Consumers and Financial Advice - UK - April 2008

ISSUES IN THE MARKET
Key issues in the market
Abbreviations
INSIGHTS AND OPPORTUNITIES
Forward thinking
Looking beyond HNW
Harnessing the Internet
Targeting a new demographic
Friends and family have major influence
Changing and maximising reputations
MARKET IN BRIEF
Key consumer findings – Sources of financial advice
Figure 1: Sources of savings and investment advice, January 2008
Internet is creating a more independent approach to financial advice
IFAs are viewed as expert, but branch staff seen as most reliable
Figure 2: Best and worst performers for word associations for each channel of advice, January 2008
The changing landscape of advice
Intermediary market size
Figure 3: Number of FSA directly authorised retail intermediary firms, by primary category, January 2006-December 2007
Main markets for financial advice
Market developments and innovations
FAST FORWARD TRENDS
Trend: Trust in Me
Financial advisers face an uphill struggle
Winning the battle for trust
Trend: Life Coaching
Advice or sales
Financial therapy
Demand for financial coaching
Hand-holding
MARKET BACKGROUND
Key points
Overview of sources of financial advice
Figure 4: Different sources of financial advice
Depolarisation – providing more choice
Figure 5: Overview of depolarisation
High street banks since depolarisation
HSBC and Barclays commit to multi-tie model
Others focus on their own bancassurance operations
THE CHANGING LANDSCAPE OF ADVICE
Key points
An ever-changing market
RDR signals wholesale changes for advice market
Figure 6: Overview of future market for advice, under current FSA proposals, June 2007
RDR has provoked widespread reaction
Industry reaction
Mixed feelings over CAR
The RDR and the mortgage and protection markets
RDR – potential impact on the market for financial advice
Generic advice – A national money guidance service
Money guidance service – impact on market for financial advice
BROADER MARKET ENVIRONMENT
Key points
Current economic context
A more cautious approach
Concerns over the housing market
Increased stockmarket volatility
Household debt continues to rise
FSA warns over economic conditions…
…however uncertainty can increase demand for advice
Making ends meet is number one priority…
Figure 7: Financial priorities over the next 12 months, by order of significance, January 2008
…although saving is still on the radar for many
Expected financial activity falls to a new low
Figure 8: Quarterly indices of expected consumer financial activity, by savings/investment, borrowing and debt repayment activity, 2002-07
More people will be managing more wealth
Figure 9: Socio-demographic composition of United Kingdom, adults aged 15+, 2006-12
Growth in ABs will lead to increased demand for advice
Increased life expectancy driving need for advice
Figure 10: Life expectancy projrections for people aged 65, by gender, 1987-2052
Greater need for self-sufficiency
Lifestyle changes increase need for advice
Increasingly complex products
INTERNAL MARKET ENVIRONMENT
Key points
The ongoing remuneration debate
Move towards CAR
Costs of regulation
The impact of Mifid
RDR reopens the qualifications debate
The PR battle
Only 12% of FOS complaints are IFA-related
Consumer apathy is a major barrier
Poor financial capability increases inertia
Figure 11: Ability to describe specific financial products, by gender, September 2006
Growth in Internet usage
Figure 12: British Internet penetration at home/work/study or elsewhere, 2001-07
Two thirds browse the Internet for information
Figure 13: Types of activity undertaken on the Internet in the last three months, October 2007
The rise of price-comparison sites
STRENGTHS AND WEAKNESSES IN THE MARKET
Figure 14: Strengths and weaknesses of the consumer market for financial advice
Strengths of market for financial advice
Weaknesses of market for financial advice
TRADE PERSPECTIVE
Participating companies
RDR prompts a mixed response
Potential implications of RDR
Fees v commission
Potential implications of money guidance service
High street will remain pivotal in providing mass-market advice
The Internet and financial advice
Looking to the future
MARKET SIZE – INTERMEDIARIES
Key points
Number of directly authorised firms continues to decline
Figure 15: Number of FSA directly authorised retail intermediary firms, by primary category, January 2006-December 2007
Steady growth in financial advice firms
Figure 16: Number of directly authorised financial advice firms, January 2006-December 2007
Strong growth in number of mortgage ARs
Figure 17: Number of directly authorised mortgage and other home finance intermediaries, January 2006-December 2007
