Past performance has no investment future

Greyhound racing: Past performance of the top dog could be a good indicator

The Financial Services Authority (FSA) has launched an investigation into a popular sales gimmick of financial services companies, who quote past performance in their ads to get new customers. The BBC's Sarah Pennells reports.

Picking a winner when it comes to your investments is not the easiest task in the world.

With so many companies and products out there, you may feel like you do not know where to start.

The FSA is concerned that a certain kind of adverts - traditional page fillers in the weekend financial press - could actually be misleading.

Betting on the markets

If you are going to gamble, a day at the dogs won't guarantee you come away any richer.

The FSA's Christine Furnish: Advertisments must be fair and not misleading

But at least you've only got a handful of greyhounds to choose from each time.

Looking at past form should give you an idea of whether you'll end up picking a winner or not.

And if you get it wrong, you shouldn't lose your life savings.

But when it comes to stock-market based investments such as unit trusts and Isas, it is a different picture.

While companies are happy to boast about their returns, they're also adept at putting a gloss on their figures.

Anna Bowes from Chase de Vere Investments explains that "the fund management companies can choose the dates to show their past performance so that that fund is shown off to its best advantage."

"They may use a long time period if that will help the figures or they may choose a short time period if that will help the figures," says Bowes.

Another way is to compare funds against something that is not comparable like a building society account.

Rank outsider

Just because a racing dog has won in the past does not mean it will win the next race but it may well help your choice.

However, using past performance advertisements to pick a financial winner could mean that you end up the rank outsider instead of the favourite.

Adverts in the newspapers make it seem that every fund is a winner.

But because the companies look at different performance periods, making a realistic comparison can be difficult at the very least.

The FSA are now looking at the way the ads appear.

Christine Farnish from the Financial Services Authority says that the FSA has a duty to make sure that adverts are "fair, clear and not misleading."

"What we want to make sure is that consumers, before they sign up to something, they know what they are getting into."

The FSA says consumers should be vigilant and before buying should;

• Read the small print on the adverts.
• Read all the material they're sent by the company.

Until the FSA review is over, investors will have to take their chances.

But the FSA's message is: Don't gamble with your savings on the basis of adverts alone.