For any IFA with a close interest in investment advice, the mammoth court battle between the trustees of Unilever's pension scheme and Mercury Asset Management is proving very revealing.
Forget the fact that Unilever is a multinational. In many ways, the part-time trustees of its pension fund were in exactly the same vulnerable position as that in which retail investment advisers and their clients end up when they have dealings with a giant City fund manager like Mercury (now absorbed in Merrill Lynch).
One might suppose that because it is the client's money, the client would call the shots. The fund manager collects his fee and the customer – the client – is king.
Instead, the truth is that the customer is not king – the fund manager is. Most trustees, just like retail clients of fund managers or even IFAs, can only spend so much time keeping an eye on what their fund manager is doing.
All too often they are in no position to judge whether they are getting a good service or not, or even whether what the fund manager is doing complies with what they were told would happen when they bought into the fund.
If there is anything an IFA needs to know about a fund it is how much risk is being taken. But even Wendy Mayall, one of the more influential women in the City and an investment consultant for 14 years, struggled with that.
She says while she was aware about the systems used by fund managers to control risk, she was no expert in exactly how they were applied. So what chance do IFAs have?
What is clear is that fund managers, at least in the past, have sometimes taken important decisions without taking a great deal of trouble to make sure their clients knew what was going on – even when it affected the nature of their investment.
In court, MAM's Carol Galley has made a couple of startling admissions.
First, she has conceded that she handed over day-to-day management of Unilever's portfolio, more than £600m of it invested in UK equities, to a 27-year-old with three years' experience, Alistair Lennard. She did not tell Unilever about this for two years.
Second, MAM took a conscious decision to increase the level of risk taken across all its funds without immediately informing its clients.
Galley said this conscious decision somehow “evolved” after a poor period for investments in the early 1990s. It was, she said, done so that Mercury could compete better with its rival fund managers. But in whose interests?
Some clients are willing to accept lower returns for lower risks and, for them, competition is not simply about a better return but a safer one.
In Lennard's case, back in 1997 and 1998, he took far more risk with his clients' investments than his peers at MAM. He moved money out of banks and pharmaceuticals, which happened to thrive in 1997, betting instead on sectors such as construction.
On one measure of risk at least (the Barra model – a flawed one but useful in some respects, as MAM pointed out) Lennard tripled the risks compared with his peers.
At the heart of Unilever's claim is the idea that it had asked for a completely different level of risk to that which MAM operated, as indicated by its performance targets – no more than 1 per cent more nor 2 per cent less than a certain benchmark set by the performance monitors WM.
In her witness statement, Galley blasted back with claims that Hans Eggerstedt, Unilever's finance director, tried to “blackmail” her.
She said: “I was told that either we paid compensation to the Unilever Superannuation Fund or Unilever and the USF would take steps to sack us as publicly as possible and to ensure that the damaging publicity associated with losing such an important client would reflect not only on Mercury as a house but also on me personally. This seemed to be no more than a crude attempt at blackmail.”
Unilever dismisses that claim, pointing out this meeting happened after Unilever was already incensed with Mercury's handling of its money. On the other hand, it is by no means clear that the actions of Lennard, Galley and MAM amounted to negligence.
Whichever way the case comes out, the whole incident remains worrying. As Galley very reasonably pointed out, fund managers will only do well if they are given some latitude. They cannot be looking over each other's shoulders all the time, ticking boxes.
But the people who invest – be they institutions or individuals – do want to have an accurate idea of the level of risk they are buying into. If the customer is king, then surely the fund manager should be the servant of the client. Not the other way round.
Andrew Verity is personal finance correspondent at the BBC