YOUR MONEY: Talk your way to a bargain

What's the most prominent feature of many of the advertisements for Peps and other investments featured here - and in every other newspaper - in recent weeks?

That's right: the telephone number. Not many years ago, the typical fund manager's ad included a coupon - and many still do. But the emphasis has now moved to the telephone.

Simplicity and lower charges have been the two main weapons in the direct sellers' armoury, and there's no doubt that, if you know what you want, buying a Pep in this way can be a cost-effective way of investing.

The market was catalysed by Virgin Direct, with its no-frills, low cost tracker fund. In less than two years the company has recruited 100,000 customers and now has almost pounds 500m under management.

Now the low-cost list includes representatives of many major names. About one-third of Pep investors now buy direct, according to recent research for Invest On-line, part of the Royal SunAlliance insurance giant, which is a recent entrant to the market.

Unusually for a direct seller, the company concentrates on lump-sum investments rather than monthly savings plans.

The growth Pep is also distinctive in this market as a fund of funds with an optional capital guarantee.

The simple, low-cost approach includes no initial or exit charges, and a straightforward 1 per cent annual management charge. A similar system applies to the company's corporate bond Pep, intended for investors who are looking for a regular income.

But buying direct from the provider is not the only way to keep investment costs down. Unlikely though it sounds, you can buy many Peps more cheaply through an intermediary. For example the Pep Superstore - part of Chelsea Financial Services - will knock from 2 to 4 per cent off the initial charge for unit trust Peps from a clutch of fund managers.

Many of them offer cash back, or promise to undercut their rivals. The Pep Shop pledges to beat any other broker's deal on a particular Pep, while Pep Direct charges a flat fee of 2.5 per cent for any Pep purchase, and offers cash back of between pounds 180 and pounds 300 when they invest pounds 6,000 in a Pep.

How do they do it? The clue is in the cash back. People who sell financial products are traditionally paid commission by the providers for each year that the plan is in force. The discounters hand over some or all of the initial commission - but, of course, they keep the renewal fees, typically 0.5 per cent per year.

But these are not independent advisers who will do a detailed fact-find to discover the best investment for you personally. They operate much like any other retail business. You ask them if they have a particular product "in stock" - and, if not, they will try to offer you the nearest equivalent. So however you buy, do your homework first, and don't ignore the small print