Claws are out for CAT

By SIDDIKA KHALIQUE
Updated:

 

LESS than one in five people understand CAT, the Government's much-vaunted 'kitemarking' system for financial products, a shocking new survey has found. And one quarter of respondents thought CAT was a Government guarantee that a product was safe.

The nationwide survey of 1,000 people, by independent financial advisers Towry Law, found that just 19% understood what CAT was about. The kitemark, introduced in 2000, covers charges, access and terms - and is designed to give buyers peace of mind that they are getting a minimum level of quality.

But 26% of those surveyed believed CAT was an assurance the product was a safe investment; 23% thought it guaranteed the most competitive rates, 22% thought it promised product performance, and 30% thought it meant the product was suitable for any type of investor.

Respondents were so baffled that just 29% said they would be tempted to buy solely on the strength of the CAT mark. Most (60%) would seek financial advice.

'Providers may shy away from CAT-marking products if their customers do not understand the term,' says Simon Farrant, technical consultant at Towry Law. 'On the one hand the Government is concerned the CAT mark is seen as their endorsement of a product. On the other, there is an overall lack of understanding of the mark.'

'The clear message we get from the research is the majority of people need advice in this area. However, a 1% world makes advice on some products, incredibly difficult. Advice must not be priced out of the market, regardless of whether it comes from an independent financial adviser, a direct salesman or tied agent.'

CAT marks have found an audience among Isa savers. In the first 20 months after CAT was introduced savers put £1bn into stocks and shares Isas. If you invest via pooled stock market fund such as a a unit trust, the mark means you pay no initial fee and an annual fee of 1% at the most. This is well below the norm of 3.5% to 5% initial and 1.5% a year.

Many fund management groups, however, have ignored CAT standards, claiming the charges are too low to be run by professional managers.

Richard Wilson, marketing director at Aberdeen Unit Trust Managers, says: 'Aberdeen don't offer the CAT mark on unit trusts. We think you should be looking at more than just costs when you're choosing a product, such as how your money's being invested.

'If people aren't sure about their unit trust they should speak to a financial adviser. But part of the problem with CAT standards is the financial limitation on advice. We get few inquiries about whether we offer CAT standards. Not many investors understand what they are and what they mean.'

The Consumers' Association, a strong proponent of the CAT mark, says the Towry Law research 'shows misunderstanding from consumers as to what CAT can deliver'.

Spokesman Delroy Corinaldi adds: 'It's important the Government and intermediaries realise they play a key role in educating consumers about CAT. (CAT is) an effective form of regulation. We feel it gives consumers a good steer to finding a good deal.'

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