Personal Finance: Committed to paper

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ANYONE who decides to invest in a unit trust, personal equity plan or investment trust savings scheme next year will have a standard document given to them detailing the aims, risks and costs of the deal.

This all sounds like a good idea, but there are a few fundamental problems. They stem from the fact that the regulators are trying to get some sort of equality between unequal investments.

Having set up a framework to force those selling insurance-based investments to tell all about the costs and commissions involved, and the long-term commitment needed from the investor, the draft document has slavishly followed the pattern for unit and investment trust savings schemes, under the heading: 'Your Commitment'.

The explanation on the draft paper is all about the minimum investment. But that is not a commitment in the accepted sense of the word. Commitment implies that there is some on-going pledge to keep paying in or keep the investment going.

A key aspect of unit trusts and investment trusts (and Peps, except those with an exit charge) is that there is no such commitment. An investor can stop at any time with no extraordinary penalties.

The differences between insurance-fettered investment and the rest are more important than the similarities, and documents for investors should note this.

UNIT trusts are to be allowed to follow Peps and alter their charging scheme - abandoning an initial charge in favour of a tapering exit charge to reward those who stay on.

This could signal the outbreak of a price war among unit trusts to mirror the fierce competition for Peps which whittled away the costs.

The reforms also allow unit trusts to start speaking English and refer to 'buying' and 'selling' prices rather than 'bid' and 'offer'.

An outbreak of healthy competition would be good for this backwater of the financial world, which deserves a mainstream place for investors - and good for investors, who could get professional management at reasonable cost.

BUILDING societies are also under the reforms microscope this week. The Treasury is talking again about prising open the doors to give members - the theoretical owners of building societies - a more forceful say in how they are run.

It is also suggesting that the surpluses built up by societies, which prove so attractive to predatory societies, should be distributed to members via a special dividend or loyalty bonus - so that they could gain from the locked-away wealth without the need to vote for takeovers or mergers.

Societies are already trying to ape companies owned by shareholders and take pride in large profits.

While they need to retain profits for expansion and as a cushion against lean times, surplus profit should be distributed to members by way of favourable savings rates and mortgage rates.

Do members really want to have to take a view on possible dividends when choosing a place for their savings? The high-paying building society with a history of low dividends? Or the low payer with a good track record in dividend payouts?

The current round of rate rises gives societies a chance to show how they balance their books between borrowers and savers and their own profit margins.

IT MAY be a little known fact that contemplative orders get tax perks.

Communual living means tax relief equal to the basic personal allowance per member, with any surplus set against capital gains tax.

Will the unworldly nuns and monks be joined by hippie communes and New Age enterprises in the queue for tax perks? As the man from the Revenue said: 'All cases will be looked at individually. Nothing is etched in stone, to use a biblical phrase.'