Choosing the one-stop account to suit your temperament

There is more than one way to put all your investments into a single pot, says William Kay

Investors in the UK are today being divided into two distinct camps - or so Fidelity Investments would have us believe. On the one side are those who manage their own portfolios, nearly half of whom apparently do not properly file their investment statements with the tax inspectors. Many of these will therefore have missed today's deadline to avoid another fine for late tax returns for 2002-3.

Investors in the UK are today being divided into two distinct camps - or so Fidelity Investments would have us believe. On the one side are those who manage their own portfolios, nearly half of whom apparently do not properly file their investment statements with the tax inspectors. Many of these will therefore have missed today's deadline to avoid another fine for late tax returns for 2002-3.

On the other side are those who leave all the paperwork to a fund supermarket, such as the FundsNetwork, which Fidelity runs. They can access their investments at any time, and can getinformation needed for tax returns at the press of a button. So far less chance of being caught for an Inland Revenue fine.

A survey by Fidelity published this week claims one in eight of the DIY contingent admit to losing their statements, while nearly one in ten just throw them away. And one in 20 have had to re-order statements to be able to file their tax return.

David Cowdell, a Fidelity director, said: "Pulling together all the information required to complete a tax return can be an arduous task. What many investors don't realise is that they can make the chore much easier for themselves by managing their investments online through a fund supermarket."

But independent financial advisers (IFAs) point out that there is more than one way to put all your investments into a single pot, depending how much advice you feel you need. Options range from fund supermarkets, where you need to know your way around the investment undergrowth and be happy coping with the internet, through funds of funds and managers of managers to wrap accounts and financial planning, where you let the experts take over.

Mark Dampier of the IFA Hargreaves Lansdown said: "I think you have to start with a very honest appraisal of yourself and what you wish to do and the time available. If you know what you are doing, then the fund supermarket or wrap approach is brilliant. It's a great enabling tool for IFAs, because the supermarket or wrap becomes your back office and the IFA can offer a more advisory-type service. Funds of funds and managers of managers ... make the decisions for you."

Mr Dampier makes a distinction between the different programmed systems on the one hand - supermarkets, fund of funds, manager of manager, multi-manager, wrap accounts - and the different types of adviser, IFA or financial planner. IFAs can range from little more than order-takers to those offering a financial planning service as the basis of working out an investment strategy.

Jason Butler, head of Bloomsbury Financial Planning in London, said: "We can provide a comprehensive service and the clients can understand what they are trying to achieve and can see where they are going. We hold their hands as much or as little as they want."

Norwich and Peterborough building society's head of sales for its financial advice service, John Johnson, said: "Our customers need to understand their objectives. It could be just putting money on deposit, through to full-blooded exposure to equity markets here and abroad."

Chase de Vere, the IFA chain, is looking at using wrap accounts to help its clients, but is not yet sold on the ones available. Justine Fearns at Chase says: "The big pro is service, provided everyone gets it right. But we don't think there is a full-blown wrap proposition available that suits the UK market, with the possible exception of 7IM."

At 7IM, part of the Killik stockbroking business, Justin Urquhart Stewart says: "Everyone has their own version of what they think wrap is about. It was driven from the US and Australia because of tax and pension issues in those countries. But the key element in a wrap account is that you can co-ordinate people's investments, so you can arrange asset allocation and at the same time get wholesale dealing prices. What the client sees on a computer screen is just the application of technology."

Mr Urquhart Stewart suggests investors ask these questions before they sign up with a wrap account:

Does it make all the asset allocation decisions you want? It should be able to include shares, bonds, property, cash and commodities. Those decisions are far more important than which share, bond or commodity to invest in.

How often will the asset allocation be updated to take account of changes in markets? It should be monthly.

What is the overall cost, known as the total expense ratio (TER)? FSA rules let some wrap account and fund supermarket managers fudge this.

How wide a range of funds do you get access to?

Does the wrap allow for tax wrappers such as Isas, Sipps or charitable contributions?

How transparent is it all? Can you see what is happening?

It is worth bearing in mind that all these one-stop varieties have been around since the very first investment trust, Foreign & Colonial, founded in 1868, offered to give investors "of modest means" access to a wide range of stocks and shares.

'I'm happy to pay to save time'

Sean Hall, a 30-year-old administrative manager from Telford in Shropshire, and his wife Pippa have a baby on the way. He wants to start a portfolio of fund investments and has decided to keep them within a fund supermarket, to act as a wrapper, keeping paperwork to a minimum.

"I considered wrap accounts," he said, "but a fund supermarket seemed to be more suitable for me. I went to FundsNetwork, the supermarket powered by Fidelity, and I got a three per cent discount by going through the IFA Torquil Clark. It proved easy for me to use; they reviewed the possible investments for me as I don't have the time."

Mr Hall wanted a multi-manager fund with international exposure, and FundsNetwork came up with the Credit Suisse Constellation Portfolio, which aims to obtain capital growth from investing in "any geographical area or sector".

"It's a good fund," said Mr Hall, "so I'm happy to pay higher charges to save time. FundsNetwork does all the paperwork for me, and the fund is actively managed."

FACT FILE

* Fund Supermarket

You go to a provider who offers a selection of funds to invest in.

Advantages: All you want under one roof, switching is made easy, paperwork simplified.

Disadvantages: You have to be sure your supermarket of choice is comprehensive enough, and that the selection is kept up to date.

* Fund of Funds

You select a fund which invests in other funds and makes switches for you on the fund manager's judgement.

Advantages: Decisions are made for you, and you can obtain a wide spread of risk.

Disadvantages: You are in the hands of your fund manager to make the right calls. Involves two layers of charges: the manager you invest in and the funds he invests in. But, by dealing in large amounts your manager can negotiate cheaper rates.

* Manager of Managers

A variation on funds of funds. Your manager gives specific instructions to other managers to earn the best returns in designated areassuch as high-yield shares.

Advantages: Underlying managers have a mandate and should know what they are doing.

Disadvantages: More rigid than fund of funds, and also involves two layers of charges.

* Wrap Accounts

Normally internet-based for ease of access. Have the potential to collect all the data on a client, go through various scenarios and produce a single bottom-line figure for your net worth. Wraps are best deployed as an adviser's tool.

Advantage: all the information you could possibly need.

Disadvantage: too much information for most people without advice.

* Independent Financial Advisers

oot soldiers of money advice world, varying from one-person firms to large chains.

Advantages: Can develop relationship. Most make no charge, but get income from commissions on sales.

Disadvantages: Their knowledge and expertise can vary widely. Some are accused of selling products that pay the best commissions, rather than the right ones for you.

* Financial Planners

Most comprehensive type of adviser. They take all your (and your family's) financial information and analyse it then ask what your aims are. Most charge fees, but rebate commission.

Advantages: Holistic approach. Should ensure you invest in the most appropriate way.

Disadvantages: Fees are not popular in the UK, particularly if they have to be paid upfront.