Money: Brokers and benchmarks may not be a great combination

I want to tell you about benchmarks. What are they? They are the scourge of pension fund managers, but without them trustees may not know whether they are receiving the right treatment. More important, benchmarks are coming to a broker near you very shortly.

My dictionary describes a benchmark as a "standard or point of reference". And that is what private client benchmarks will be all about - setting a standard against which a portfolio investor can check to see whether or not his or her adviser is doing a good job.

I wonder. Thirty years of dealing with private clients has made me a little cynical. Ask somebody what they expect out of their portfolio and like as not they will say: "A high income and the doubling of my capital, by Tuesday next week."

Still, there are some heavyweights behind this idea of benchmarking, including the Association of Private Client Investment Managers and Stockbrokers, the Financial Times, the Stock Exchange and the WM Company - one of the leading performance measurement companies in the pension fund world.

Are benchmarks a good idea? Answering that one is tricky. What can possibly be wrong with setting a standard to which the industry can measure up? There are reckoned to be around 2 million people in this country with portfolios of shares. I'll bet that a good percentage of them have no idea whether they are receiving good advice from their stockbroker or investment manager.

Private client stockbroking has always been reckoned to rest on the three- legged stool of sound administration, good personal relationships and adequate performance. Of these the latter is usually considered to be the least important. Benchmarks may change this.

But there is a down side. Set an industry standard and before too long everyone is falling fearfully into line. Take PDFM for example. Its dash for cash early in 1996 has left it trailing the field in the pension fund manager stakes.

Trustees these days read performance tables. Even if business does not move because of one year's underperformance, it can affect the ability to attract new management mandates, particularly when an intermediary, such as an actuary, is concerned.

So could benchmarking result in similar developments within the private client sector? Well it might just sort out a few old goats that still linger around the fringes of the Square Mile. But I expect the biggest difference it will make to be in the field of advertising.

Already I can picture the financial pages peppered with "Top quartile private client managers five years running" headlines. Of course, if it promotes active management, that will be a bonus. Quite enough money is going into indexed funds, thank you very much. And I speak as someone involved in some of the earliest launches of retail indexed funds in the UK. But an index is an average. We should be striving for the better return.

But back to benchmarks - I can see discussions in strategy committees developing over not so much the arguments for investing in the US, but whether the case is sufficiently strong to justify being more optimistic than the benchmark. If it leads to a better deal for private clients, I applaud it. But it is not a case of the jury still being out. They have not even received the evidence yet.

Benchmarks do not tell you where to put the money. They simply indicate where everyone else is planning to place theirs. Just now I am finding it difficult to unearth real value in markets. Yet our own market and the US continued to deliver a sprightly performance. I cannot see any problems that might sweep the ground from under us, though I remain in the school that believes markets do not rise in a straight line indefinitely.

It might be worth looking at gilts, though. Not only is there divided opinion on their attractions (always a good sign) but the differential between UK bond yields and those in Germany look unsustainable, particularly if we have beaten inflation. Not every investor in continental Europe believes this, of course, but I am inclined to the view that we are making a better job of it than many people give us credit for.

The trouble with gilts is they are boring. Still, better to be bored for a short period than find something we had not factored into the market equation leaping up to bite our ankles, bringing us down painfully.

Brian Tora is chairman of the investment strategy committee at Greig Middleton