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Tables laden for IFAs&#39 consumption

The lack of opposition to the FSA&#39s consultation paper on league tables

for financial products is somewhat surprising, given the furore generated

by the announce-ment of the proposals.

Even those who have criticised the exclusion of past performance – easily

the most vocal group of opponents – seem to have decided the issue is not

worth fighting.

The principle of an up-to-date information source covering the whole

industry is to be applauded. Although various service providers have tried

to provide such data for several years, they have tended to achieve only

partial coverage.

The waters have then been further muddied by various claims and

counter-claims. The only losers have been IFAs and their clients, who have

struggled to obtain a true snapshot of what is really available.

Of course, the criteria that will ultimately determine the success or

otherwise of the league tables is the information contained in the tables.

While I believe the current and presumably final proposal contains enough

information for the client to take a general view and discard a whole raft

of products, I also believe there will be a greater need for IFA assistance

to distil product choices down to one.

While I agree with the commentators who suggest that the long-term net

return to investors is the most critical factor to include in the tables, I

believe it is also important to consider charges and the inherent

flexibility that the charging structure is able to facilitate. After all, a

large and probably increasing amount of clients will cover a number of

financial landscapes over the years and may want to reassess their

portfolios accordingly.

Products that are overly rigid or that impose heavy penalties for

flexibility should be discouraged, even if the underlying investment funds

may be likely to perform slightly better than average.

But as product charges become more homogeneous, the important

differentiators of service and investment performance will become

increasingly important.

On the service side, it is really only IFAs who have sufficient experience

(good and bad) of dealing with a broad range of product providers to be

able to make an informed decision. This will continue to be the case until

the mainstream providers can all claim to be offering Virgin and Egg

standards of admin and customer care – a day that I would suggest is some

way off.

On the issue of past performance, I have heard a broad range of opinions

from industry commentators and other experts. These have ranged wildly from

those who believe there is complete randomness in the link between past and

future performance to those who seem to feel there is almost a one-to-one


It is difficult to believe that either of these views is anywhere near the

truth. After all, very few funds jump from top to bottom quartile on a

regular basis and even fewer remain in the top or bottom quartile for

prolonged periods. In real life, funds come and go. The professional

adviser should be seeking opportunities for his or her clients, both long

and short term, to ensure that the long-term value of the portfolio is


If past performance were to be included, there is a real danger that it

would be given undue prominence by those looking for an easy sell. We have

seen recent evidence of such tactics through this year&#39s Isa season as

technology stocks dominated at the expense of other more middle of the road


One can only imagine the weight that some less scrupulous advisers might

throw behind “Government-endorsed” performance measurement guides. Far

better for advisers to dig a little deeper and make an effort to understand

not just what is this year&#39s hot tip but what is likely to be that of next

year and the year after that.

The other main area of difficulty in including past performance is that an

associated measure of risk would also be required. This is an area that the

industry has found quite impossible to deliver on for the last 20 years and

it is difficult to see that changing now. We still see regular launches of

aggressive, balanced and cautious portfolios that share almost identical

asset mixes and similar performance.

So, past performance is not to be included. My only regret is that this

will fail to bring attention to some of the real howlers – the fund

management groups which consistently fail to deliver any sort of decent

return for their clients.

Perhaps someone will begin to publish a regular table of regular poor

performers that will flush out those funds that are unable to pick out any

period of strong performance (quite an achievement) but yet still attract

significant sums of money from unsuspecting punters. Until such information

is available, the opportunities for IFAs could not be greater.

The reality is that league tables will provide a useful tool for IFAs as

well as consumers and may be used where necessary by IFAs to help explain

product recommendations to clients.

The only stumbling block may arise if the product charges appear

relatively expensive due to commission financing within the product. But

given the substantial added value thatcan be added on the investment and

service side, this presents more of an opportunity to be embraced than a

threat to be feared.


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