Number of GI intermediaries falls by 12%
Figure 18: Number of directly authorised general insurance intermediaries, January 2006-December 2007
Consolidation and acquisitions to continue
MAIN MARKETS FOR FINANCIAL ADVICE
Key points
Greatest demand for mortgage and pension advice
Figure 19: Estimated ‘potential market size’ for selected financial products and advice, May 2007
Mortgage lending exceeds £360 billion in 2007
Intermediaries are a common source of advice
Figure 20: Sources of mortgage advice, December 2006
IFAs account for more than 80% of individual pension market
Figure 21: Proportional distribution of new APE premiums for UK individual pension business, by channel, 2003-07
Stockmarket volatility impacts sales of collective investments
Figure 22: Retail sales of unit trusts and OEICs- UK domiciled, 2000-07
Bancassurance gaining share in protection market
Figure 23: Proportional distribution of new APE premiums for UK individual protection business, by channel, 2003-07
IFAs losing share in retirement income market
Figure 24: Proportional distribution of premiums for new retirement income products, by channel, 2003-07
General insurance – Intermediaries under pressure
Figure 25: Proportional distribution of UK personal lines general insurance, by channel, 2002-06
MARKET OVERVIEW AND KEY PLAYERS
Market structure for financial advice
Figure 26: Basic overview of market for financial advice
 KEY PLAYERS IN IFA MARKET
The Tenet Group
Sesame
Bankhall
Simply Biz
 KEY PLAYERS IN RETAIL BANKING ADVICE MARKET
Barclays Financial Planning
Lloyds TSB/Scottish Widows
MARKET DEVELOPMENTS AND INNOVATIONS
Key points
More firms embrace online advice
HNW individuals seek advice of Peers
Commissions used to reduce premiums
FSA targets financial advice at new mums
Popular online adviser moves to TV
Wrap platform developments
BRAND COMMUNICATION AND PROMOTION
Key points
NMR
£18.7 million spent advertising financial advice in 2007
Figure 27: Overview of total adspend on financial advice services, 2003-07
Direct mail accounts for most adspend in 2007
Figure 28: Overview of media type used to advertise financial advice services, 2007
Wealth management firms increase adspend
Figure 29: Top 15 advertisers of independent financial advice, 2003-07
Scottish Widows top adspend for non-independent advice
Figure 30: Top 15 advertisers of non-independent financial advice, 2003-07
THE CONSUMER – PRODUCT AND ASSET OWNERSHIP
Key points
About Mintel’s consumer survey
Internet penetration
Overview of product ownership
Most popular products are bought rather than sold
Figure 31: Overview of product ownership (not savings or investment), January 2008
Level of debt could provide opportunities for advice
Main markets for financial advice
Over-35s are key target for advice
Figure 32: Profile of key demographics for product ownership, in main markets for financial advice, January 2008
Ownership of savings and investment products
Cash dominates savings and investment products…
Figure 33: Overview of ownership of savings and investment products, January 2008
…but inflation could encourage people to seek advice
Overview of savings and investment ownership
Typical investor is AB, male and over 45
Figure 34: Profile of key demographics for ownership of savings and investment products, January 2008
More than a third of savers have at least £10,000 in assets
Figure 35: Overview of assets held (excluding main residence), January 2008
Asset levels increase with age
Figure 36: Profile of key demographics for overview of different level of assets held, January 2008
Mid-level savers have most potential for cross-selling
Figure 37: Level of assets held by overall product owership, January 2008
High levels savers more sophisticated
Figure 38: Level of assets held by type of savings and investments held, January 2008
THE CONSUMER – SOURCES OF ADVICE
Key points
Half of savers have used a bank branch for advice…
Figure 39: Sources of savings and investment advice, January 2008
…but less than a fifth expect to do so in the future
Overview of source for advice
IFA
Internet – Internet in general, Internet (financial) forums
Accountant or solicitor
Employer – Adviser through work, employer
Age is major influence on source of advice
Figure 40: Key demographic profile of the sources of advice used in the past for savings and investments, January 2008
IFAs appeal to young affluent women
Figure 41: Key demographic profile of the sources of advice people expect to use in the future, January 2008
IFA usage linked to wide product ownership
