View more on these topics

Outside edge

To me, the word gamble throws up sometimes glamorous but always exciting connotations – Monte Carlo, the Derby, champagne, dinner suits and now, it seems, a 1 per cent world for mass-market investment products. Hmmm. Spot the odd one out?

I can get quite up for the first four of these and in fact I am sure that many of our industry have done in the past (usually at policyholder expense but let&#39s not worry about that for now).

The one I struggle with is the 1 per cent world for investment products.

We currently have a situation in the IFA market where actively managed funds can be sold within a reduction in yield of about 1.3 per cent.

Given the generally dismal performance of these funds, it is easy to argue that one could strip out 10 basis points and revert to passive funds – after all, how many decent life company funds can anyone name?

That leaves an average annual charge of just 1.2 per cent. There is surely a general acceptance that this industry is at least 20 per cent too flabby? Et voila. No risk. By the way, if you don&#39t agree with the 20 per cent flabby, I hope you are either close to retirement or from a wealthy family because you are not living in the real world.

Now this model is slightly simplistic but does suggest that maybe there is just too much hysteria and not enough consideration of the issues – certainly for comp-anies with UK parentage and limitations.

For those in or with access to less developed markets there is a capital issue – should they rush off and create a similar problem somewhere else or should they build a sustainable business in the UK. Not my call of course but one cannot help feel that the UK&#39s relatively low savings ratio and a willing Government may provide a very big opportunity.

My advice would be to wait for the gigantic carrot called compulsion or some other kind of state intervention. For once see the bigger picture and think strategically rather than small-mindedly, no matter the temptation.

The demographic and financial realities suggest that compulsion will come. All very well you may say. Why did the Government not do the easy thing and introduce compulsion alongside stakeholder pensions?

Easy! No Government, or indeed any self-respecting organisation, can be seen to tell people to invest their savings into a cumbersome, inefficient and fundamentally weak industry. Harsh? I think not. Until the life industry, in particular, begins to look beyond the end of its nose and consider its role in society, progress will not be made. Once (if?) it does, the opportunities will become clear.

Life offices are not in the investment market – they are in the protection and mass savings market and they should curb their aspirations accordingly.

That means they are not capable of investing money as well as “proper” asset managers, they do not have a salesforce competent in the product and they will never control the key distribution channel, no matter how much money is flung around.

So is the 1 per cent world a big bad gamble? When placed alongside pension misselling, endowment misselling, high-income bond misselling, with-profits bond misselling (not- ice the trend?) I think not.

What the “regime” implies is one of a long-term customer value proposition and not one of the short-term sale. It suggests that greater efficiency should become vital rather than a by-product of volume.

More than anything else, providers must appreciate that this is not their call. If you cannot do it, shut up shop because someone else will. That is your real gamble – not whether or not you can call the Government&#39s bluff.

Not very glamorous, but there you have it.

David Ferguson is a director of The Abacus

Recommended

Threadneedle seeks out healthcare stocks

THREADNEEDLE INVESTMENTS THREADNEEDLE GLOBAL HEALTHCARE FUND Type: Oeic Aim: Growth by investing in pharmaceutical companies, biotechnology, healthcare providers, medical supply companies and producers of advanced medical devices Minimum investment: Lump sum £2,000 Investment split: Pharmaceuticals 55.5%, healthcare 14%, biotechnology 9.5%, medical technology 7%, medical supplies 8.5%, cash 5.5% Isa link: Yes Pep transfers: Yes Charges: […]

FSA must take action on PI

The professional indemnity crisis is becoming a very real threat to many IFA businesses.Nearly all are facing huge increases, in many cases, up to double or three times normal premiums and, in one exceptional case, up to 750 per cent more than last year.Others are finding it virtually impossible to access compliant cover, often through […]

Inside edge

Now that the fire and water has been replaced by a significant period of reality, the question still remains if we really need a 1 per cent world? Whether this applies to pensions or to the wider suite of products currently proposed, what has it meant in reality, what was it set out to achieve […]

Mortgage lending high at Standard Life Bank

Mortgage lending at Standard Life Bank has reached a record high of £7bn after the expansion of the bank&#39s mortgage range.Standard Life puts the achievement down to continued growth in the UK mortgage market, as well as its expansion into new sectors last year, which saw particular growth in the strength of the first time […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    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

    Email: customerservices@moneymarketing.com