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In the system

Many of us will be reflecting on what the year ahead holds. The markets have certainly taken a turn for the better, with the FTSE ending the year above the 6,000 mark.

Investor confidence appears to be improving and there is good reason to think that this will continue. There are lots of issues from 2006 which will continue through 2007. Here are a few.

One of the biggest issues is pensions. It seems that the Government is going to take the radical road to reform and move to a system of auto-enrolment into long-term savings plans in the form of a new low-cost scheme for those with no company pensions.

Coupled with changes to the state system, this will see a huge shift in the way in which people, especially on the lower end of the income scale, plan for their retirement. Only time will tell whether engagement in such a scheme will lead to people taking more of an interest in saving and perhaps even seeking advice.

On another savings issue, earlier this month, the Chancellor confirmed that Isas were to remain a permanent feature of the savings landscape and he announced a series of changes which will hopefully make Isas easier to understand and more attractive to investors. It is disappointing that he did not increase the overall annual investment limit or introduce more incentives for investing in Isas but there is always the Budget to look forward to. After all, the Chancellor needs a few brownie points before he takes charge of the country.

Moving to the FSA, a retail distribution review was launched in June and the FSA has identified five themes. These are: the sustainability of the distribution sector, the impact of incentives, professionalism and reputation, consumer access to financial products and services and regulatory barriers and enablers.

The review will have to take account of the distribution landscape which has changed vastly over the last few years with the advent and phenomenal growth of fund supermarkets and platforms, with further innovation and growth certain to continue. The next stage of the review will be a discussion paper (promised by the middle of the year) presenting a series of recommendations, but the FSA has already stated that it strongly favours market solutions and sees its role as limited to responding to any solutions from the industry.

So, the challenge for all involved will be to come up with solutions favoured by all and beneficial to investors.

Financial capability remains an ongoing issue. The FSA has made some progress in this area and the Treasury is set to publish its own long-term strategy shortly. It will be focusing on how best to reach people at key life stages. It will also consider how well generic financial advice reaches those who need it and how to fill any gaps. This may well provide an opportunity for plugging the services of financial advisers to those for whom generic advice is too basic or who will hopefully end up being in a position to need more specific advice in later life.

Finally, as a result of Mifid, advice will be recognised as a core activity, allowing UK advisers to elect to advise investors across the European Union, something they cannot do at present unless authorised by the regulator in the investor’s home state.

So, it looks set to be another busy year and, if the market holds up, hopefully business will, too.

Mona Patel is head of communications at the Investment Management Association

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