Nic Cicutti column

Fund managers claim that the cost of looking after money cannot be met by a 1 per cent charge
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Indy Lifestyle Online
A FEW weeks ago, the Treasury released details of its CATmark scheme, aimed at ensuring savers are offered good-value financial products without the usual gobbledegook that leaves so many people totally baffled.

One key aspect of CATmarks was a 1 per cent annual management fee, and no hidden charges, for the equity-based element of the new Individual Savings Accounts (ISAs), due to be introduced in April.

It is fair to say that the equity-linked CATmark proposals were controversial. The Association of Unit Trusts and Investment Funds (Autif), the trade body for fund managers, called this limit "a breathtakingly irresponsible act".

Perhaps not surprisingly, given Autif's strident impersonation of Scargillite trade unionism, few of its fund management members have broken ranks to say they will offer actively managed CATmarked ISAs to their clients. All of them claim that the costs involved in properly looking after our money cannot realistically be met from a 1 per cent annual management charge.

Is that right? Step forward Family Assurance, the Brighton-based friendly society. Family Assurance will be offering its Family Balanced fund as a CATmarked ISA to prospective investors in April. Barry Chambers, the society's marketing director, sees no reason why its Family Asset Trust should not also be made available as a CATmarked ISA.

Friendly societies have often been criticised because the products they offer are highly expensive. This is because, in many cases, the customers they sell to tend to invest small sums of money, which means that they are not as cost-effective as other providers whose funds vacuum up thousands of pounds at a stroke. In this instance, however, Family Assurance leaves its bigger brethren standing.

Ah, you might ask, but what about performance? Surely that should be taken into account?

A good question. And here's the reply: in the 12 months to 30 November, the Family Asset Trust has delivered returns of 15.03 per cent, placing it 40th among 150 funds in the UK growth sector. Over three years, the trust has delivered returns of 59.91 per cent, making it 43rd in the sector. Over five years, returns were 77.97 per cent, ranking the fund 43rd.

The Family Balanced fund has achieved 16.8 per cent over 12 months and 44.12 per cent over three years, placing it 13th and 17th respectively, out of 39 and 33 funds in the managed sector.

Hardly exciting - but decent and consistent nonetheless. Just to match Family Assurance, many of its rivals would have to deliver at least 0.5 per cent better performance every year, and overcome a hit of up to 5 per cent in initial charges on every contribution. That is statistically very difficult.

Family's decision to launch a CATmarked managed fund is the first crack in the obdurate refusal of fund managers to go along with the Treasury's proposals on cheap investment funds. It make take some time, but I don't think it will be the last example we see.

When a fund manager next tries to justify his company's charges by pointing to its performance, ask him why it is that a small friendly society can deliver perfectly respectable returns and still charge a damn sight less.

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