Five years on from the financial crisis is the world of money a safer place? Laura Miller asks the advisers on the front line.
Five years ago the financial world was in turmoil. Problems that had been building up for years - subprime mortgage lending, easy credit conditions, the over leveraging of banks - converged and blew up, affecting global markets, governments and people everywhere.
Financial institutions collapsed and politicians, largely in developed countries, pumped billions into the sector to prop it up - a legacy which will take generations to right. Regulation has been overhauled in this country and around the world.
The five year anniversary of the biggest financial disaster since the Great Depression seems a fitting time to ask advisers whose job it was to steer clients through the worst, where are we now?
Advisers on what has changed since the 2008 crash
Jackal Advisory director of pensions Simon Kew approaches the question first from a pension scheme trustee perspective. He believes trustees and employers are more aware of risk post crisis, leaving a much more cautious approach to scheme funding.
However his outlook is pretty bleak for employers, even as - or because - the economy is recovering.
"With the ‘green shoots of recovery' comes increased interest rates, which can impact those employers that have been clinging on by their fingertips throughout the crisis," he said.
Also he notes that rates charged on borrowed money will increase more quickly, in the main, than profitability, causing a widening gap in cashflow in and out of a business.
"This could cause businesses to become ripe for a takeover or, in a worst case scenario, insolvent. There are methods to help stave off insolvency, but the scheme sponsor needs to take urgent advice from people that fully understand pensions, insolvency and the regulatory process. The sooner they do this, the greater the number of options open to them."
Additionally, Kew said, there is the prospect that The Pensions Regulator, in fulfilling its duty to protect calls on the Pension Protection Fund (PPF), may force an employer into insolvency to bring ‘PPF drift' to an end. "This is a very real risk for employers, employees and scheme members."
Yellowtail managing director Dennis Hall believes there is still a lot of anxiety in financial markets, and among clients, though attitudes with the latter are shifting in the desperate hunt for returns.
"If you looked at equity markets, you'd think we were almost out of the woods, but the volatility in markets to any kind of stimulus change from the Fed or other central banks shows that there's a lot of underlying nervousness. Banks still don't have the liquidity they need to keep money flowing, and this is a danger.
"Clients are a little more wary of things that could go pop, but we are blighted by poor memories and an attachment to the most recent events. Now it's the stockmarket and property that is attractive, bonds very unattractive and cash paying nothing. So people will take excess risk to obtain income and returns."
Financial Tracking & Advice managing director Trevor Harrington thinks there is a long way to go to for the global economy to recover properly - but that that is how it should be.
"The slow gradual recovery which we have already seen is infinitely preferable to a short sharp boom with the obvious consequences," he said.
Right now, he is telling clients to get back into the market and take advantage of what he sees as some great opportunities.
"Short term issues will always be a market mover, such as the euro, and the end of quantitative easing, but for the longer term investor looking at three to five years, I must say that I have rarely seen such encouraging investment opportunities during the last 33 years in investment management."
He favours developing economies, calling them the "most exciting" place to invest at the moment, despite sterling valuations of them during the last year and that in the short term their limited size makes them susceptible to short term money flying in and out again from Western institutional investors.
"We should remember that these are the economies of the world which will benefit most from a gradual global recovery. Emerging economies have more to offer over the next two to five years than the developed world, which is based on the assumption of a slowly recovering world economy," he said.
A financial crisis as deep as the 2008 meltdown doesn't happen without leaving some scars, however.
Independence Wealth chief executive Rob Noble-Warren - who said he forecast the financial crisis and briefed his clients for two years before calling a withdrawal from equities in February 2008 - believes global finance is no safer than before the crash and that there are more, not less, risks on the horizon.
"We are worse off. The financial crisis revealed design flaws in the way that we regulate banks, and now we're looking at how flaws are revealed in our major industries. The question is no longer about which banks will fail as which countries will fail."
Clients, he said, are now "more aware" than before the crash, but are "more grim" about their children's future.
So what have we learned from the crash?
Hall believes we've got better at spotting the kinds of risk that brought about the recession, but doesn't think that necessarily means we will recognise another type of risk, or a new one.
"We continually keep getting caught out. It's a bit like who will blink first. If the economy is booming, and we know there's trouble somewhere, which country will pull the plug first and then lose competitive edge?
"There's more reporting by financial institutions, and higher solvency ratios in place, but the bottom line is, if the Fed pull the plug we're likely to tip into recession quickly, and then we'll find out who's exposed. Perhaps the bigger dangers will come from regulators, governments, central banks and policymakers."
Kinder Institute of Life Planning founder George Kinder says...
"Everyone talks of excess leverage as being the cause of the financial crisis, and there have been lots of 'reforms' both in the UK and the US that are helpful. But the underlying cause was disrespect for the financial industry's clients at the expense of the financial industry's anticipated profits. This lack of respect is palpable, and is measured in all the polls as "lack of trustworthiness", "lack of trust". Fundamentally it is a lack of integrity, not placing clients' interests first. There is a blindingly obvious solution to this, and that is for a company to institute across the board trustworthy policies, directives and procedures so that it stands head and shoulders above its competitors and clients flock to it."
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