William Kay: Fatal flaw in the FSA's with-profits crackdown: nobody wants the truth

Much as it pains me to undermine the Financial Services Authority (FSA) in any way, I think there is a fatal flaw in their surprisingly mild strictures on with-profits providers. Despite trailing "a wide-ranging programme of actions to improve the governance and transparency of with-profits funds", what it actually proposes is pretty tame.

Firms will be required to define, publish and comply with their principles and practices of financial management, reporting annually to policy holders on how well they have done this.

Clearer and more directly comparable presentation, new information to assess how they arrive at bonuses, more disclosure, the waffle goes on and on.

You can bet that the with-profits firms will publish and comply with as little as they can get away with, and what appears will be as impenetrable as a Tolstoy novel (sorry, Tolstoy fans, but you must admit he is not the easiest read in the world).

But that is not the fatal flaw. This is. Sir Howard Davies, the FSA chairman, has jumped on the bandwagon which proclaims that all we need to do is to make with-profits providers come clean and everything will be wonderful.

The trouble is that most with-profits investors, to the extent they have thought about it at all, do not want transparency, otherwise they could have put their money into a unit trust.

No, the reason most people are sold with-profits – and, like life insurance, it is very much sold rather than bought – is that they are afraid of the stock market and do not want their sleep disturbed by headlines screaming that share prices have crashed.

The sales agent or financial adviser overcomes their fears by removing them at two levels from the harsh facts of the financial jungle, first by putting them into a collective investment and secondly by choosing one where the results are smoothed.

This is the fairy-tale world where managers tell investors they have made less money than they really have in the good years, so there is something in the kitty to enable them to say they have made money in years when they have actually lost, as in the past two years.

It is a bit like watching Fantasia instead of one of David Attenborough's wild-life programmes, but that is fine: the important thing is to get your money out from under the mattress and into some sort of vehicle that is plugged into equities.

My point is that greater transparency will keep Sir Howard cheerful while he watches his beloved Manchester City struggling through the Premiership next season, but it may actually depress the more anxious with-profits investors as the next annual statement drops on their mat to reveal the full horror of a year's losses.

There have already been complaints that financial services are in danger of being over-regulated, with the public sinking in a sea of paper that they would really rather not receive and which usually goes straight in the bin.

The proposed with-profits rules will simply add to the deforestation of the planet .

HALIFAX, PART of the HBOS banking group, deserves applause for its new ShareBuilder share-dealing service. Aimed firmly at the millions of people who want to invest directly on the stock market but do not know how, its big selling point is that the commission will be only £1.50, a price Halifax guarantees to hold for at least a year. That has set a few jaws dropping among other low-cost brokers, who generally charge around £10 a time.

But there is one big snag. To make the service economic, investors can buy only on one of four dates each month so Halifax can lump lots of small orders together. Customers can cancel their order up to 10 o'clock the previous night, but they cannot set a limit by stating that they will not pay more than a certain price.

Sue Concannon, managing director of Halifax share dealing, says that if there is some cataclysmic event which rocks the market – such as the 11 September terrorist attacks – Halifax will at its discretion scrap the orders.

That may be fine for most customers most of the time – and Halifax does want people to put in so much a month to benefit from pound-cost averaging – but it is a major drawback for investors who like keen prices.

On the other hand, one of the service's hidden advantages is that customers can opt to have dividends reinvested. It does not sound much of a concession, but it introduces the magical effect of compound interest into a portfolio.

And, unlike purchases, share sales can be handled "live" without delay. I predict that ShareBuilder will be a godsend for people who have shares from privatisations and demutualisations but do not know how to get rid of them.

It will give millions of such folk the opportunity to construct a properly diversified portfolio, instead of owning a ragbag of utilities and former building societies because all you had to do was to fill in a form and pin a cheque to it, a piece of irresponsibility for which the Thatcher government has never earned the blame it so richly deserved.

AFTER ROBBIE Coltrane, Samuel L Jackson. The star of the new Star Wars film has been recruited by Barclays Bank in its latest attempt to present a human face to the world. Instead of Mr Coltrane practising t'ai chi (you know, those funny Chinese slow-motion exercises) on a US rooftop, we have Mr Jackson walking along a country lane looking meaningful and – hopefully – thought-provoking.

Mr Coltrane's message was that Barclays are BIG, so Nineties, I always felt. Mr Jackson has been hired to lend credibility to the message that, "Money speaks in many languages. Barclays understands them all".

In other words, those caring, sharing people at Barclays are on your side. This from a bank where the chief executive only this month told a House of Commons select committee that he did not understand the concept of excess profits, and where the chief executive of Barclays Personal Financial Services only this week gleefully boasted to analysts that their Openplan account will make an extra £130m of operating profit by 2005.

w.kay@independent.co.uk

William Kay is personal finance editor of 'The Independent'