Personal equity plans: Discount brokers keep it cheap and simple

BANKS and building societies are the major sellers of personal equity plans with a market share of 40 per cent according to a survey by NOP, the market research firm. Insurance companies and independent financial advisers (IFAs) account for another 30 per cent.

But the best deal for anyone wanting to buy a PEP can be found elsewhere in the remaining 30 per cent of the market. The choice is between the direct providers, such as Virgin Direct, which do not sell through intermediaries, and the discount brokers.

With a discount broker such as PEP Direct or Hargreaves Lansdown, you normally get little or no advice. But if price is your yardstick when choosing a PEP then you will save money by using one of them.

With traditional unit trust PEPs, companies pay commission, usually around 3 per cent, to advisers who sell their plans. Discount brokers will usually share this with the investor, or sometimes rescind it and charge a small fee, so that you buy into a PEP at better price.

Competition is fierce among the discounters and the resulting price war has cut margins to the bone. This is good news for the investor who knows what he or she wants and is simply seeking the cheapest routes.

Hargreaves Lansdown in Bristol claims to be the UK's largest PEP discount broker. It guarantees to match any other discount.

Peter Hargreaves, managing director of Hargreaves Lansdown, says: "There are some great deals out there - even on PEPs where charges are already slashed to the bare minimum. For example, both Legal & General and Virgin manage tracker PEPs with no initial charges. However, not only does Legal & General have a better record, but we can provide a discount of pounds 45 on (pounds 6,000 investments) into this PEP. This is because, unlike Virgin, Legal & General still offers commission to the broker."

Of course, dealing via a discount broker is not always the ideal route for all investors as much more of the choice of PEP will be down to you. In particular, PEP companies often boast about the performance of their particular plan. Be cautious when looking at these figures as the marketing departments of the companies are often selective about the dates they single out for the investment period.q Contacts: Hargreaves Lansdown, 0117 988 9880; Kohn Cougar, 0117 946 6384.