09/08/2017 12:46 BST | Updated 09/08/2017 12:46 BST

Beware Sheep In Wolves' Clothing: Regulators' Market Review And How To Get Value For Money When Investing

In the '90s you couldn't open a Sunday paper in the run up to the tax year end without being bombarded by esoteric investment fund adverts; 'Beaten the FTSE 5 years running', 'Top Quartile Asian Fund', 'Five star BRIC fund'.

What really matters of course is not whether your money beats the FTSE, clear benchmark that it is, but whether your investments help you fund your retirement or send your kids to university or achieve other life goals that matter to you, for a level of risk that you are willing and able to take. Keep your money in the bank and you'll get low returns but it's safe (albeit inflation will eat away its buying power). Invest it in developing world equity markets and you could double your money, but you might also lose the lot. There's obviously a world of options in between so getting the right balance of risk and reward is key.

If you think investing doesn't apply to you, think again. Most of us now who have a pension no longer have one linked to our final salary, for most people it's invested.

Fortunately, fund performance-led adverts are no longer allowed and the warning that 'past performance is no guarantee of future returns' is increasingly well heeded by investors.

Since the Financial Crisis there has been another very significant change in the way that investments are being made. Financial advisers, who are responsible for 80% of retail investing, are increasingly no longer trying to 'stock pick' great performers for their clients but favouring funds which invest across multiple markets like the UK, Europe, US and developing economies and multiple asset types like cash, bonds, shares and property. They do this so that they don't put all your eggs into one basket. In fact 41% of retail sales have gone into 'multi asset' funds since 2008, the single largest share according to industry trade body the Investment Association.

So if these funds are not to be judged on whether they beat an index like the FTSE, how do you know if they are suitable for you and whether you are getting value for money? The industry's regulator, the FCA, doesn't believe that investors are getting value for money much of the time and recently announced radical new changes.

We all know how to evaluate buying a package holiday; cheap and cheerful beach holiday to get some sun at one end of a spectrum, luxury safari at another. They have different prices and you get different levels of service. The same is true with cars; hatchback or prestige executive. Yes they will both get you from A to B but the ride will be very different. If you pay more you expect to get more. And this is the FCA's point - with investment funds if you pay more, it can be difficult to assess whether you are getting more.

They define value for money as the investment return you get, for the risk you take, after fees. The regulator has said that too many funds are masquerading as actively managed funds (the more costly end of the market) where the fund manager believes he or she can beat the market with their skills, and decision making and deliver higher returns, whereas they are actually closet trackers, simply buying and passively holding shares in a given market which can be done much more cheaply.

Clearly good value for money would be a strong return for the level of risk you take after charges. This form of risk targeted investing where performance is managed against a level of risk which is suitable for the investor is quietly revolutionising the world of investing.

It puts you as an investor at the centre, often with the help of an adviser and enables you to define a suitable level of risk. The investment manager then will seek to deliver the best return they can for the risk that you are prepared to takehat risk. Some use low cost, passive tracker funds to do this while others take a more costly active approach but seek to give you a higher return. Either way value for money is much easier to assess if you ask three key questions;

1. What is the fund's objective and what level of risk is it being run to. Is it being independently monitored?

2. Is that the right level of risk for me given my attitude to risk and capacity to take it?

3. What return has it delivered against its risk benchmark after all charges have been taken into account?

While past performance is no guarantee of future returns, with these three questions you can tell whether its risk is likely to be suitable for you and whether it has delivered value for money to date. That's a much stronger basis for decision making when it comes to saving for the really important things in life.

Ben Goss, is CEO of Dynamic Planner, UK advisers' most widely used risk profiling service.