How confident savers can serve themselves

MOST of the money that has poured into personal equity plans in recent years has gone into off-the-peg investments - the unit trusts and investment trusts watched over by professional fund management groups.

For anyone who is nervous of the risks of stock-market investment, this approach makes a lot of sense. The broad range of shares owned by unit and investment trusts will spread risk much more widely than an investor picking his own shares can achieve within the confines of a single pounds 6,000 PEP.

But opting for a managed PEP restricts the range of investments open to the investor. This is why experienced investors prefer the self- select PEP.

As its name implies, the self-select PEP allows investors to make their own choice of investments. Independent financial adviser Richard Boyton, who runs Boyton Financial Services in Halstead, Essex, says: "Any one fund management group does not have the best of everything in its armoury. By using a self-select PEP, you can go into something when you want to go in, and get back into cash when you want to. That, I think, is very important.

"You can still use investment trusts, you can still use open-ended funds. But you've got control over your portfolio."

Self-select PEPs are popular with small investors who want to play the stock market from the safety of a tax shelter. But stockbrokers are keen to play down the importance of speculative dealing.

"Dealing-only" brokers such as ShareLink and Fidelity Brokerage Services do have clients who deal hundreds of times a year through their self-select PEPs, but they are a minority. ShareLink chief executive David Jones says a typical active client deals in his portfolio three or four times a year. With pounds 350m in its scheme, ShareLink believes it has the biggest portion of the self-select PEP market. Mr Jones says this splits roughly 50-50 between active investors and those building a long-term portfolio.

If you are going to manage your own PEP, you have to be serious about it. According to Michael Bryant of Rathbone Brothers, a large private client money manager: "Most clients get excited, they have enthusiasm, because of something that's happened or something they've read. But then their interest moves on, and they get on with the rest of their life."

The danger is that unless investors pay regular attention, they will fail to see developing problems until it is too late.

Mr Bryant says: "You always read [tips] about buying a stock. Generally, you read about it after the price has gone up. You very rarely read about selling a stock, and when you do it's generally after the disaster has happened."

Paul Cusack, at stockbroker Albert E Sharp, warns against using self- select PEPs to chase speculative stocks. He says: "You should treat PEPs almost like pensions. I don't think you should have extremely speculative stocks within PEPs. They need to be safe and secure. We try to steer portfolios towards having core holdings of more stable stocks. We prefer that clients do their punting in their own name."

When choosing a self-select PEP, the main charges to consider are the dealing commissions and the annual PEP management charge. Some of the 90 or so firms offering self-select PEPs also levy other charges, such as an initial set-up fee, and charges for early encashment or for transferring money into and out of the PEP.