Highs and Lows Of 2009

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Teamspirit’s review of Financial Services in 2009 and a few of our predictions for 2010.

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Highs and Lows Of 2009

  1. 1. The highs and lows of 2009 and a few predictions for 2010 December 2009
  2. 2. The high points… Reasons to be cheerful
  3. 3. 2009 - Round up Good news…in a bad climate <ul><li>The FTSE looks like closing at over 5,250. </li></ul><ul><li>Record year for ISA sales - currently stand at £2.3bn. </li></ul><ul><li>The stock markets began to rally in March. </li></ul><ul><li>Total net retail sales for 2009 so far have reached a record £21.1bn. This is ahead of the total achieved in the whole of 2000 (£17.7bn). </li></ul><ul><li>The number of mortgage approvals for house purchase by the major banks reached a 17 month high in July. </li></ul><ul><li>The housing market rallied to a 17 month high in July. </li></ul><ul><li>VAT was reduced to 15%. </li></ul>
  4. 4. The Corporate Bond sector which has been the most popular UK domiciled net retail sector to date. Saw a dramatic change in October when Property overtook is as the best selling sector. Corporate Bond sector showed an outflow of £11.8 million “ “ 2009- round up Best selling sectors in 2009 Retail: (Overall Corporate Bond) Oct changed to property. Best selling Worst selling Institutional: Corporate Bond. Retail: Europe Excl UK. Institutional: UK All companies and UK gilts. IMA, October 2009
  5. 5. Investment horizon A record year for ISA’s <ul><li>Net ISA sales currently stand at £2.3bn; this is the first positive inflow since 2003 (in contrast to the last five years, when net sales of ISAs were negative or negligible). </li></ul><ul><li>The maximum amount one can invest in a cash tax free ISA was increased by £3k to £10,200 for those aged over 50 in October. </li></ul><ul><li>However, some providers have made the decision not to allow this increase until 6 April 2010 when everyone will be able to do it. </li></ul>
  6. 6. <ul><li>The number of mortgage approvals for house purchase by the major banks reached a 17 month high in July. </li></ul><ul><li>BBA said approvals reached 38,131, up 77% on a year earlier and the highest level since February 2008. </li></ul>2009 – round up House price recovery House prices have returned to 2008 levels, according to Nationwide. The Nationwide House Price Index revealed the average house price increased for the fifth consecutive month to £160,159, a level not seen since Oct 2008. In the current low interest rate environment, some existing home owners have seen a fall in their debt servicing costs. As a consequence, the Nationwide report that fewer households are having to sell their properties than might normally be expected during a recession. This pressure on the supply of properties for sale is one reason the Nationwide thinks helps to explain the recent monthly increases in house prices. <ul><li>Revised estimate for GDP growth in Q2 showed a 0.7% fall in GDP, this was a marginal improvement on the initial estimate published on the 24th July of a 0.8% fall in GDP. </li></ul><ul><li>The contraction in GDP in Q1 remains unchanged at -2.4%. </li></ul>
  7. 7. 2009 – round up More reasons to be cheerful…. <ul><li>Investors remained loyal to equities with 49% of gross sales going into equity funds in 2009. </li></ul><ul><li>Pensions have also done surprisingly well – net premium income was up 18% to £57.5bn. </li></ul><ul><li>UK households were worth a total of £9tn (far higher than previously thought) in 2006-08. </li></ul>
  8. 8. And the low points… Just in case you needed reminding!
