Select service for discerning: It can pay to take advice on which funds to pick

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UNIT TRUSTS eliminate the need to build up laboriously a portfolio of individual equities. But with about 1,530 unit trusts to choose from, it is easy to feel that the problem of selection has merely been moved to another level. How can investors get advice about which trusts to pick?

While independent financial advisers will cheerfully arrange to purchase unit trusts for their clients, relatively few specialise in giving detailed advice on which ones to select. Stockbrokers may also not be particularly unit trust-friendly: stockbroking firms are traditionally geared towards equity investment and some remain rather sniffy at the idea of stooping to offer advice on collective investments.

The answer, according to Victoria Nye of the Association of Unit Trusts and Investment Funds (Autif) may be to do a little DIY research. Autif itself produces a free 24-page booklet, Unit Trusts: A User's Handbook, which offers general assistance on how to choose appropriate unit trusts for your own circumstances. The Handbook, together with a comprehensive directory of all trusts available (including the charges they levy), is available as a starter pack from Autif's helpline (081-207 1361).

'We're encouraging people to decide for themselves what's appropriate for them,' says Victoria Nye. 'If they feel they need further advice, they can go to a financial adviser or talk to a reputable unit trust company. A lot of unit trust companies have come a very long way in supplying information to customers, and many have got people sitting on the end of telephone helplines, sometimes seven days a week until nine at night, trained to answer questions.'

She accepts, however, that this message may yet to get through to investors. 'They don't realise that these are not terrifying City companies. They shouldn't be afraid to ring up a unit trust company.'

In one respect, investors are learning fast. 'They are very aware of the charges, particularly now that some firms are making a great play about reducing front-end charges,' says Colin Jackson, director of the independent advisers Baronworth. Murray Johnstone, the Glasgow fund managers, led the way two years ago by slicing initial charges from 5 per cent to 1 per cent.

Baronworth is one of an increasing number of advisers who rebate some of the commission they earn from unit trust companies levying higher initial charges. 'We offer an execution-only service for unit trusts and normally earn around 3 pr cent commission. We give 2 per cent discount on this up to pounds 10,000, and 2.5 per cent discount above pounds 10,000. Where companies don't give commission, we say to clients that we can't do the deal for them,' says Colin Jackson.

Fidelity Brokerage, a separate operation from Fidelity's unit trust management, has instituted a complex sliding scale of discounts for customers. 'The discount is based on the size of the investment and the level of discount which we get from fund managers,' says Phil West, marketing manager. For unit trusts where the initial charge is between 3 per cent and 5.25 per cent, for example, the rebate ranges from 1 per cent off (purchases between pounds 5,000 and pounds 10,000) to 3 per cent off (purchases over pounds 100,000).

Fidelity Brokerage has developed one solution for clients wanting greater information about which unit trusts to choose. 'We are an execution- only firm, but we offer clients a reduced subscription to the monthly Unit Trust Analysis guide, provided by Fund Research,' Phil West says.

'This identifies, for example, changes in fund managers or investment strategies for particular trusts, and also offers breakdowns of portfolio composition and performance consistency.'

Even with a third off, however, a subscription to Unit Trust Analysis through Fidelity costs pounds 112 a year.

Investors who feel more comfortable seeking advice from a stockbroking firm can obtain a free guide and directory of members from the Association of Private Client Investment Managers and Stockbrokers (Apcims).

Inevitably, stockbrokers' primary expertise is likely to be in equities. 'Most will not know about every unit trust in every detail, although they will certainly have performance statistics available, and they will certainly have a view on which sectors to be in,' says the chief executive of Apcims, Geoffrey Turner.

Christopher Legg, a director of the City stockbrokers Brewin Dolphin, sees unit trusts as more a specialism of independent financial advisers than stockbrokers.

'We sit looking at equity screens most of the day - it's our particular area of expertise. Most people who come to us are looking for a direct equity portfolio, and unit trusts are not a central part of portfolio planning. But if a client preferred a portfolio of unit trusts, we would structure it for them,' he says.

The point, perhaps, is that using a stockbroker on an advisory or discretionary basis duplicates some of the work put in by a unit trust manager. Anyone with a portfolio large enough to interest a stockbroker may prefer to invest direct.

Apcims (071-247 7080).

(Photograph omitted)

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