Inflow projections for UK retail fund managers look decidedly weak for the upcoming calendar year, as investors, and those who advise them, struggle to decide on where they should invest in 2009.

According to the Investment Managers Association (IMA) in Britain, retail investors have withdrawn funds in three of the past four months, although the IMA pointed that October outflows of £500m only represented 0.25% of total funds under management and commented: “There are no signs of large scale selling by retail investors.”

Nevertheless, the prognosis remains extremely gloomy for retail fund managers.

In past years, fund managers enjoyed an ISA (individual savings account) season, as sales surged before April 5th, as investors exercised their annual ISA allowance of £7,000.

The next ISA season could be one of the worst ever, with confidence low and many concerned about their job security, mortgage payments and household bills.

Financial advisers may struggle to find a convincing story for prospective retail investors.

To date equities have been the bedrock of ISA sales, but not many retail investors are overly keen to buy shares right now.

Of course, there is a case for buying equities precisely at this time, but markets could still have further to fall, or could take time to recover.

For example, Morgan Stanley has a probability of 35% on the FTSE 100 index of UK equities being 2,500 in 12 months (it is currently stands at around 4,300).

In addition, the ISA season has been tarnished by the marketing hype created around a ‘hot’ sector which then died.

Tech stocks, commercial property, commodities and absolute returns funds are all examples of this.

This still leaves the question of where investors will park their money.

There have been a number of unprecedented scares with banks this year, so few investors are likely to go chasing the highest rates for fear of ‘being too good to be true’, particularly against a back drop of falling interest rates.

Professional investors may be looking at distressed debt or diversified alternatives, but both look far to racy for retail investors in the current climate.

Perhaps the likeliest option will be for product providers to come up with some ‘invest in an ISA now, allocate it later’ funds for those who don’t want to lose their ISA allowance, but who are also worried about most potential investments.