View more on these topics

Investment view

It was inevitable that Ned Cazalet would come up with something controversial when he spoke at our riverside party for IFAs last week. Ned was entertaining and his tone was just right for a light-hearted evening with a hint of seriousness.

The intention was to entertain but to deliver a thought-provoking message for the independent advice community at the same time. The theme should not be so much about investment but more about the issues that we all face and where guidance is appreciated, is what matters. I would like to think that we have succeeded in delivering to expectations on both occasions.

Ned&#39s theme was built around the way in which low inflation was not doing the life insurance industry any favours. Some of the points he made were uncanningly similar to those I have been proposing at seminars for some while. Low inflation may be the pot of gold at the end of the rainbow sought so diligently by governments but it brings with it just as many problems as high inflation, even if they are different.

In the crazy years that characterised the tail end of the last bull market, we justified paying silly prices for shares on the argument that low inflation and low interest rates meant people would pay more for equities. The reality is that inflation flatters profits and asset values so, if anything, low inflation and low returns on cash and bonds suggest that you will receive lower returns on equities as well. And, just as important, is the fact that inflation erodes debt, so low inflation means your borrowing is not diminishing.

This is where Ned had an interesting point to make. If investment returns were likely to be low for the foreseeable future, then it seemed inconceivable that the returns on endowment policies would improve. Apparently, there are 10 million endowment policies out there, supporting mortgages in many instances. As these mortgages come to term and the endowment policies mature, it is looking increasingly likely that there will not be sufficient money in the pot to pay the lender. For a society that is becoming increasingly indebted, this is not a pretty prospect.

Of course, for some this will be no more than an inconvenience but for others, perhaps approaching retirement on a low income, the prospect will appear frightening. Such a scenario brings the fortunes of banks and insurance companies together in a charming way. While any denouement may be some years away (and would be avoided if either strong stockmarket returns are achieved or a dose of inflation changes the value of the debt mountain) it is clearly something to bear in mind for the future.

Meanwhile, the market, which has maintained its sunnier feel, may now pause for breath. We will be bereft of meaningful news until we hit that most difficult of months, October, so investors will probably do best sitting on their hands. Perhaps a more useful task for these lengthening nights could be to examine the syllabus for the proposed new O and A level in financial planning. The prospect of a batch of eager 18-year-olds being released into the financial advisory market in a few years time is positively alarming. But at least a message is getting through that financial education should be more of a priority than has been the case until now.


MLIM wins Abbey mandate

Merrill Lynch Investment Managers has been awarded a sterling fixed income mandate from Abbey National for its multi-manager funds. MLIM&#39s 18-strong fixed income team already manages £14bn. Head of UK third party business Michael Jones says: “Abbey National&#39s multi-manager products offer some the best funds across the board and to win this mandate is a […]

GMAC Star shines wider

GMAC Residential Funding has widened the range of its Star product to cover all sectors – buy to let, mainstream and non-conforming.The product does not require income details and attracts self-cert borrowers.In the first six months of this year, GMAC saw a 69 per cent rise on last year and believes this is largely due […]

Equitable report is put back again

Questions surrounding the demise of Equitable Life will remain unanswered for longer following further delays in the release of the Penrose report.Inquiry secretary Hugh Burns says the report will be ready “very soon” but will not be finalised by the end of summer as was announced last November. He says the report is being finalised, […]

&#39Code of conduct is needed to combat misselling&#39

Money Marketing&#39s misselling campaign has split advisers over the need for a clear definition of misselling.Many believe a definition is a necessity for financial services to be secure in the future but some IFAs believe the answer could lie more in business practices and codes of conduct.IFA R-M Associates director Alistair MacDougall says when dealing […]

Help, I’ve been appointed as a trustee. What are my responsibilities?

Graeme Robb, Technical Manager at Prudential looks at the key duties and responsibilities of a trustee.  This article will consider the following: Duties to be performed on appointment Investment duties Protecting the interests of beneficiaries Keeping accounts and records Distributing property to beneficiaries Duties to be performed on appointment Obtain a copy of the trust […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm