Are we ready for the Re-Set World?

As the FTSE bounces back over 5,200, the savings ratio creeps up to the best it has been since late 1993, there is an audible sigh. The worst of the recession is over. By 2010 we will be ‘back to normal’.

I don’t think so. I agree with Professor Goffee, of the London Business School that “It could be that sections of the economy never recover in the way we understand them now. Financial services will not be the same. Consumers will think about value harder.”

The financial services world will never be (nor never should be) the same again. It truly has been Re-Set. And here’s why.

To quote Mervyn King :“The sheer scale of support to the banking sector is breathtaking. In the UK, in the form of direct or guaranteed loans and equity investment, it is not far short of a trillion (that is,one thousand billion) pounds, close to two-thirds of the annual output of the entire economy. To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform.”

Not surprisingly, confidence in financial services companies has sunk to a new low as it emerged this month that British consumers even trust the media more than they do the finance industry. Just 7 per cent agreed with the statement “In the current economic climate, I trust the financial services industry to look out for me”, while 60 per cent disagreed. Only 18 per cent of those surveyed said they trusted the financial industry, compared with 34 per cent for the media and 19 per cent for the government – the two sectors traditionally occupying the'bottom rungs of the trust ladde'. Four in 10 added that they no longer had confidence in banks’ marketing messages. (source: DMA Oct 09)

So what is the new Re-Set paradigm for financial services? My personal view is that - there will be retailers who enter the market and put the service back into financial services - who really know how to look after consumers. See O2 money, watch out for Tesco, Boots and Metro Bank. They will all change our relationship with the sector. The new Re-Set world will be about service and experience, not profit and performance.

And consumers will also want reassurance and transparency that they are being treated fairly and the Government will step in and regulate and simplify products – which will mean a brand’s reputation and the social contract they offer with their customers will be critical as a key differentiator.

This Re-Set world should give us all in the sector the opportunity to Re-Start. To think about services and products from the consumers perspective, rather than continuing with the status-quo.

But how many financial services companies are planning for the Re-Set world now?

Joanne Parker
CEO

Tooth fairy index anyone?

When I was a kid and my first tooth fell out (actually it was punched out in a bit of a fracas over some space dust but that’s another story) the tooth fairy magically passed by overnight, took the incisor and left a shiny 10 pence.

Fast forward a few years (actually more like 4 decades) and the going rate for that first tooth for my daughter is a mighty £2.00. That’s a massive 2,000% increase or 52% year on year.

Compare that to house prices over the same period: 1,477% (source Nationwide); FTSE All Share: 1,396%. Less a sterling performance more an enamelled one!

But a more important point is that my daughter at 7 struggles to comprehend what that £2.00 will buy. The maths lessons at her primary school still have calculations involving buying cakes for 3p. 3p!!!! When did you last see a cake for 3p? Or 8 Mojos for a penny for that matter. Parents and schools need to get kids to understand how money works and the real prices of things as early as possible or we’ll be stuck with bad financial habits for another generation.

As for me, anyone know how I can access the Tooth Fairy index?

Jim Poulter
Client Services Director

The signs aren’t good

Redundancies for the three months to February 2009 were 270,000 - up 45,000 over the quarter and up 162,000 over the year. This is the highest figure since comparable records began in 1995.

Gross Domestic Product (GDP) contracted by 1.9 per cent in the first quarter of 2009. Hotels, restaurants, transport, storage and business services all fell in terms of output in the 3 months to February this year.

And yet I look at my share portfolio and it has risen – significantly - in recent weeks. April was the best month for the FTSE 100 in six years, and the media are reporting that we are now officially in a bull market having risen more than 20% from the recent lows in March.

All of which leads me to one question. Are we experiencing a ‘W’, a ‘U’, a ‘V’ or even an ‘L?’ Are we positively talking our way out of things or is the widely derided ‘global rescue package’ actually working? Should I capitalise on my short-term gains and hope the markets plummet over the summer, or should I wait and keep my fingers crossed that stocks keep slowly rising back up?

To be honest, it doesn’t really matter that much – this is just a bit of fun for me. But for the estimated 1 million Britons that are due to retire this year, the answer to this question has a profound impact on the rest of their lives. The new guidance and information opportunities suggested as part of the Thorenson Review will help. But perhaps our thinking should be more profound than this. Perhaps we should stop thinking about equities being the investment vehicle for mainstream retail products and look to alternatives?

Meg Steele
Client Services Director

So, what next?

In February last year I met with an IFA to discuss my financial situation. I had a lump sum I wanted to invest and wanted some professional advice. During the course of his visit he stated:

1) That he expected the FTSE to close the year at 7,200 pts.
2) That property was still showing significant signs of growth with no real evidence that it was about to drop.

Now luckily, through sheer inertia I didn't take up any of his advice and stuck the lot across two high interest savings accounts while I figured out what next?

What next was I sat down 13 months later - last night to be precise - to decide what to do with the money that's now languishing accruing 4 pts less interest than when I opened the accounts a year ago. My wife and I spent 2 hours discussing our next move - we decided agaist an IFA - we decided against taking advice from my brother-in-law (a wealth manager) - we decided against buying property, because who knows.

We ended up deciding to go to the Caribbean at Christmas, frankly there appear to be so few options out there at the moment you might as well spend it, it's devaluing anyway. Any better options will be considered and probably disregarded.

Crispin Heath
Head of Digital