The last few weeks of the 1996/97 financial year proved a boom time for the sale of personal equity plans. This was after an earlier hiatus in sales because of uncertainty over the general election and the nervousness in the stock market.
Since January this year Virgin Direct claims to have taken pounds 350m into PEPs with a total of pounds 600m for the financial year, compared with pounds 232m in 1995/96. Other management groups to have done well include Jupiter, thought to have attracted pounds 300m in the last quarter, and Fidelity, which took in pounds 265m in the three months out of pounds 427m for the financial year.
The big attraction of PEP investments is their status as tax shelters, holding stakes of up to pounds 9,000 per financial year with all the dividends and capital gains being tax free. So far as the fund management industry is concerned, though, the PEP is simply a wrapper for a holding in unit or investment trusts.
The growth in PEP business, however, has not simply been due to a stellar performance by the underlying investments. Rather, it is a result of the dramatic change in the way they are marketed: by direct selling.
It was at the start of 1995 that Virgin Direct began telephone sales for its PEP scheme, investing in an FT-SE 100 tracker fund. Just as Direct Line revolutionised the selling of insurance, the introduction of PEPs by phone changed the up-to-then cosy world of PEP managers. It showed that the public were just as keen to buy low-cost, no-frills PEPs as they were to buy other financial services from the direct sellers. Virgin's example was quickly followed by household names such as Legal & General, Direct Line, Guardian Direct and Norwich Union.
The key factor in the success of PEPs sold direct is that they have all attracted the investing public's attention by offering tracker funds that mirror the performance of a leading stock market index, usually the FT-SE 100, which consists of the UK's 100 largest companies. Of the pounds 30bn that has been invested in PEPs since they were introduced in 1987, it is estimated that over 10 per cent has gone into the tracker funds. These have more than held their own with directly managed funds. In 1996, for example, the Virgin fund topped the UK Growth and Income tables and over the past year, according to Micropal, the fund has grown by 13.6 per cent - almost the same as the index - putting it in 15th place out of nearly 150 in the sector.
However, whether this will still be the case when the bears come out to play and share prices fall is questionable. This is a time when active investment management comes into its own. It is also a time when investors may well need advice, something the direct providers cannot offer.Reuse content