DON'T LEAVE IT TO CHANCE

DOUBTS have been cast over just about every financial product as scandal, misselling, market collapse or low interest rates take their toll. So what is there left to invest in? And what happens when you turnfor help to the alleged experts?

W ith-profits policies have been the basis of many portfolios, but bizarre deductions and a lack of clarity have led City watchdog the Financial Services Authority (FSA) to overhaul the way they are run. Meanwhile, the buy-to-let mortgage bandw agon has ground to a halt and split-capital investment trust investors have joined endowment policyholders in wondering where their cash has gone.

At least we have our pensions to fall back on - that'sif your policy isn't with Equitable Life or your company hasn't been forced to windup its final-salary scheme.

This is Money suggests that some investors should be wary of the recommendations of people w e trust to give financial wisdom.

I posed as a 26-year-old joint homeowner on a company pension who had pounds 10,000 to invest from an inheritance. I said I was willing to split the capital between something rock-solid and something more risky and was happy to leave the money alone forfive years.

M a ny "experts" we asked suggested capital guaranteed bonds.

These guarantee that you get all your money back at the end of the term, plus a capped return based on the performance of a stockmarket index like the FTSE-100.

But while these sound a safe bet, are they the best for medium- risk investors? Investors should also remember that the FSA (www.fsa.gov.uk) warned providers in April to highlight the extent to which funds are guaranteed.

call centres

Barclays (0845 6030845) HereIfound a big fan of guaranteed products.

Barclays' equity bond has a minimum investment of pounds 5,000. Half of this is put in a one-year bond with a return of eight per cent. The other half is invested in the FTSE-100, overfour years with a guaranteed return of all your capital back, plus up to 50 per cent of the market'saverage performance over three years.

More Th

n (0800 300 881) The direct arm of Royal & Sun Alliance's liked guaranteed products, though it also gave me generic inform ation about its fund choices. Its guaranteed growth bond is a fixed-term, five-year investment promising the return of your capital at the end. You are guaranteed nine per cent interest gross at the end of the year on half your investment, then 60 per cent of the average percentage growth in the FTSE-100 over the five years on the other half.

high street banks

In the same way, Barclays asked me very little before making its recommendation, the same as at the HSBC branch I visited. Had they asked, I would have told them I had pounds 5,000 worth of debts.

The "financial planning manager" promptly whipped out his laminated graphs, apparently illustrating past fund performance. He suggested I consider a medium-to-high-risk fund, possibly with a global slant, in an Isa.

A bbey National The client manager I met said I should hold pounds 3,000 as a contingency fund and invest pounds 7,000 in its Safety Plus product, again held within an Isa. This offers all your

cash back after five years, plus a

minimum return of 20 per cent

gross and a maximum of 50 per

cent if you hold your plan for five

years,depending on the FTSE-100.

independent financial advisers

After asking me if I had any other

savings - I had none, and had not

used up my pounds 7,000 tax-free

allowance - the phone adviser

at First Independent Direct

( w w w.first-independent.co.uk)

suggested I hold back 10 to 20 per

cent. He spent much of the

conversation trying to establish my

attitude to risk, giving inform ation on

several options - including

distribution bonds, which give you

access to the stock market without

wild fluctuations - and what he

saw as their place on the risk

scale. He also recommended an Isa

with Jupiter or New Star.

Former chairman of the Society

of Financial Advisers, Robert

Reid, of Syndaxi Financial

Planning (020 8882 4377), said: "Banks

and others take a template

approach - if you don't fit that

template because you are willing

to take more of a risk, your money

will be invested in products that

are not suited to your needs, such

as guaranteed products."

Reid also says guaranteeing your

capital does not protect it against

inflation, which at current levels

means your cash is worth around

two per cent less every year. He

recommends a relatively high-risk

fund, such as Fidelity's Special

Situations,for investors willing to

take a ga m ble with their capital.

As capital-guaranteed products

have proliferated, so financial

companies expect the FTSE to

recover to the extent that it will

meet its minimum obligations to

capital-guaranteed investors with

a handsome margin.

So while on paper these products

suggest you won't lose, the real

winners are probably the banks.

Copyright 2002
Provided by ProQuest Information and Learning Company. All rights Reserved.