Personal Finance: Why the fund managers' phones aren't ringing

There is another problem with many fund management companies. It is called arrogance

WHEN YOU are painting a room, you can either do it to music or to Radio Four. Thus it was last Saturday that I found myself listening to R4's Money Box, a sort of aural personal finance section, as I helped put the finishing touches to my newly acquired living-room ceiling.

One of the most interesting discussions involved a spat between the representatives of a large fund-management company and Norwich and Peterborough Building Society.

The subject was the Individual Savings Account (ISA), the brainchild of New Labour. The argument was over the fact that while Norwich and Peterborough (and other building societies) have vacuumed piles of savers' money into their cash Mini-ISAs, hardly anyone appears to have invested in the equity- linked ones since they were launched.

Indeed, one rumour I heard claimed that, by the end of its first day in "ISAland", a very large and well-respected fund-management company had attracted the grand total of just one investor. Six days later, that figure had grown by a few dozen.

In contrast, banks and building societies that launched their own cash- linked ISA accounts - which unlike the old Tessa offer near-total flexibility in terms of access to your money - have been raking in the money. Possibly a million or more people have rushed to open a Mini-cash ISA.

The majority of this wall of money falling into ISA cash accounts comes from the transfer of previously taxed savings deposits.

It is far too soon to tell, of course, but on present evidence it seems unlikely that a new savings culture will materialise out of the ashes of PEPs. Even if the dream of 15 million ISA savers becomes reality, it will be on the back of existing savers, rather than by pulling in a new army of investors.

What interested me about the radio discussion was the way so much of it was coded. Shorn of all the diplomatic language, the chief complaint from the fund managers appears to be that the new ISA regime is too confusing.

Investors have been put off by this confusion, with all its talks of Mini, Maxi, Insurance, Tessa-only and cash ISAs. Moreover, they don't realise that by investing pounds 3,000 in the first year into a Mini-cash ISA, they are cutting to just pounds 3,000 the amount that can go into a equity-linked one. When they want to invest up to the limit at the end of the tax year, they will rue the day they chose to transfer their money so soon.

Perhaps. But it is also worth making a couple of other points. Sure, ISAs are confusing, but so were PEPs and that didn't stop people investing in them.

In fact, as we saw in the run-up to the end of the last tax year, investors piled in. Here at The Independent, I lost count of the number of calls and letters from readers who were being told they simply "must not lose this last tax-free investment opportunity" and who could they talk to about it?

If anything, one might argue that by stampeding investors in the run- up to 6 April, fund managers simply relieved people of cash that they might otherwise have kept for the current tax year.

There is another problem with many fund management companies. It is called arrogance. Many have been totally unprepared for the new ISA, fondly imagining that by simply changing the name of their funds from PEP to ISA they would continue to attract investors. Some have refused to offer cash as part of their Maxi-ISA, others are paying contemptibly low rates of interest.

Even so - though it may not be much comfort to a fund manager sitting sadly by a silent phone - it is likely that once savers have completed the transfer of their savings accounts into cash ISAs, many investors will turn back to equities.

The landscape, however, may be different. The reality is that ISAs have re-structured the savings habit of many investors. From seeing tax-free savings as something confined solely to equities, they are beginning to see the benefits of a cash stockpile, particularly in today's volatile investment markets.

The phones will ring once more, to be sure - but people will want something different. The question is: will fund managers be astute enough to provide it?

LAST WEEK'S article on tax clearly struck a chord with many readers, who have called to find out more on how to fill in their tax returns. For those who want to delve into the subject, the Lloyds TSB Tax Guide 1999/2000, by Sara Williams and John Willman, has rightly been described as one of the best on the market. Normally priced at pounds 7.99, it's available for pounds 5.99 (including p&p) by writing to Profile Books Ltd, Independent/Lloyds TSB tax book offer, PB Box 105, Rochester, Kent ME2 4BE. The first 15 readers to write in will receive the guide and their cheques back.