Personal Finance: The Jonathan Davis column - Check the cost of your investments

Two things can be said with certainty about the current state of the retail financial services business. One is that consumers are sensibly beginning to take a much greater interest in planning their own financial welfare. The pensions selling scandal has brought home that nobody has an excuse any more for not taking greater care of their own finances. The State is no longer offering to do the job, and the industry - left to its own devices - has failed dismally to demonstrate that it is in the business of putting consumer interests first at all times.

The second thing that can be said is that there are also clear and positive signs of improvement. As consumers become more aware, and as past barriers to effective competition have started to come down, there is no mistaking the pressure for reform which greater competition is creating in the design and selling of retail financial products.

Both the insurance and banking sectors have undergone sweeping changes in the last few years, many for the better, and specialist providers such as unit trust and investment trust companies are also slowly starting to adapt to a more competitive environment.

Disclosure is proving to be a key element in the process of empowering consumers. Without clear and transparent information about the nature and cost of different financial products, whether they are pensions, mortgages or unit trusts, the transition towards a genuinely service-oriented business will continue to drag.

That is why the last government was right to insist on greater disclosure of information about product costs. It is now three years since the introduction of new statutory rules forcing insurance companies to disclose the full costs of different life insurance and pensions plans. Nine months ago the same rules were applied to unit trusts, investment trusts and personal equity plans (PEPs). The Personal Investment Authority's latest annual reports on the effect of the disclosure rules throw some interesting light on the pace of change that has taken place.

Anyone who can be bothered to go to the library and ask for the reports will be able to see how his own policies or savings schemes compare in cost with those of all the other main providers. Of course, cost is not the only issue in picking a savings provider: some of the companies with the best performance track records naturally try to extract a price for their superior investment performance. But what the figures do allow you to do is to see exactly how much additional return you need to obtain from a higher cost savings scheme or pension to compensate for the extra amount you are paying.

A fund management company with a particularly good track record as an active investor may do better than an index-tracking fund, to take one obvious example, but if it costs, say, the equivalent of 1.5 per cent a year more each year (as some do), then the final sum you end up with may well be cancelled out in the higher costs.

The overall story from the life and pensions business is one of steady, modest progress. As the graphic shows, the overall proportions of a typical 10 or 25-year pension or endowment policy that are eaten up in commission, charges and other costs has fallen over three years, although the rate of improvement slowed in 1997.

The range of costs between the best and worst provider is still quite large: for a 20 year unit-linked pension, for example, it ranges from 0.8 per cent a year in lost return (Equitable Life, the cheapest) to three times that amount for the most expensive.

It is probably no accident that one area where disclosure is not yet required - which is in showing the effect that stopping premiums on a life insurance savings scheme has on maturity and transfer values - is also one where the impact of costs and charges has, on average, remained much higher. The PIA sensibly intends to extend its rules to this area from now on.

Just as interesting are the comparisons between insurance company products and unit and investment trusts. For regular savings schemes, the surprise is how similar in cost unit trusts and insurance company products seem to be, once you have allowed for the value of the life cover you tend to get with the latter. For lump sums, the average unit trust scheme is actually more expensive than the equivalent life product.

On all types of savings scheme, however, investment trusts are appreciably less expensive than either of the other two. That is no doubt the price investment trusts have to pay for being more volatile and less easy to understand than unit trusts. But, in periods of high discounts, as now, they remain the vehicle of choice for the more sophisticated investor.

Take note, however, that the range of costs in the unit trust and investment trust sectors is wider than it is in life insurance - there are some very expensive trusts out there, even though the average cost may be lower. If the experience with life products is any guide, the effect of disclosure should be to narrow the range.

You only have to look at experience in the United States - where mutual funds are materially cheaper on average than their equivalent here - to know that we have some way to go before we can declare that the consumer is yet king in this business. But at least we are moving in the right direction.