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On the four front

Times have been particularly challenging for IFAs over the last three years and 2004 is shaping up to be one of the most demanding. Mortgage advisers and lenders will have to cope with sweeping changes brought by the move to statutory regulation. Pension advisers will need to provide clear guidance to clients in the run-up to pension simplification, even though the project is suspended in uncertainty as a National Audit Office examination threatens to halt the whole thing.

For investment advisers, some of the key challenges will include sorting through the wealth of multi-manager propositions and trying to find the best offering where this is appropriate to clients.

Investment specialists might also find 2004 to be the year that clients start to ask the simplest but thorniest questions on charges as awareness grows.

Torquil Clark investment strategist Philippa Gee says: “We are likely to see more performance-related charges coming out next year. Investors are very attracted to the notion and want to know why their manager is getting paid well even though their fund is struggling. I also expect clients to be more generally demanding in terms of information on charges. They are likely to become less and less accepting of high total expense ratios and annual management charges without some very clear justification.”

Key investment themes are likely to include emerging markets, particularly funds investing in India and China, and multi-manager funds.

Hargreaves Lansdown investment manager Ben Yearsley says: “The Far East story is very strong in terms of demographics and long-term potential but the problem is that clients will wait until markets double to buy next year when they ought to have bought when they dipped.”

Gee says: “I hope that there will be no flavour of the month this Isa season but I suspect that there will be. The huge amount of multi-manager launches is starting to remind me of the activity at the end of the tech run – so many funds were launched and the challenge was to sort the rough from the smooth. I am looking forward to it settling down next year and the end of the new launches.”

Generally, for Gee, 2004 is likely to share a lot in common with recent years.

She says: “Regardless of what sector is performing well, it is imperative to stick to your basic principles of portfolio management and to gap-fill where necessary.”

Mortgage advisers looking to do the best for their clients next year might do well to encourage clients looking to move or remortgage to do so in the first half of the year.

The Marketplace mortgage technical manager David Bitner says: “Obviously, regulation is the big discussion next year and part of the impact of this will be that many lenders will not want huge amounts of pipeline business from the second half of this year. Expect to see more aggressive pricing at the start of the year, with lenders becoming less competitive thereafter.”

Despite some gloomy forecasts by economists which anticipate the return of the spectre of negative equity to the property market, Bitner predicts that house prices will continue to rise and that first-time buyers will continue to struggle. He says: “I do not expect to see a slump next year. The backdrop to the market is still likely to be high employment and low interest rates. First-time buyers ought not to take their chances waiting for a slump.”

Pension advisers are wrestling with uncertainty over pension simplification. The National Audit Office is number-crunching the proposed £1.4m lifetime fund limit, particularly whether it would affect just the 5,000 people claimed by the Treasury or the far greater figures estimated by industry experts. Chancellor Gordon Brown will then decide whether he will press ahead or junk the whole project and keep eight different pension regimes.

Hargreaves Lansdown head of individual advice Danny Cox says: “I cannot that believe after all this time and effort by the pension industry towards simplification, the National Audit Office could throw the whole thing out because of the numbers. It will be a huge shame if it does because there is so much good in the proposals. I cannot believe the Government will let the project stall now.”

In the meantime, Cox says the emphasis will be to review all clients&#39 pensions arrangements closely and to communicate clearly with them in potentially very confusing conditions. He says: “We are publishing a factsheet for clients on pension simplification. It is imperative that advisers ensure their clients are informed, as some will be better off retiring early while delaying taking benefits will deliver the best outcome for others.”

Other important issues emerging from pension simplification include the freedom for clients to invest in residential property within self-invested personal pensions.

Cox says: “Some have felt that this will have a potentially huge impact, particularly in terms of heating up the housing market. I suspect that this will turn out to be like equity release – generating a huge amount of interest but, when examined more closely, clients recognise the complications and charges involved.”

Beyond pension simplification, there will be plenty of other activity in the pension market. Towry Law product research manager Simon Farrant says: “We know of at least one life office developing post-stakeholder individual pensions that do not pay commission. Next year will also show us whether the income-drawdown market can recover. There will also be even further consolidation in the group pension market.”

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