DIY Investor Magazine
/
March 2016
20
ARE BANKS & INVESTMENT HOUSES
DINOSAURS FACING EXTINCTION?
Over the past few weeks, there have been a number
of reports and indicators showing the world economy
slowly heading towards a low inflation, low growth
economy and perhaps recession.
Companies appear to be keeping a watchful eye
rather than taking affirmative action, but no doubt
consumers will start to change habits much more
quickly as needs are driven by these changes.
SO WHAT’S IN PLAY IN THE FINANCIAL SERVICES
SECTOR?
•
Low and negative interest rates set by central
banks.
•
Low inflation.
•
Lacklustre consumer consumption across the
globe.
•
Mortgage lending increasing modestly (not at the
rate seen in the 2001-2008 period)
•
Political uncertainly and rise of extremism (a move
to both the left and right)
•
Growth of mobile devices (ownership and use),
internet and fintech.
•
Mistrust of the banking and investments sector.
•
Commoditisation of finance services.
•
Low returns on savings and investments.
•
Retail sales in investments down (for three of the
last four quarters compared to 2014) and a move to
invest in commodities especially gold.
Not a pretty picture, but are central banks and
governments able to reverse this? They have been
working on this oil tanker for at least 48 months and to
little effect.
The more affluent West has seemingly consumed
all they want and this has led to a downturn in
consumer demand. It would also seem this is true in
China too, which leaves India and South East Asia to
continue to generate consumer demand.
What does this mean for UK consumers and their use
of financial services?
THE UK CONSUMER
Consumption is down in the UK; there is increasing
disparity in income and there are deflationary
pressures. It is unlikely that customers will be
encouraged to spend their savings and investments
and although cheap lending might stimulate some
spending, the bursting of the last lending bubble in
2008 still looms large in the memory.
Generally, life expectancy is increasing and health
is improving (although this might be impacted by
obesity) and consumers are looking local, with
nationalism and protectionism on the rise as evidence.
We are moving into a sluggish period and will need to
look at propositions that fit the needs of a new era, just
as Japan has had to adapt over the last 25 years. For
financial services in the UK this might be:
INVESTING
•
Greater use of financial advisers, halting the trend
of declining advice; this will be married with the
increased use of robo advice at the same time
for non-complex situations. Bringing these two
propositions together will create a killer proposition.
•
Parents taking a longer term view of savings and
retirement planning for their children given their
ever increasing life expectancy and low investment
returns.
