Personal Finance: Nic Cicutti's column

Norwich Union is sticking its neck out and opting for value over high charges

ONE DAY in the not-too-distant future, millions of investors may have a lot to thank Norwich Union for.

The company has just issued a booklet called Exploding the Myths, in which it discusses the new Individual Savings Account and how to obtain good value from your investment.

Unlike all other guides to ISAs, the Norwich Union booklet is not big on the precise details of how much you can put into one type of fund as opposed to another.

No, its main aim is to debunk the argument, now prevalent among the majority of UK fund managers, that the Treasury's CATmarks, designed to ensure that investors get good value from their savings, do not deliver what they set out to do.

The CAT initials stand for fair Charges, easy Access to your money and decent Terms and conditions. From the charges perspective, this means paying no initial fee and an annual levy thereafter of no more than 1 per cent. By contrast, funds will take a 5 per cent initial charge and 1.5 per cent in annual fees: which means that the first year, 6.5 per cent of your initial investment is swallowed up in management costs.

The Norwich Union booklet is quite explicit on what this means: "On an ISA investment of pounds 7,000 [in the first year of the new regime] that's pounds 385 extra that a fund needs just to make up the difference. And each year, the gap keeps growing larger."

Do funds make up that difference? According to Norwich Union, the answer is negative. In fact, to put that 1 per cent anual charge in perspective, less than 3 per cent of European equity funds and 1 per cent of UK equity funds have managed to outperform the rest of their average peer group by more than 1 per cent every year for the last five.

Equally important, Norwich Union offers not only the usual range of ultra- cheap tracker funds (so do quite a few other fund managers, as it happens), but also a small selection of actively managed funds.

In other words, the company is effectively demonstrating that if you want a fund manager to make daily decisions on portfolio allocation, based on his understanding of world and UK equity markets, it is perfectly possible to do so and still charge 1 per cent or less a year. Norwich Union is putting its money where its mouth is: out of 26 CAT-standard ISAs, it is marketing seven of them, six either actively managed or bond-based.

It is too soon to say whether this particular marketing experiment will work. But in so far as Norwich Union is one of a handful of companies prepared to stick its neck out and opt for value over high charges, it deserves to, as does the other small band of CAT-standard providers. By the way, free copies of Exploding the Myths are available by calling 0800 0562450.

JUST TWO more quick points. First, congratulations to Chris and Andrea Masters who have ended up in La Cretouffiere, a 17th-century French hamlet - and with a mere pounds 2,000 mortgage. They are also the latest quarterly winners of our Stepping Stones competition. This week's entry is featured on page 9; if you would like to take part, write in to the address shown there.

Finally, to the scores of readers who sent letters expressing sympathy for the loss of my pet hamster, Snowy, and urging me to continue my appeal against the Inland Revenue, many thanks. I am appealing. More on that subject when I return from my holiday in two weeks.

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