission in the mortgage market, particularly the sub-prime market, several times over the years. Many of the problems predate mortgage regulation but legislation and regulations that existed before M-Day should have been enough to prevent such abuses. Now, perhaps unsurprisingly, a claim management firm is examining the mortgage sector but, rather than making claims through the ombudsman service, the cases may have to be sorted out in the courts. What is clear is that if a fee is paid by a customer or client and then a further undisclosed commission is paid to the broker by the lender, then the customer or client has not been served well by either lender or broker. Backhanders, as they have been described by Edeus chief executive Michael Bolton, have no place in the mortgage market or in any other part of financial services. Whatever arguments take place about how much a service costs or the true price of distribution, if someone believes they are talking to someone who will search the market for them and is not told of any extra payments then they have been served badly. Disclosure never hurt anyone in financial services who wanted to make a decent living for doing a decent job for their clients. We hope the practices were not widespread and that any cases which may be proved belong to a very few rotten apples. Most people believe the payment protection insurance market is in need of reform. It has failed to deliver value for money and the practices and arrangements involved in how the product is bundled with loans do not make for decent competition. Customers are upset and the consumer lobby is up in arms. Yet, despite promptings from the OFT and the FSA, little has been forthcoming from trade bodies or lenders and insurers themselves. Maybe the issues are difficult ones but others may begin to suspect that the parties concerned simply do not want to let go of a nice little earner. We await their responses with interest.