The row is over the Treasury's Cat-marking scheme (standing for fair charges, easy access and fair terms), launched last week. A unit or investment trust will win a government seal of approval only if it makes an annual charge of 1 per cent or less.
No more than a handful of actively managed unit and investment trust funds are cheap enough to make the grade. The total cost to the fund management industry in lost profits could add up to many millions of pounds if investors shun funds without official backing.
This threat comes as fund management industry profits are collapsing along with stock markets around the world.
At the Cat-mark launch, Patricia Hewitt, economic secretary to the Treasury, said: "What we have set is a standard some providers won't be able to meet. We are trying to make sure individuals get the best and clearest information."
The endorsements will also encourage customers to separate the cost of getting financial advice from management charges. Until now, the industry has hidden a 3 per cent commission payment to financial advisers within initial charges of 5-6 per cent on unit trusts.
City managers warn there could be a mis-selling scandal if unwary novice investors pile into cheap stock market funds without paying for financial advice. The unit trust trade body, Autif, called Cat-marks "a breathtakingly irresponsible act, which cynically puts at risk the savings of the most needy".
The only industry support for Ms Hewitt's plans comes from companies which will pass the Cat-mark test. Mark Bogard, managing director of Barclays' new direct-selling company B2, says the scheme "may be a seminal moment for financial services. If the Government gets it right, it could be as important for society as the NHS."Reuse content