In forming a view on what lies ahead for inv-estors, advisers and providers this year, you first need to look at 2004.Equity markets continued to move higher in 2004 and investors were encouraged by evidence of ongoing recovery in many of the world’s major economies and generally more encouraging corporate results and profitability. Against this backdrop, the world’s central banks star-ted to tighten global monetary policy. However, geopolitical tensions and a record rise in oil prices contributed to a marked pick-up in market volatility. The Madrid bombings and events in Iraq and the Middle East grabbed the headlines, resulting in global equity markets range-trading for the best part of the year. However, retreating oil prices and a convincing outcome to the US elections removed some of the uncertainties and equities rallied through to year-end. Investors also focused on the sharp decline in the dollar, which fell to record lows against the euro amid concerns about the extent of the US’s twin budget and current account deficits. A stronger tone to UK economic data set the backdrop for good equity market gains in 2004. Investors were encouraged by continued housing market strength and consumer willingness to spend while improvements in corporate profits and a pick-up in merger and acquisition activity added to the positive mood. This was despite the rising interest rate backdrop as the Bank of England continued to tighten monetary conditions. Despite volatility as geopolitical concerns and high oil prices came to the fore, the year ended on a positive note as oil prices retreated from record levels, inflation remained subdued and investors became confident that UK interest rates were nearing a peak. Given this 2004 backdrop, what does 2005 look like? Overall, equity markets will continue to make progress from current levels in the short term as investors are encouraged by oil prices easing back from record highs and easier than expected global monetary conditions. We are maintaining a modest overweight exposure to equities but as we go further into 200, we believe there is a realistic danger that equity markets will peak as weaker economic and profits data comes through. The UK is one of our preferred investment regions and we have recently modestly inc-reased our overweight position. We expect this defensive market to outperform other equity markets as investors become more risk-averse in the face of a global economic slowdown. In our view, we have reached the peak in the UK interest rate cycle and macro-economic data remains upbeat. Valuations are reasonable at around 14 times earnings and a continued pick-up in corporate profits and corporate activity should create a generally supportive backdrop. There are, however, some clouds on the UK horizon and these need to be watched. In no particular order, these are:1: Inflation picks up.2: Government borrowing increases rapidly.3: Tax increases.4: House prices fall faster than expectedA reasonable case can be made for all these events starting to happen during 2005. If that is the case, the impact on the equity and bond markets could be quite unsettling. With all these factors in mind, what are the messages for investors and advisers? I would mention two – the importance of regular contribution savings and asset allocation as a key tool on investment planning. Regular-contribution savings became less fashionable in the 1980s and 1990s as the bull markets played on people’s greed and short-term performance perspectives. It seems sensible to remind ourselves why they are such an important vehicle. It is very difficult, even for so-called experts, to time the market and call its highs and lows. To make lump-sum investment choices on this basis is inherently more risky than many investors and advisers are prepared to admit. The safer way is to invest on a regular consistent basis over an extended period of time. In this manner, short-term fluctuations are smoothed out and it is the longer-term trend of underlying investments which determines the value of investments. Even investors with lump sums to invest could, and should more often, make use of these advantages by dripfeeding their capital into investment vehicles over a period of time. Product providers could and should be more innovative in their product designs to help this happen. In terms of numbers of clients, regular-contribution savings is a much bigger marketplace than lump-sum investments. Many people who have regular earnings can afford to commit a regular monthly amount to a long-term savings programme. Since endowment misselling surfaced, advisers, investors and product providers seem to have backed away from this important market and all parties seem to have suffered accordingly. A fresh look at this market could lead to a fresh range of products and a concerted effort to help get people back into the regular contribution savings habit. The savings habit is clearly something that we as a nation have lost. The savings gap seems to grow ever bigger. For advisers and product providers, the benefit of regular savings are:A foundation of a longer-term relationship.Less sensitivity to short-term performance pressures.An opportunity to grow and develop trust with the clients as they build their financial security.A growing culture of investment awareness. This year, we can also expect asset allocation to become a key watchword in investment planning. Cumulatively, over the years, advisers and their clients have built a portfolio of investments based on individual decisions and have little or no overall coherence, balance or structure. The result is often too many eggs in one basket such as with-profits, equity funds or cash deposits. Modern investment planning needs to be more thoughtful and based on an understanding and careful monitoring of individual risk. Asset allocation is not just a bond/equity balance. It is about a double balance between cash, bonds, equities and alternative asset classes and within each of these assets to the constituent choices, for example, within equities to have a weighting between US, UK, European, Japanese, Asian and emerging markets. Asset allocation is important both at the time of investment and as part of ongoing service and review. To allow advisers and their clients to do this effectively, sophisticated tools and support materials are needed. Fortunately, there are more tools available to help than ever before. Wrap platforms, open architecture platforms, multi-manager solutions and risk-rated port-folios are just a few examples. It is with this in mind that the Schroder multi-manager fund of fund service has been launched. It is based on the simple premise that many advisers feel their time is best spent with clients, understanding their needs and assessing their risk profile. They then want to ask an expert to manage a portfolio in line with their needs and deal with the detail of asset allocation, risk management, regular rebalancing and manager research. As these tools become more widely used by advisers, we should see an improvement in the overall trust in our industry and ultimately a closing of the savings gap for the nation. If this proves to be the case, 2005 could be the start of a real shift in the savings market.