Fund managers are furious about the CATmarks proposed for ISAs. Because they will hit their profits

THERE IS no worse sound than that of fund managers bleating. And boy, did they bleat earlier this week.

Their unique mixture of grotesque exaggeration and childish foot-stamping came in response to a Treasury plan to introduce CATmarks for its new Individual Savings Account in April.

The important point to understand is the rationale behind CATmarks. Of all the factors likely to induce paralysis and uncertainty among potential investors, you would think that fear of being ripped off would figure as top of the list.

Not according to fund management firms. The Association of Unit Trusts and Investment Managers (Autif) describes CATmarking as "a breathtakingly irresponsible act which cynically puts at risk the savings of the most needy in society". Autif claims investors might just be conned by CATmarks into putting their money in unsuitable products because they are seen as a Government seal of approval. Nor, Autif believes, will the CATmark scheme do anything to encourage small savers.

Let's get a few things straight. The vast majority out there aren't able to save anyway - not because of CATmarks, but because they don't have money to spare. This is a fair criticism of the new ISA. The Government could have made it easier to boost saving by handing cash incentives to poorer people.

But I don't remember Autif ever arguing the toss with John Major or Margaret Thatcher on this issue: its members were too happy to stuff their funds with the tens of billions of pounds handed over by better-off investors to give a damn about the saving propensity of poor people.

Then there is the question of gullible fools falling for unsuitable CATmarked products. Strange then, that most Autif members are perfectly happy to sell all manner of investments - suitable or otherwise - through off-the- page advertising.

So what are the real fears about CATmarks? The first is cost. To an industry used to bid-offer spreads of 5 or 6 per cent, plus annual charges of up to 1.5 per cent, the notion of a fee no higher than 1 per cent for a CATmark is anathema.

Autif claims only two funds offered by its members meet these criteria. Presumably it doesn't believe any others will do so. Perhaps it ought to talk to Fidelity, which this week announced plans to bring out a CAT- eligible ISA.

The second problem, highlighted by several fund managers is that the CATmark takes no account of the "selling costs" involved of ISAs. For this read "heavy commission paid to independent financial advisers", or IFAs. A slice of the initial charges of many unit trusts, typically 3 per cent, goes to IFAs who sell unit trusts. Among the more extreme claims is that this would mean an end to truly independent advice for UK investors.

Behave. CATmarks are not compulsory. IFAs will still be free to recommend anything they want, particularly non-benchmarked products. The difference will be that if they want to sell a product with a 5 per cent up-front charge, they will have to explain exactly why it is better than a CATmarked one. I would have thought that is the quintessence of "added value" IFAs are there to give.

CATmarks aren't perfect. And, of themselves, they won't necessarily encourage that many people to save. But they will give greater reassurance to some who would otherwise have stayed out of the market altogether. They will bring charges down on some products (Virgin has already cut its fees and others will follow). For this we should thank the Treasury - and boy, you rarely hear me saying that.