Amid the fallout from the Madoff affair, it could have been easy to miss one of the rare nuggets of good news to emerge in recent months from the wealth management industry.

Last week, the Investment Management Association (IMA) reported that in November retail investors had put more than £1 billion into unit trusts and open-ended investment vehicles, the highest inflow in 18 months once the effect of the seasonal spike in ISA sales is stripped out. Working out trends from one month’s data in an autumn of unprecedented financial turmoil is hazardous. Neither should it be forgotten that the European mutual fund sector is on course to notch up a record outflow of cash this year: an estimated €400 billion (£392 billion), or about one tenth of its assets under management.

Yet the IMA numbers are a welcome straw in the wind for those seeking signs of an oft-predicted return to a savings culture in Britain. Setting aside the as yet uncertain damage from Madoff, there are several reasons to suggest that there should be a steady resurgence in personal investing in the coming months.

First, with Bank of England base rate sitting at 2 per cent, its lowest level since 1952 – and by consensus predicted to fall to 1 per cent in short order – the appetite of the mass affluent to seek an alternative to leaving cash on deposit has never been greater. That helps to explain the phenomenal interest generated last month by Close Brothers’s short-lived offer of a guaranteed 7 per cent return for savers prepared to lock up funds in its Premium Gold account for a year. Elsewhere, Rensburg Sheppards and Rathbone Brothers, the private client fund managers, have reported increased interest in gilts and cash management.

Second, investment products should indirectly benefit from falling house prices – or rather, the waning of interest in residential property as an alternative source of retirement income.

Third, and perhaps most critically, recessions tend to be accompanied by a recovery in the household savings ratio. As the chart below shows, the proportion of income that people set aside usually rises in periods of economic retrenchment, increasing to double digits in the wake of the oil shock of the 1970s and again during the recession of the early 1990s. Fox-Pitt Kelton (FPK), the stockbroker, points out that the UK household saving rate fell to only 2.7 per cent in 2007, against a ten-year average of 4.9 per cent. The UK ratio is also abnormally low in comparison with other G7 countries.

The flipside? That a contracting economy implies that levels of personal wealth will also fall in nominal terms, and that the number of people joining the high-net-worth bracket – commonly defined as liquid assets of £350,000 or more – will start to slow. Further, with consumers unable to maintain previous levels of spending by borrowing against their houses, they may prefer to eat into their savings in the short term.

But assuming that the medium-term trend is towards wealth accumulation, who are the potential beneficiaries? Given the prospect of near-term volatility, FPK steers investors towards those wealth managers with the highest proportion of recurring revenues, where confidence in 2009 profit forecasts should be greater. On FPK’s numbers (see table above), Hargreaves Lansdown, Rathbone Brothers and St James’s Place Capital all have 70 per cent of their sales that might be deemed recurring. Hargreaves notably draws defensive, annuity-like income from its Vantage platform, its direct-to-investor fund supermarket that allows clients to hold and manage their investments through a single account, and has more than £9 billion of assets under management. The problem is that, at 168p, or 17 times current-year earnings, that attraction is reflected in the premium rating of Hargreaves’s shares. The same applies to St James’s Place, albeit that, given its life insurance characteristics, embedded value is a potentially more useful investment benchmark than earnings multiples. On that measure, the shares, at 190p, sit near their 2003 lows. Elsewhere, Brewin Dolphin, at 105¼p, or 11 times current-year earnings, and yielding 7.2 per cent, looks reasonable value.

All wealth managers are geared to some extent to the wider stock market and have fallen roughly in line with the FTSE all share. But this also means that investors looking for recovery should consider their shares, and not just their products, as a potential home for their cash.

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