THE action by Jardine Fleming Unit Trusts to close its doors on new investors seeking to open accounts at its offices has raised a number of questions from the investment industry. From a superficial stand-point it appears to be a commendable prudential action by one of the territory's leading investment groups to avoid potential administration problems caused by huge numbers of small investors on the group's books. The halt to retail investor account expansion called by JF indicates that the group, having decided to enhance services to retail investors last year, completely underestimated the strength of interest among small investors. They saw investor accounts rise from 26,000 to 60,000 in the space of 12 months. A three-month moratorium on new accounts has been called and current unit holders are being restricted to transactions of no less than US$5,000 a shot. So what happened to the group's commitment to the retail investor? The success of JF's aggressive marketing last year was its very own defeat, as it has had to stop the drive to expand before it ditched itself into a sea of paper work just when its campaign was getting into gear. For those investors who feel they have been robbed of a chance to invest in JF funds, there are ways around the moratorium. You can still invest through a JF or a JF-linked office not in Hong Kong. You could use a financial intermediary in some cases. If these routes sound too inconvenient or intrusive for you, then invest via Citibank's investment services which requires the user to open a bank account and have an initial US$50,000 to invest followed by a minimum threshold on subsequent investments of US$2,000. Investors can pick and choose from a panel of 148 funds with more than six fund groups. The JF moratorium marks a major setback for the development of retail unit-trust investment in Hong Kong as its leading participant has effectively withdrawn, albeit temporarily, from the field of play. For many practitioners the administration excuse for the moratorium does not wear well. There are obviously real problems coping with such growth, but can you imagine Toyota stopping sales of the Lexus because of high customer demand? Some practitioners suggest the moratorium will also provide JF with a chance to reconsider its strategy towards the retail sector. JF might decide that catering for very small investors coming off the street may not be the kind of business it wants after all. Having won a full banking licence last year, the group might be thinking how it can integrate its investment client base with that of the newly formed bank. It might decide to switch tack and move for the more profitable high-net-worth client. Small lump sum investors create just as much paperwork, if not more, as larger players: each and every transaction needs to be recorded just the same. There is a danger that the more small retail business you get the less profitable you become. And there is always the danger that these rather fickle participants in unit trust investment might just disappear all together, should there be a major shift back into bank accounts, after a rise in interest rates for instance. Despite this the unit trust industry can expect a boom in Hong Kong in the late 1990s, possibly on the same scale as the growth seen in insurance policies in the 1980s. The fastest growing sector of the local population is the 35 to 40 year old group, many of whom are on the verge of seeing their children leave home and they can now plan for their retirement. In the West breadwinners aged over 40 tend to enter the lump-sum savings days of their lives. Asia will probably be no different. Furthermore the growth of a large well-developed middle class is encouraging for fund companies. This is because these are the kind of people likely to shift some or all of their investment decision-making to a unit trust company, thus freeing them to get on with their busy money-making professional lives. It is going to be interesting to see what JF does over the coming months. And when the moratorium is over, come April 30, will it open its doors on the same basis as before? Any change in stance by JF on this will mark a very significant change in the way the local retail market might develop in the future.