Most PEPs are sold by unit-trust companies, and they carry charges that can take as much as 5 or 6 per cent of your money at outset. These charges immediately deplete the sum of money you put to work in the stock market, meaning that you start out making a loss and will have to wait that much longer before you get into profit.
Some 3 per cent of this initial charge is earmarked as commission for a financial adviser - yet you are supposed to pay it even if you chose and arranged the investment yourself.
However, by dealing through one of the growing number of discount-investment brokers, you can save yourself pounds 30 or more for every pounds 1,000 you invest. More money is put into the stock market and you stand to make profits more quickly.
Firms such as Chelsea Financial Services in London, Sheffield-based Garrison Investment Analysis, and Unitas in Scunthorpe have been discounting for some years. They will not only give you back most of the commission that is due to them, they will also pass on additional savings they receive from the investment companies because of the volume of business they deliver.
Colin Campbell, Garrison's marketing director, said: "We will give anything away above 1 per cent. With Perpetual, we give the client 4 per cent and keep 1 per cent. With Schroders, we have 3 per cent to play with. On the average unit-trust PEP, where 3 per cent is the normal commission, we would be giving 3 per cent away."
Although the discount firms are reticent about publicly spelling out what they can offer on specific PEP funds, these figures seem typical. Deals are also available on the PEP-convertible investment-trust issues currently being marketed by Perpetual, M&G and Schroders.
But the discount brokers are not well liked within the investment industry. David Mossop, chief executive of leading fund manager Perpetual, said last week: "We hate the discount brokers as much as the independent financial adviser does. They are basically stealing the bread from everybody's mouths. We are as uncooperative as we can be. They are bucket shops."
This is a strong condemnation for firms whose crime is simply to supply the same PEPs and investment funds at a cheaper price. It is called competition.
Formerly one of the discounters' fiercest critics, the leading investment adviser, Hargreaves Lansdown, pledged last month to fight them on their own territory: price. Hargreaves Lansdown is now committed to match any deal on offer from other discount brokers, it disclosed in this newspaper. Its new stance is being launched with an offer of commission-free buying of the new PEPs on offer from M&G, Schroders and Perpetual.
The charge made against the discount brokers is that they reap the rewards of other people's work. Investors dealing through a discounter must typically make their own decisions on which PEP to buy. The discount firms mainly confine their advice to identifying the best performer and providing other basic information.
Legally, the discount purchase is usually an "execution-only"
deal, the full responsibility resting with the client.
The fear is that investors are often investing on the basis of advice they have received from a traditional financial adviser - who then goes unpaid when the transaction is executed through a discounter. However, Premier Investment, a Guildford firm that offers a discount service, says it refuses to handle business that comes to it in this way.
The discount brokers argue that many investors are perfectly capable of choosing their PEP and investment funds without advice, and simply want a no-frills dealing service.
Janice Thomson, a director at Chelsea Financial Services, said: "There's an awful lot of snobbery from the stockbroking, merchant-banking types. We are regarded as 'stack 'em high, sell 'em cheap', low-grade people who take away their business."
But Colin Campbell, Garrison's marketing director, estimates the total number of investors using discount brokers is no more than 120,000 - a distinct minority among the perhaps 2 million PEP investors. "It's the traditional British problem," Mr Campbell said. "If it's cheap, it can't be any good."
Garrison even offers the same discounts to clients who come to it seeking advice. Hargreaves Lansdown gives reduced discounts to those wanting advice. Unitas offers advice to clients who complete a questionnaire. Unitas's Pascal Matic said: "We like them to describe themselves, tell us what their aims and objectives are. We will then give them a ring to talk it over." The discounts Unitas offer depend on how much work was involved in coming up with the recommendation.
Just as firms are being forced to compete on price, so discounters may be forced to compete on advice. This can only be good news for investors.
q Contacts: Chelsea Financial Services 0171-351 6022; Hargreaves Lansdown 0800 850 661; Premier Investment Management Services 01483 306 090; Garrison Investment Analysis 0114 250 0720; Unitas 01724 849 481; The PEP Shop 0115 982 5105.Reuse content