When gauging the question if investor sentiment has changed forever, I received a short-term answer when I attended a Budget presentation lunch event last week. Those of us around the table introduced ourselves and one executive blurted out “I hope you are not going to sell me a pension” to laughter. I was hardly going to try and entice him into an Isa either, judging that this was a good time to look at the menu.
Much damage has been done to investor sentiment by the disastrous concoction of geopolitical tensions, corporate scandals and overpriced markets, which eventually had to fall, so, as surveys show, investors are now becoming much more risk-averse. Their attitude is hardly helped by reports stating that it might take 15 years for the FTSE 100 index to regain its all-time high.
We can hardly blame the public for retreating into their shells in the face of almost unprecedented falls in world markets. Add to this the Equitable Life collapse, life companies in trouble, commentators predicting the next misselling scandal and you see why financial advisers are about as popular as Camembert on No 10's cheese board. Give people enough bad news and they will obviously go away.
Even IFAs are demoralised, reeling under a mix of professional indemnity insurance problems and repeated regulatory upheavals, not to mention the 16 consultation papers currently open for response. I suspect that the public will remain in risk-averse mode for at least one or two years after the end of this bear market and some may have had their attitudes changed forever.
Is there a silver lining to the situation? Well there would be if the Government, the FSA and the industry were working together to try and encourage people to save but I won't hold my breath.
Later in the Budget briefing, I asked the man concerned what he was going to do about his pension and his reply was “Live for today, mate.”
When you look at pensions, the Green Paper is a missed opportunity and, judging by take-up numbers, stake-holder pensions are a failure, so our population is dangerously avoiding major issues, such as pension planning.
The Government needs to encourage IFAs, because the way that our market is going, less choice is going to be bad news for the consumer.
That same Budget speech astonishingly never covered the subject of savings and so the Government is quite happy next year to abolish the 10 per cent tax credit that Isas currently receive on dividend distributions.
They have not listened to industry bodies who rightly claim that this further stealth move will discourage many people from using Isas to accumulate long-term savings. We should reduce client expectations and avoid fashionable trends that have dogged this industry for many years.
Surely a managed fund from a life company should be truly managed and not simply be 90 per cent invested in equities.
One of the reasons for stakeholder failure is that cost is not necessarily the problem behind the so-called savings gap. People need persuading that they have to cater for their needs in retirement.
The product providers will have to be more innovative and perhaps abandon that snobbish attitude that protected products are in some way inferior.
If the client wants an investment that cannot lose money, then let's look at protected products. IFAs are going to have to concentrate much more on asset allocation than product selling and we are all going to have to sit down with clients and reappraise their risk attitudes realistically.
Although “investing for the long term” is the industry mantra, it is no comfort to an investor opening up an Isa statement currently. However, we must encourage investors not to shun UK equities at the very time that they could be attractive.
The Government, via its Isa changes next year, is really encouraging bond investment but that is not ideal for everybody and what happened to the idea of long-term equity growth being the way to preserve wealth?
The press have a part to play in education but hopefully not trying to find the next misselling scandal every weekend or pointing the way for people to complain to the ombudsman when many are just jumping on the complaint bandwagon. In short, there is a lot of work to do.
Michael Owen is joint managing director of Plan Invest