Off the shelf

Rachel Fixsen wonders if familiar high street stores offer better financial deals

Are you ready to entrust a company with your life savings just because it happens to be a dab hand at trimming fresh vegetables? If you shop at Marks & Spencer, Tesco, Virgin or Sainsbury's, you might.

These household names have been making inroads into the financial services market. Paradoxically, clients are often drawn to them precisely because their names are not associated with the much-maligned money industry.

"Banks have lost the trust of the customer, and the Marks & Spencer name is synonymous with trust," says Chris Larkin, M&S Financial Services spokesman. He cites incidents where banks have locked clients into accounts, or stopped them from switching from one type to another.

Financial institutions let customers down in the 1980s by flying into the mortgage market without thinking of the consequences, and small businesses have often been dealt fatal blows when loans were suddenly called in, he adds.

M&S started offering financial services in 1985 when it launched its chargecard. Since then it has gone on to offer personal loans, unit trust investment, life and pension plans. M&S now boasts 10 per cent of the non-bank personal loan market.

The Virgin group, which made its name in the music business and went on to market condoms and launch a commercial airline, now offers a range of financial products through its Virgin Direct telephone-based service.

Supermarket giant J Sainsbury launched Sainsbury's Bank in February, offering two types of savings account and Visa credit cards. It is about to start mortgages and personal loans. The Instant Access Savings account took the savings market by storm, offering 5.75 per cent interest annually on balances over pounds 1.

There's no doubt these names have succeeded in attracting clients but do their deals justify their popularity?

"It's purely name awareness," says Amanda Davidson of London-based independent financial advisers Holden Meehan. "If you have never heard of someone, you're not willing to commit your hard-earned savings to that company."

But just because a retailer is good at selling vegetables, does that mean they're good at pensions? "The answer is no. Expertise in one area is not a guarantee of expertise in another," says Ms Davidson.

Many of the products from this new breed of bankers are very long-term commitments, and their short investment track records could be a worry for some would-be customers. "I personally would like to see a longer track record before I recommended them. I'd like to be sure they're committed," Miss Davidson says.

Countering this argument, Virgin, for example, points out that because its main fund is a "tracker", which simply aims to mirror the performance of the FTSE All Share index, it doesn't have to have been around for very long.

Mr Larkin says of course M&S financial services can't invent a track record. "But we've been in the business of servicing customers for more than a hundred years."

And where M&S does have an track record, it is quite good. Its UK 100 Companies Fund ranks second for performance in the past 12 months out of 154 funds in its sector, according to financial information provider MoneyFacts.

But while a company may have a familiar name and jargon-free brochures, its products might not be the cheapest around. It may be worth braving the jargon, or better still, getting an independent financial adviser in order to find a lower-cost product.

The Virgin pension, which is based on unit trust investments, is very flexible - something which cannot be said for the majority of pensions. But Rothschild Asset Management and Gartmore also offer this type of pension, and Rothschild's can work out cheaper.

Unquestionably, these outsiders have shaken the financial industry out of its complacency. Big players such as Scottish Widows, Guardian Royal Exchange, Eagle Star and Legal & General now offer products which are sometimes cheaper than the newcomers. It remains to be seen, however, whether any of them retaliate by opening a new breed of chain store.

Sainsbury's Bank: 0500 405060; Virgin Direct Personal Financial Service: 0345 959595; Marks & Spencer Financial Services: 0800 3634 00/01244 681 681; Gartmore Fund Managers: 0800 289336; Eagle Star Direct: 0800 776666; Rothschild Asset Management: 0800 124314; Legal & General Direct: 0500 909090; Guardian Direct: 0800 282820; Scottish Widows: 0131 655 6000