“Either this patient is dead or my watch has stopped,” was one of Groucho Marx's many immortal lines. I am beginning to feel the same is true of the stockmarket recovery as it seems long, long overdue.
More important, is that what the private investor is beginning to think? This somewhat dismal possibility was brought home to me by two casual conversations with friends, neither of whom was dealing with me as an IFA at the time.
The first is a teacher who is considering moving house and increasing her mortgage. In passing, she said that her insurance-based AVC is “a waste of money” and she will not be increasing it. The other conversation was with the 19-year-old son of a friend who told me all his mates are planning to buy flats and let them because “everyone knows that is how you build up capital”.
Few of us in the investment industry can be surprised by these attitudes but their impact could be more serious than we have acknowledged so far. Pension savings, in particular, have had appalling press for so many years now that everyone knows they are “a rip-off”.
It is neither here nor there that our political masters have landed us with a pension charging system that is so tight that the main rip-off is of any IFA foolish enough to offer face-to-face pension advice.
The public have heard for years about pension scandals, with-profits failures, falling annuity rates, and so on, and the message does seem to have got through.
Similarly, housing has offered two-figure annual returns for as long as anyone can remember (that is, over three years) and stockmarkets have lost people money or, at best, drifted. The most recent experience of some 30-40 per cent of direct Isa investors is of technology funds in the lemming-like drive to buy these funds just in time to suffer the full brunt of the implosion.
The change in attitude of the average potential client is a concern. Our problem is that most of our products are based on the “equities good, deposits bad” principle and we have persuaded people of this greater truth. Before you dismiss this with talk of gilts, corporate bonds and commercial property, think about the actual balance of the IFA product range.
Stockmarket investments lie at the core of with-profits funds and it is largely their fall that has reduced bonus rates. They are the main asset of managed funds, they are essential in the success of income drawdown and investment-linked annuities, they are at the heart of nearly all high-income bonds and they dominate the derivative market on which controlled-risk funds rely, not to mention being the raison d'etre of discretionary management and wealth services. Most of our clients in the last 20 years have been steered in their direction.
To a very real extent, IFAs have largely existed to encourage people to take the daunting step into asset-backed investment – and history is on our side. As readers of the BZW equity/gilt study know, equities are the most successful long-term investment or they were until the start of the 21st Century. But equity-backed investment has had a rotten press and insurance-backed wrappers even more so. Residential property and gilts have both been perceived as better investments over the last five years and the BZW story is becoming a little tarnished.
In reality, the long-term cycle will probably reassert itself and equities will most likely come back to the fore. Even more likely is that the ever-cyclical residential property market will top out and the same investors who experienced the technology collapse last year and moved into property will rediscover the joys of negative equity.
But the triumph of the equity is not guaranteed, nor even particularly certain. Look carefully at the BZW figures and you will see how dependent equities were on the combination of high inflation and bull markets during the last third of the 20th century.
What concerns me is that the public may not just be playing hard to get at present, they may actually be losing faith in our message – unless we change it. As this year's Isa season shows, we have been overdependent on stockmarket-based investments and this may need adjustment. If so, it brings yet another factor to consider along with depolarisation and the Sandler report when planning for the future.
Philip Rose is managing director of Wentworth Rose