Money Talk: Hey, PIA - is b2 a square deal?

LAST week's big news was the launch of b2, a new financial services company belonging to Barclays bank. The main ad campaign will hit our TVs tomorrow (see back page for more details). It's yet another sign that direct sales is seen as the way forward. So don't bother going into your Barclays branch and asking for details about b2, because they won't be able to tell you. It's all done over the phone.

Barclays wants a slice of the money being generated by the likes of Virgin, Sainsbury and Tesco. Like Midland, when it launched First Direct, Barclays has cleverly distanced itself from the new "young" company, but reminds customers that they still have the security of a big name behind them.

The bank employed some expensive market researchers to find out how people save and what their attitudes are to money. They discovered that most people (64 per cent) admit they do not know much about financial products. Most of us want security and simplicity, and that is what Barclays' first b2 product will give us.

It's called the Advanced Savings Account. But that's misleading: it's not an ordinary deposit-based savings scheme. What's on offer is a PEPable unit trust backed by a guarantee. It's an extremely complex product put together using derivatives. The result is a half-way house between a guaranteed stockmarket investment bond and a protected unit trust. Both of these products offer investors the chance to make money from stockmarket gains while protecting them from the downside of any future falls in the market.

It's true to say there's nothing exactly like it on the market at the moment. Barclays is trying not to confuse people with jargon, and its motives seem honourable: we all need to build up a savings base and the stockmarket has historically provided the best returns over the long-term; b2 makes the point that one in three Americans has investments in mutual funds, the US equivalent of unit trusts. Over here the figure is just one in 20. The firm wants to tempt the wary on to the stock market for the first time.

But by leaving out all the difficult jargon and calling its unit trust an Advanced Savings Account, b2 is doing its customers a disservice, because you should understand what you are buying, especially when it is a unit trust. It's easy to see why Barclays thinks it can get away with the fudge: the account does offer a 100 per cent guarantee that investors will get back every penny they put into the account, even if the stock market crashes. But that's only true if you leave your money invested for several years. And the b2 account is extremely expensive: the guarantee eats up 14 per cent of investors' money.

These accounts are being offered over the phone, without advice. The Personal Investment Authority (PIA) has a dedicated team of people who do nothing but monitor marketing literature and ads from financial firms to make sure no one is being misled. So what will they say about a unit trust PEP being called an "advanced savings account"?