  9. 9. 2009 – round up Stormy times… <ul><li>Britain officially entered recession on 23 rd Jan 2009 </li></ul><ul><li>GDP dropped by 0.4% in the third quarter </li></ul><ul><li>Life insurance fell 22 per cent to £38.4bn </li></ul><ul><li>Pension reforms and RDR are creating an uncertain market for providers and intermediaries alike </li></ul><ul><li>Unemployment levels reached a fifteen year high </li></ul><ul><li>Pre-budget forecast in November brought more doom and gloom – with income tax hikes </li></ul><ul><li>The UK economy was forecast to shrink by 3.5 per cent - the sharpest plunge since the Second World War </li></ul><ul><li>Insolvencies hit a record high, with 33,000 people going bust in the last quarter, while the unemployment total kept rising to 2.435 million </li></ul><ul><li>The Government pumped £175bn into the economy </li></ul><ul><li>Interest rates reached their lowest ever at 0.5% </li></ul>
  10. 10. 2009 timeline of events… How it happened
  11. 11. 2009 – round up Timeline of events <ul><li>Britain officially entered recession on 23 January. </li></ul><ul><li>The financial sector teetered on the brink of collapse. </li></ul><ul><li>RBS posting a £28bn loss. </li></ul><ul><li>The unemployment crisis picked up pace, with vacancies hitting a record low. </li></ul><ul><li>The Bank of England entered new fiscal territory when it cut UK interest rates to a historic low of 0.5%. </li></ul><ul><li>Pledged to start creating money through a programme of quantitative easing. </li></ul><ul><li>Recession deepened in the first three months of 2009. </li></ul><ul><li>The economy shrank by 1.9% during the quarter, the worst since 1979. </li></ul><ul><li>Pre-Budget proposals announced changes to income tax levels from 40-50%. </li></ul><ul><li>Darling was forced to tear up forecasts predicting that the UK economy would shrink by 3.5% in 2009. </li></ul><ul><li>Unemployment hit 2.2 million after the biggest three-month rise in joblessness since 1981 . </li></ul><ul><li>BoE increased quantitative easing to £125bn. </li></ul><ul><li>There were signs of green shoots in the UK economy, with industrial and services output both rising for the first time since the turn of the year. </li></ul><ul><li>But the OECD issued a warning over Britain's &quot;deteriorating&quot; public finances. </li></ul><ul><li>Q2 2009 – RDR consultancy process begins </li></ul>F M A M Jan Feb Mar Apr May Jun
  12. 12. 2009 – round up Timeline of events <ul><li>The mood darkened with predictions that the recession would be W-shaped- with a short recovery followed by another slump. </li></ul><ul><li>The reality - a 0.8% contraction between April and June - spooked stockmarkets. </li></ul><ul><li>Mervyn King came out fighting against the financial sector, blaming the banks for dragging the world into &quot;a deep recession&quot;. </li></ul><ul><li>Insolvencies hit a record high, with 33,000 people going bust in the last quarter, while the unemployment total kept rising to 2.435 million. </li></ul><ul><li>A burst of optimism sent the FTSE 100 through the 5000 mark for the first time in 2009. </li></ul><ul><li>But economic data painted a gloomier picture with the construction industry shrinking for the 18th straight month, and unemployment nearing 2.5 million. </li></ul><ul><li>Britain remains mired in recession, </li></ul><ul><li>Investment levels in ISA change for the over 50’s. </li></ul><ul><li>GDP fell by 0.4% over the third quarter, according to the Office for National Statistics. </li></ul><ul><li>Dubai's government announced it has been given a $10bn handout from Abu Dhabi to help it pay off debts. </li></ul><ul><li>BoE said it would inject another £25bn, taking the total planned under QE to £200bn. </li></ul><ul><li>The average British home value is up £1,517 in 2009, after dropping £31,355 in 2008, according to property website Zoopla. </li></ul><ul><li>So, as 2009 draws to a close, British homeowners have seen the value of their homes increase by £39.1bn. </li></ul><ul><li>The government pumps a total of £175bn into the economy. </li></ul>F M A M Jul Aug Sep Oct Nov Dec
  13. 13. The year ahead…
  14. 14. 2010 - the year ahead Opportunity knocks…with big changes on the horizon <ul><li>With further delays to personal accounts and auto-enrollment it will now take more than three years to get all employers into the system and it could be 2017 before contributions reach the levels recommended by the Pensions Commission. </li></ul><ul><li>Exactly how Personal Accounts will be implemented is unclear, but by 2020 there could be an additional 10m savers in DC pensions (Pensions Policy Institute) </li></ul><ul><li>The completion and implementation of RDR reforms by year end 2012. </li></ul><ul><li>Changes to income tax levels in April - From 45 % to 50% for top rate earners. </li></ul><ul><li>Retirement age changes in April from to 65 for women retiring between 2010 and 2020 and to 68 for men or women retiring from 2024. </li></ul><ul><li>The general election date is expected to be announced. </li></ul>
  15. 15. <ul><li>Anthony Bolton has predicted the stock market recovery will &quot;run out of steam&quot; in the first half of 2010 as developed world investors come to terms with a low-growth economic environment and the consequences of massive government debt. </li></ul>2010 – the year ahead Or are we running out of steam?
