Telephone trust

Most unit trust companies will let you invest in their funds over the phone. Contrary to popular belief, this is not a new fad. It has been possible to do this for a number of years, but it was not until companies such as Virgin set up their telephone unit trust personal equity plan services (PEPs), that direct telephone sales really took off.

PEP sales have soared in the past few years, with people increasingly investing direct. According to industry figures from the Association of Unit Trusts and Investment Funds (Autif), in 1996 there were pounds 7bn of PEP sales, 21 per cent of which were bought direct. In the first seven months of this year, PEP sales were already worth pounds 6.7bn, with 24 per cent of them done over the phone, largely boosted by investors putting their building society windfall shares into PEPs, according to Autif.

As investing over the phone has become more popular, so an increasing number of traditional unit trust providers have set up separate direct sales arms. Companies such as Legal & General, Royal & Sun Alliance, M&G, Fidelity, Standard Life and Save & Prosper now run operations offering unit trusts and PEPs to the public over the phone.

Companies that only offer unit trusts and PEPs over the phone and do not use traditional sales methods tend to have a limited product range with easily understood funds, often with no initial charges. Direct Line, for example, offers only one PEP, a unit trust which invests in the top 100 quoted companies and aims to track the performance of the FT-SE index. Similarly, Virgin offers just two unit trusts with PEP options, a growth fund and an income fund.

Traditional unit trust companies offer a wider range of funds. But these may not always be available through their direct sales operations. For example, while M&G, Legal & General and Save & Prosper offer their full range of funds, Royal Sun Alliance has only two funds available for sale over the phone.

Investing directly in a unit trust over the phone is simple. Just call the service, tell the person answering how much you want to invest and in which fund, give them a few personal details, such as name and address, and that is it. A contract note will subsequently be sent to you. You then confirm the details, sign the note and send it back with a cheque for the order.

With a PEP, investors can call the service for information, but will only be sent an application form. This needs to be completed and returned before a transaction can be carried out.

Investing over the phone has a number of advantages. The lines are usually open seven days a week, often up until 10pm. You will not have to meet any salesperson and if you do not like the service you are getting, you can simply hang up.

Charges on all but the basic unit trusts and PEPs are often the same whether you use a telephone service or invest through a financial adviser. Sometimes, however, special discounts are available. For example, Royal & Sun Alliance for a limited period has dropped the 6 per cent initial charge on its European unit trust to those who purchase through its telephone operation.

The disadvantage of investing direct is that you need to decide in advance what you want in order to know which providers to contact. Investors who do not know what investment is most suitable may want help. Some direct sellers offer advice, such as Virgin and Save & Prosper Direct, but only on their own funds. Most will not give any advice at all over the telephone, apart from basic information on their funds. So if you need detailed advice you should go and see an independent financial adviser (IFA).

Sometimes it can work out cheaper to invest through an adviser. IFAs usually get commission from a company it they sell one of its products, typically around 3 per cent of the investment. Some IFAs are prepared to split this commission with the investor.

PEPDirect is one of a number of execution-only brokers through which you can buy PEPs and which operate similar commission rebate schemes. It charges investors a flat fee of pounds 25 when anyone invests in a PEP and splits the commission it receives from the PEP manager. PEPDirect says the average commission rebate to the investor is pounds 200.

For a complete list of unit trust providers, including their phone numbers, details of the funds they offer, and their charges, contact the Unit Trust Information Service on 0181-207 1361.