William Kay: Whining won't help investors: It's time for the regulator to get tough

It will come as little consolation to holders of precipice bonds or underperforming endowment mortgages that "being a fund manager is less fun", but that was one of the complaints this week in response to the Sykes report on "Restoring Trust: Investment in the 21st century".

It will come as little consolation to holders of precipice bonds or underperforming endowment mortgages that "being a fund manager is less fun", but that was one of the complaints this week in response to the Sykes report on "Restoring Trust: Investment in the 21st century".

This despairing whinge came from Lindsay Tomlinson, chairman of the Investment Management Association (IMA), who feels his brethren are unfairly picked on by Sir Richard Sykes, rector of Imperial College London and former head of Glaxo.

While Sir Richard's analysis of the investment industry has been criticised for being an unnecessary addition to the many reports by Higgs, Myners, Greenbury, Hempel and others, the need for it is only underlined by Mr Tomlinson's bleat.

Although debt and bank savings are important landmarks on the financial scene for individuals, the forward-looking nature of investment puts the highest premium on trust in the providers and their agents. And, while fund managers have by and large got on with their diligent work of finding winning shares and other havens for money, the designers and sellers of investment products have served them and the public despicably.

Sir Richard interviewed 500 investment professionals and produced 52 recommendations. Inevitably, some are too easily dismissed, such as "commitment cannot be achieved without strong leadership"; it is a sad commentary on the investment business that too much of the obvious still needs stating.

The industry is still too sales-driven, and the customer is too often not put first, second or even third. Most worrying, Sir Richard finds that the problems are not accidental but systemic, and therefore he sets about trying to reform the system: a near-impossible task in one bite, particularly in the teeth of the opposition from the IMA and the Association of British Insurers.

Sir Richard concludes that knowledge is the best defence against the financial felon, so the report endorses the Independent's campaign for compulsory financial education in schools. This should, says Sir Richard, accompany an industry-wide code of best practice that ensures fees and pay are tied closer to performance.

I think it is a little late to be setting up the self-regulating forum which the report envisages. The moment for self-regulation has come and gone, and any standard-setting must be in the hands of the Financial Services Authority. If a talking shop can produce customer-friendly ideas, well and good. But the FSA has the legal obligation to take the lead, and Sir Richard simply adds power to its elbow. Ratings for fund managers in terms of how seriously they take their responsibilities as shareholders would be pleasant ornaments, but little more as far as the individual investor is concerned.

He or she wants to be able to commit money confidently, not necessarily to be shielded from loss, but above all not to have a sense of being ripped off. The report also urges the Government to encourage savings through additional tax incentives. I enthusiastically support that principle, but the trouble is the Treasury does not.

The view from Whitehall is that incentives do not work, at least in the form of tax relief, which favours those who pay tax. The alternative is pound-for-pound handouts aimed at the lower earners, for whom only the most basic products are suitable.

* While the Treasury was this week agreeing to a 50 per cent increase in the charges to be paid by people who invest in so-called Stakeholder products, the Financial Services Authority put forward proposals for the way in which sellers should deliver advice.

These were the products, you may recall, that were at first supposed to be so foolproof that advice would be unnecessary, ignoring the fact that different savers have different circumstances. There was even a daft plan to launch a chain of high-street kiosks where people could simply turn up with their cheque books.

We've moved beyond that, but the FSA's advice scenario still looks flimsy. The sales interviews will be pre-scripted by the selling firm, and must end "if the firm has reason to believe the customer will not be able to afford any product". But firms will not have to show consumers the impact of charges or send them after-sales confirmation. The smell of mis-selling hangs heavy in the air.

Is gambling the answer to pension puzzle?

While the Government dithers over how to encourage people to save, it is busy opening up another major avenue of "investment". I am thinking of the Gambling Bill going through Parliament which, if the number of American businessmen asking the way to Blackpool is anything to go by, will result in casinos on the scale of Las Vegas.

It is fascinating to see how expert British punters can be in calculating odds or choosing between different permutations, when we are always being told how difficult it is for the average person to grasp the basics of personal finance. I can't imagine anything much more personal than sticking £100 on a horse, the turn of a card or that little ball trundling round a roulette wheel.

The stakes for government are highest of all. The monstrous casino that dominates the riverside in Melbourne accounts, so I was told, for a vast proportion of the State of Victoria's tax revenue. Now Britain is to have a string of such establishments in every major city or resort.

It may be that this is the answer to the pension conundrum: to filch the public's pockets painlessly through gambling and recycle the money back to them when they enter a poverty-stricken old age. At least it has the advantage that said punters have a small chance of hitting the jackpot, which is certainly not going to happen by virtuously salting the same money away in a pension scheme.