Mix, match and miss out the middle man

You don't have to pay someone else to manage your tax-free stock market investments. It is cheap and relatively easy to set up a self-select stocks and shares ISA where you choose the shares rather than relying on a fund manager.

"You need to know how the stock market works," warns Justin Urquhart- Stewart, of Barclays Stockbrokers. "But if you do, and want to mix and match your holdings to suit yourself, you could do very well."

Because you are picking individual shares, the risks can be higher than buying into a ready-made portfolio with its wide diversification. Also remember that an ISA is nothing more than a tax-efficient wrapper around your investments, with the same investment limits.

As long as you buy equities listed on a stock exchange recognised by the Inland Revenue, virtually any shares can be included in your ISA. However, not all providers allow overseas holdings, so check carefully with your ISA manager beforehand if you are interested in this area of investment.

Self-select ISAs are offered mainly by stockbrokers, including the banks' share dealing arms. The broker will take care of all the administration. The largest independent brokerage firms are those owned by Greig Middleton and Brewin Dolphin. Other managers include a number of independent financial advisory firms and investment management groups.

If you do not already have a stockbroker, finding one may appear a daunting task. See if you can get a recommendation, otherwise the Association of Private Client Investment Managers and Stockbrokers (APCIMS) can provide a list of brokers in your area. If you don't want any advice on which shares to pick, choose a discount broking firm such as Charles Schwab or the Share Centre.

Opening an account is simple. Fill in the forms, select your holdings worth up to a maximum of pounds 7,000 this year in a maxi ISA, pounds 5,000 thereafter, and then hand over your money.

Costs vary considerably. There are many ways that self-select ISA managers levy charges, making comparison difficult. A rule of thumb is that administrative charges are usually between 0.5 and 1 per cent, so they will rise as your portfolio appreciates in value unless there is a ceiling. Dealing costs usually vary between 0.5 and 2 per cent - most brokers set a pounds 15 minimum. Some ISA plans have fixed charges and these can be more expensive for investors with a large number of stocks or small portfolios. VAT is added to charges and 0.5 per cent stamp duty is paid on share purchases.

"Some firms charge either a percentage of your portfolio's value or a flat fee. Others impose a fee when there is action in your account such as distribution of a dividend, sending out a set of reports and accounts or notices of company meetings, and so on," says Mr Urquhart-Stewart. "If these are important to you, find someone who does not charge for them."

The Share Centre offers some of the lowest rates to private investors and gives them advice on constructing their portfolios. For example, it currently recommends SmithKline Beecham, Prudential, Vodafone, BSkyB, London Bridge Software and Capita as six leading stocks "well set for the next millennium". The broker levies an administrative fee of 0.15 per cent a quarter or at least pounds 7.50, and charges a minimum of pounds 2.50 per deal.

Barclays Stockbrokers, meanwhile, charges 0.5 per cent a year up to a maximum of pounds 200, with an exit fee of pounds 50 if the ISA is closed or transferred. Trades are charged at 1 per cent, with a minimum cost of pounds 15 by phone or pounds 11.99 if over the internet, up to a maximum of pounds 39.99. All equities must be listed in London as it does not yet allow overseas holdings.

Killik & Co, another manager, charges 1.65 per cent on deals, with a minimum commission of pounds 40 and pounds 7.50 per dividend distribution.

n Contacts: APCIMS, 0171-247 7080; Share Centre, 0800 800008; Barclays Stockbrokers, 0800 551177; Charles Schwab, 0121-200 2474; Killik & Co, 0171-461 4400; Greig Middleton, 0171-655 4000; Brewin Dolphin, 0171-248 4400.