Money: Let's be reasonable, please

THERE'S almost no help available for people who complain when they discover their stock market investment has been a lousy performer.

Presenting his annual report last week, Investment Ombudsman Peter Dean admitted: "Of course we do get the usual crop of performance cases, which can be for very substantial sums, but almost invariably they are not well founded cases because poor investment performance is not a valid ground for complaint."

A lot of investors don't realise that there's no compensation if you invest in a PEP or unit trust that turns out to be a dog. All you can do is remove your cash.

It's vital to have realistic expectations of whatever investment you are buying, and to understand it. But the Ombudsman is worried about some of the marketing literature being sent to would-be investors: it's easy to distort long-term performance figures by over-emphasising the stellar rises in the stock market over the last year.

All literature has to carry a caveat, the famous "past performance is not a guide to future returns". But do investors really take this in?

These questions have long bothered those in the financial world who are concerned that investors are piling into the stock market without really knowing what they are buying, or why.

At last something is being done about it. Individual savings accounts (ISAs), due to launch next April, will be available with a new built-in CAT standard. CAT stands for: reasonable charges, easy access and reasonable terms. When you buy anything with a CAT mark on it, you will get, say the Treasury proposals, "a reasonable deal".

The proposals for CAT-marked equity investments stress the need for sales literature to highlight market risk and to be written in plain English. So there'll be more information available for would-be investors.

The fund management industry is furious that CAT marks for equity-based ISAs will only be available for index-tracking funds. But over the long term, index trackers do offer a low-cost, "reasonable deal". Their performance should mirror the index they follow, and investors aren't dependent on a fund manager's judgement.

Over the last 10 years, just four out of 76 actively managed funds in the UK income and growth sector have beaten the index. More sophisticated investors will be happy to move their cash in and out of actively managed unit trusts, but index trackers are the right funds to put at the heart of an ISA.