Many dishonest marketing invitations, such as ‘cash for gold’ deals that suggest you send old jewellery to a complete stranger in a pre-paid envelope or buy non-existent property purely on the basis of a glossy brochure, are generally easy to spot and avoid.

It is much more difficult to judge the value of investment services that are perfectly legal, particularly if they take an aggressive approach to encouraging you to part with your money. Information providers such as publishers are off the hook as far as regulation goes. It is your choice whether or not you act on their suggestions. It’s a challenge to determine which of the many services available offers good value for money.

Many Money Observer readers will have come across an advertisement for a book called Liquid Millionaire, which is sold by ISACO, a firm authorised by the Financial Services Authority (FSA). The company, run by Stephen Sutherland and his brother Paul, has been a going concern in one shape or another since 1997 but only earned FSA authorisation (FSA number 525147) in May this year.

Liquid Millionaire expounds theories on successful investing, but it is also a marketing tool for ISACO’s investment-shadowing service. Essentially, investors pay a flat subscription fee of £1,500 a year to watch Stephen Sutherland invest in his personal portfolio. This is a big fee unless you have many thousands of pounds to invest, and the Sutherland brothers check that all subscribers have sufficient means to invest. Subscribers then receive an investment manual and a daily email condensing Sutherland’s current take on the markets.

Sutherland claims he has made 1,150 per cent on his portfolio since 1997, including gains of 62.9 per cent in 2009 and 27.2 per cent in 2010, largely on the basis of timing the markets – switching into cash when markets drop and being fully invested in funds when they rise. Timing the market, however, as any professional will tell you, is very difficult, and never more so than in the current uncertain climate.

The litmus test of the ISACO service is whether Sutherland’s timing is good enough to generate sufficient returns for you to recoup your outlay. Interestingly, the book’s full title is Liquid Millionaire: How to Make Millions from the Up and Coming Stock Market Boom. Whether a boom is likely is, of course, highly debatable. What’s also debatable is the prescience of a previous version of the book called Tax-Free Millionaire, which claimed in 2007 that the stock market was about to take off, a claim that proved unfounded.

We rang Stephen Sutherland to find out more about his investment philosophy and process. His method is based on the system devised by William O’Neil, a famous US investor who wrote the classic How To Make Money in Stocks. Essentially, what Sutherland does is follow trends in stock markets by assessing the level of institutional demand in US markets, as well as some individual stocks. He does this by monitoring how many big trades are made in them, which is deemed to equate to institutional interest. Sutherland’s system is an interpretation of O’Neil’s theory that 75 per cent of future market direction is influenced by demand from institutional investors.

If Sutherland thinks markets are generally bullish, he will look for an investment fund that has risen strongly in the past few weeks by examining recent short-term data from Morningstar. He doesn’t look for a particular sector, just a fund that shows recent explosive growth.

‘I try to find the Alex Ferguson of the fund manager world,’ he says. ‘The ones that are likely to do better than their rivals. I look to see which funds are leading the way up, looking at their performance over the last few weeks, because funds that start off rising fastest in new bull markets tend to continue to do well.’

Famously, he picked out two Latin American funds from Invesco Perpetual and Scottish Widows at the start of Latin America’s raging bull market of 2003-07, when stocks across the region quadrupled in value.

Recently, he has moved out of the Fidelity China Focus fund, which had underperformed, and into a technology-focused fund (he’s not saying which), and in July he moved into a Japanese fund, which may be able to take advantage of the rebuilding of the nation’s infrastructure following the tsunami disaster.

If markets aren’t rising across the board, however, his policy is to stick with cash, because another tenet of his philosophy is that three-quarters of all stocks will follow the general direction of the market.

Comfortingly, Sutherland is thoroughly candid about the impossibility of consistently making good gains and he trades very little, often only once or twice a year.

But the firm’s marketing rhetoric is the antithesis of a low-key approach. When the Sutherland brothers first started out in business, they traded under the name Filthy Rich Enterprises. The Sutherlands quickly realised this struck the wrong chord with the high-net-worth clients they were trying to attract.

In the past, clients bought single-year shadowing packages for £3,000, but they now sign up for multi-year blocks of five, seven or 10 years. The marketing literature urges them on by revealing that there is only a limited time before the deal expires.

The seven-year Financial Freedom package, the book says, ‘helps you retire with a dream lifestyle’. The 10-year Legacy Plus package is for ‘people who want to create the ultimate in lifestyle choices’.  The firm also publishes 0870-prefixed numbers for customer enquiries, which tends to set off alarm bells, although several mainstream banks also ask customers to phone in on premium-rate phone lines.

Shadowing, or mirroring, services are more mature in the US and include services by www.covestor.com and www.wealthfront.com, but they differ in the one important respect that they are run as managed accounts that mirror an expert’s trading. As managed accounts, their verified results are not public but are said to be relatively poor, and published performance is based on carefully selected periods. The ISACO service does not manage investors’ money.

FSA spokesman Toby Parker says it is important to check that any firm you do business with is authorised to conduct the service you want to use. ISACO is registered to provide an information subscription service, but it is not authorised to give advice.

‘Always look at the FSA register and see what services an intermediary is registered to provide,’ Parker says. ‘If  investors are considering giving money to firms or individuals that are not authorised for the purpose, they should exercise caution, as they will not benefit from the UK compensation and complaint schemes if anything goes wrong.’

Compared with other systems you could spend your fee on, Sutherland’s process is overly skewed towards US markets, with particular emphasis on the progress of the Nasdaq. But Sutherland counters: ‘The US is still the world leader and has the best companies, and that’s why the US market has grown at a faster rate.’  

However, the resilience of emerging markets through 2008 has prompted much discussion about whether they are finally decoupling from Western economies. Emerging markets are probably better placed to weather the next few years – their balance sheets are generally stronger and their markets are certainly more growth oriented.

Furthermore, the ISACO system does not compare different asset classes or sectors, and funds are chosen on the basis of rising rapidly in the short term. Yet most investment experts believe that thoughtful asset allocation counts for the lion’s share of a portfolio’s return potential.

Editor's view

Forking out upwards of £1,500 a year to shadow an investor, even one who has made good gains in bull markets, is a very expensive way to invest your money. To put it another way, you could invest £100,000 in a ‘best ideas’ fund and pay the same amount as an annual management charge.

You could also invest in a fund or trust that makes tactical asset allocation decisions on your behalf for even less than that. For example, Capital Gearing Investment Trust, which has made investors a great deal of money over the long term, currently has a 63 per cent weighting in fixed-interest securities but has in the past been heavily weighted to equities when manager Peter Spiller believes they offer good value. Its total expense ratio is 1.35 per cent.

What’s more, it would not have been particularly difficult to make the sort of gains Sutherland claims to have achieved in 2009 and 2010. Many of Money Observer’s investment trust tips did even better, and so did a great many funds.