  16. 16. <ul><li>Providers should put efforts into making consumers aware of the nature of risk and its link to return </li></ul><ul><li>The recession can be seen as an opportunity to drive consumers to engage with life-based investments </li></ul>2010 – the year ahead Where can opportunity be found? <ul><li>Consumers are risk averse and shunning equity-based investments </li></ul><ul><li>Just 37% of UK consumers were happy to accept a high risk/high gain strategy in exchange for potential growth of investments while the number was much higher (56%) for US consumers. </li></ul><ul><li>Consumers lack confidence in equity-based products and are seeking safe haven in cash accounts </li></ul><ul><li>HSBC recorded a 19% increase in deposits held in its savings accounts range, and it is just one of the many banks that are observing this trend </li></ul><ul><li>Investment bonds also need to attract to the cautious and less affluent consumer </li></ul><ul><li>ABI shows total costs of advice in the UK savings and investment market doubled between 1990 and 2000, which the breakeven case size for IFAs increasing from £180 APE to over £800 </li></ul>
  17. 17. David Haigh, head of workplace pension reform at the Department of Work & Pensions, has attempted to reassure advisers that in spite of reports about delays to the new regime, auto-enrolment would go ahead as planned in 2012 with large employers having to start contributions. 2010 – the year ahead Auto-enrolment deferral…myth or fact? It's a myth that the reforms have been delayed ; it's perpetuated by people that don't understand what we are doing. Anyone who thinks that you can implement this reform in one day is just wrong “ “
  18. 18. 2010 – the year ahead Survival of the fittest? <ul><ul><li>One of the biggest issues facing the adviser market, now & over the next three years, will be the number of advisers and firms exiting the industry. </li></ul></ul><ul><ul><li>This is due to a number of factors coming together at the same time: </li></ul></ul>Persisting economic hardhship Ageing adviser market looking for exit strategies Regulatory pressure – Capital adequacy, qualifications & more admin. 1 2 3 Economically the landscape will prove challenging, the backdrop of depression and continuing market volatility is likely to continue well into 2010 and then lead onto inflationary pressures in 2012.
  19. 19. Adviser challenges Regulation regulation regulation TCF RDR Capital Adequacy <ul><ul><li>The majority of changes to the distribution landscape are being driven by the continual developments to the UKs regulatory regime: </li></ul></ul><ul><ul><ul><li>FSA announced a TCF visit to all adviser firms over the next 3 years and will continue it’s focus on the TCF value chain and the provision of suitable and affordable advice. </li></ul></ul></ul><ul><ul><ul><li>However principle based regulation is likely to give way to harder clearly defined law post recent FS events. </li></ul></ul></ul><ul><ul><ul><li>Division of distribution models - Independent advice Vs Assisted sales. </li></ul></ul></ul><ul><ul><ul><li>Requirement for all advisers to have achieved minimum of QCA level 4 by the end of 2012. </li></ul></ul></ul><ul><ul><ul><li>Increasing demand upon the assets required for firms and individuals to continue to trade. </li></ul></ul></ul><ul><ul><li>The adviser market has already been heavily affected by historical and proposed regulatory changes and this will continue up until 2012 with the likely introduction of new UK and Pan European regulation. </li></ul></ul>

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