In the mid-1980s, when the FSA was barely a gleam in the legislator's eye, I was seconded to Allied Dunbar as a consequence of a joint business venture with my employers.
I know it was styled Allied Crowbar by others but it presented well and was successful in its selling techniques. It also trained some excellent salesmen. One in particular that crossed my path was John Rose, one one of many high-flying Allied Dunbar salesmen that left to join J. Rothschild, now St. James Place, when it was first established. I rather lost contact with him after that but a mailshot bearing his name encouraged me to attend an investment seminar he was hosting. It was, as I expected, professionally put together. In 20 years, I learned that little had changed in his approach. What is more, it still appeared to work.
The purpose of mentioning this is to remind you that the old dictum “investment products are sold, not bought” still applies. Whether the arguments are quite the same as once they were is immaterial. The reality is people need to be encouraged to save. Sadly, the most fertile hunting ground for the John Roses of this world are those who already have savings. His trick is persuading a move to St. James Place. He often succeeds. So why should good salesmen like John refocus their approach to persuade people with limited resources that investing for the long-term is essential?
This remains the conundrum. The best returns for providers are achievable from those with the most money but the real problem lies with those who cannot be bothered or find it difficult to save. John's view is that equity investment is still the best long-term home for savings. In this he is supported by his contention that it is the rising stream of dividends that makes the difference. While in principle I agree, for once, there is an argument that the future is less certain.
The risk, of course, is that company cashflows, rather than being distributed to shareholders by way of dividends, will be needed to bolster underfunded pension schemes. This seems likely to produce a conflict that could undermine the very principles of equity investment. The Government is not blameless for this situation. Aside from the removal of tax breaks on pension schemes, greater regulation means that companies are now obliged to ensure there is transparency over their obligations in the pension market.
Complying with the concerns of actuaries and the need to conform to FRS 17 has lead to a steady withdrawal of final-salary schemes and pressure to put more money aside. Neither of these developments presents an easy outlook for the stockmarket. While it can be agreed that much of the needed rebalancing of pension funds has now taken place, the appetite for equity investment from these powerful institutions may never be the same again.
Declining dividend growth is a worry on a number of fronts. If, as appears inevitable, we are regressing to the long-term trend in stockmarket returns, then the contribution from dividends is crucial. Historically, they have produced around 50 per cent of the overall return in the UK. If this contribution stagnates, then the outlook for overall returns suffers. But then again, I recall similar concerns in the high inflation years of the mid-1970s. Perhaps John is right. Concentrating on the income from your investments seldom does any harm.