Ten for 2010

The 1st week of January a week of predictions

08/01/2010 2

1. Yes, we’ll clamber out of recession, but growth of only 1.2% expected next year.

2. Insurance sector set to continue U-shaped recovery.

3. Continued resistance to LT saving.

4. Property set to re-emerge as fund managers wade back in cautiously (& China / Emerging)

5. Big year of change in banking with several new entrants expected.

6. Despite optimism mortgage market unlikely to really pick up until 2011.

7. Lending still depressed into 2010.

8. Further consolidation expected in adviser market (with business quality key).

9. DC set to dominate pensions landscape.

10. Higher tax environment will test British temperament.

Top ten predictions for 2010The year ahead

08/01/2010 3

� The CBI predictions are markedly lower than those made by Alistair Darling, three weeks ago.

� Next year, CBI is forecasting growth of 1.2%

� Thereafter, the CBI is forecasting growth of 2.5 per cent in 2011, which would be insufficient to return Britain to its pre-recession growth rate by the end of the year.

� The CBI's forecasts reflect its view that the outlook for consumer spending is worrying, with tax rises and unemployment continuing to dog confidence.

BRITAIN’S economy will finally make it out of recession in the last quarter of 2009, but will perform much less strongly in each of the next three years than the Government is currently forecasting, the CBI will say today

The economy will be on a fragile path of very slow growth as we continue to feel the lasting effects of the financial crisis

John Crdland, CBI

The economy Long hard slog to recovery

08/01/2010 4

� Swiss Re says the insurance and reinsurance sectors will continue their “U-

shaped” recoveries in 2010, alongside the major global economies.

� However, it also raises concerns about the looming threat of regulation

from European and national authorities, in a bid to crackdown on loose

financial practices, which could risk the delicate improvement.

� Foster Denovo envisages the market will continue to experience similar

challenges in the first half of 2010, and FS companies are going to be continually working to keep costs down.

� The consensus is there will be a level of growth towards the end of 2010.

FS company impactU-shaped recovery

08/01/2010 5

The survey found

that just 38% are saving more for a

rainy day, while only

49% are trying to pay

off more debt than

before the recession.

A survey by Deloitte has

found that although more

than two-thirds of

consumers saying they

are more aware of

personal finance issues,

a number of respondents

are wary of making

long-term financial plans

Long term savingsShying away from commitment

Statistics indicate a disparity between consumer action and inaction, with fewer consumers initiating positive change with regards to their

financial plans:

08/01/2010 6

InvestmentThe return of property

� Next year will continue to be tough for investors despite various signs of economic improvement.

� A degree of diversification into real estate markets seems therefore to be an attractive proposition, especially in the UK.

� Equities have reclaimed their position as the most popular asset class from corporate bonds in recent months, thanks to the rally in markets. However, we are also starting to see property also start to pick up interest again, as fund managers start to wade more cautiously into the sector.

� For multi-asset portfolios, equity asset allocation continues to favour Asian and emerging market companies, given these regions’ strong foundations.

� In fixed income markets, commentators still see potential in credit and emerging market debt, where current prices remain attractive.

08/01/2010 7

Investment horizonAdviser intentions

Q: Which of the following regions or sectors are you most likely to increase your exposure to in 2010?

IFA Online, Jan 4st 2010

08/01/2010 8

� Sunday Times reported that Brazil’s biggest bank, Itau Unibanco, is considering buying a stake in one of Britain’s nationalised banks.

� ‘Bank of Britain’ (aimed at affluent individuals)– is one of three tipped to receive banking licenses over the coming weeks.

� Vernon Hill is expected to win approval for his plans to launch Metro bank in the UK, opening 12 branches in London over the next two years.

� Virgin Money is also hoping to win approval for a banking license

BankingNew entrants?

While conditions at UK banks have improved significantly since the summer, with a sharp rise in their key capital ratios, there could be more aftershocks to come. But as the landscape shifts…several banks are eyeing a move into Britain

08/01/2010 9

MortgagesIt can only get better…can’t it?

On the road to

recovery after

four months of

sustained

growth.

But there are

still less

mortgages

available than at

the start of the

year.

And when

compared to

January, the

number of

mortgages is

down 27%.

� The real barrier to increased mortgage lending over the last couple of years has been on the supply side, as lenders have been reluctant to open their purse strings for fear of increasing their book of bad debt. This meant that the market was dominated by rather tepid products with low LTVs.

� Growth in the number of 85% LTV products is therefore encouraging

� Also the % of landlords obtaining BTL mortgages for portfolio expansion purposes has hit its highest level since 200, leading commentators believe that BTL could be hot to trot in 2010, or at least lukewarm.

Mortgage

lending

increased by

£1.5bn in

November 2009

Anyone saying we're out of the woods needs a reality check - 2010

will not be a bed of roses but at least the outlook for 2011 should be

better “ “

IFA Online, Dec 1st 200Alan Cleary Exact Mortgages

Good news

Bad news

08/01/2010 10

LendingStill depressed

� Lending activity is likely to remain relatively depressed in 2010 until funding

and supply conditions improve, according to the BSA

� Funding conditions for all lenders are

improving slowly, but these are still acting as a brake on lending

� Although credit card lending rose slightly

in November, the lack of popularity of other loans and overdrafts meant that

people paid back £376m more than they borrowed during the month.

08/01/2010 11

� The nascent global economic recovery has offered some reassurance that the UK's fortunes are poised to improve, but, with business costs growing and margins under mounting pressure, it is unrealistic to expect the sector to emerge from 2010 unscathed

� Scale is, and will remain, crucial, but it is no substitute for capital and profitability.

� Business quality is the all-important factor, which in practice means high quality advisers writing high quality business. Under the Retail Distribution Review, the size-at-all-costs business model could be rapidly exposed.

The advice sector is likely to be defined by consolidation in the next 12 months, with

the most likely to struggle at first set to be the subscale, capital-poor networks.

Any company lacking sufficient capitalisation could be in for a torrid 12 months and that applies to the bigger players almost as much as their smaller counterparts

RDR effect Adviser fall-out

Martin Davies, Openwork

08/01/2010 12

Pensions landscape evolutionDC set to dominate

� Defined contribution schemes are to continue

as the "natural successor" to defined benefit

schemes in 2010 as long as advice can be

guaranteed!

� RDR is a concern, as with commissions

potentially being removed from 2012 the

issue of employers and/or employees being

willing or able to pay for advice will come to

the fore.

� 2010 should bring with it innovation in the

defined contribution arena as product

providers and the IFA market need to alter

their propositions so that they differentiate

themselves from their competition.

In particular I would expect to see a greater use of online tools to communicate the offering and benefits of defined contribution

schemes”

Sally Webber, Creative Benefit Solutions

� The UK pensions landscape is undergoing huge change, with the numbers

drawing benefits from defined contribution pensions savings in 2010 set to

exceed 500,000.

08/01/2010 13

Taxing timesAnd a risk to LT saving

� An environment of higher taxes – likely imposed soon after the general

election if Labour is ousted – and public spending cuts will emerge. Instead

of 'doing more with less', the result in public provision could feel like 'getting

less for more money', which will test the temperament of the British people.

� The third most used word in Darling's

PBR speech was ‘tax' and this is exactly

what the increase in NI contributions will

be; a stealth tax on Middle England as

those on £20,000 a year or less have

been specifically excluded.

� Further Government restrictions on

higher-rate tax relief seriously risks

damaging long-term savings.