Figure 42: Overall financial product ownership, by sources of advice used for savings and investment advice, January 2008
Pension holders more likely to consult IFA and Internet in future
Figure 43: Overall financial product ownership, by sources of advice most likely to be used in the future for savings and investment advice, January 2008
Two thirds with more than £30,000 in savings have consulted an IFA
Figure 44: Level of assets held by sources of advice used in the past for savings and investments, January 2008
Mid-level savers most likely consult branch staff in the future
Figure 45: Level of assets held by sources of advice most likely to be used in the future for savings and investments, January 2008
Four out of ten savers have used more than five sources of advice
Figure 46: Number of sources of financial advice used in the past, January 2008
Only a quarter take advice on important financial decisions
Figure 47: Agreement with statements about saving and investing, January 2008
Over-45s most likely to seek expert advice
Figure 48: Profile of key demographics for those in agreement with statements about saving and investing, January 2008
Two thirds with poor advice had consulted IFAs/branch staff
Figure 49: Sources of advice used in the past for saving and investments, by agreement with statements about saving and investing, January 2008
Own research or expert advice?
THE CONSUMER – BARRIERS TO ADVICE
Key points
Three fifths of adults prefer to do own financial research
Figure 50: Attitudes towards selected barriers to advice, January 2008
Cost is barrier for young, but commission is issue for older adults
Figure 51: Attitudes towards selected barriers to advice, by gender and age, January 2008
ABs are most concerned about commission
Figure 52: Attitudes towards selected barriers to advice, by socio-economic group and family status, January 2008
Pension holders most likely to lack trust in advice
Figure 53: Attitudes towards selected barriers to advice, by overall product ownership, January 2008
Mid-level savers keen to do own research
Figure 54: Attitudes towards selected barriers to advice, by level of assets held, January 2008
Internet research leads to lower levels of trust
Figure 55: Agreement with statements about saving and investment, by sources of advice used in the past for savings and investments, January 2008
THE CONSUMER – ATTITUDES TO CHANNELS OF ADVICE
Key points
Internet provides value for money but is seen as risky
Figure 56: Best and worst performers for word associctaions for each channel of advice, January 2008
IFAs provide expertise but branch staff are seen as safe pair of hands
Figure 57: Responses to words associated with knowledge and risk, by different channels of advice, January 2008
Telephone sales staff are the least trusted
Figure 58: Responses to words associated with trust, by different channels of advice, January 2008
IFAs compete with Internet over cost
Figure 59: Responses to words associated with cost, by different channels of advice, January 2008
Bank branches are seen as welcoming and IFAs as intimidating
Figure 60: Responses to words associated with emotional factors, by different channels of advice, January 2008
High-level savers see IFAs as more reliable than bank branch staff
Figure 61: Responses to words associated with knowledge and risk of IFA and bank branch channels, by level of assets held, January 2008
Low-level savers least likely to trust IFAs
Figure 62: Responses to words associated with the trustworthiness of IFA and bank branch channels, by level of assets held, January 2008
A quarter of mid-level savers believe bank branch advice offers VFM
Figure 63: Responses to words associated with the cost of IFA and bank branch channels, by level of assets held, January 2008
High-level savers more likely see IFAs as reassuring
Figure 64: Responses to words associated with the emotional factors of IFA and bank branch channels, by level of assets held, January 2008
Half of IFA users trust in their expertise
Figure 65: Responses to words associated with knowledge and risk of IFA and bank branch channels, by sources of advice used in the past for saving and investments, 2008
Internet appears to erode trust in main channels
Figure 66: Responses to words associated with the trustworthiness of IFA and bank branch channels, by sources of advice used in the past for saving and investments, 2008
IFA costs could see people turn to media for advice
Figure 67: Responses to words associated with the costs associated with IFA and bank branch channels, by sources of advice used in the past for saving and investments, 2008
IFA users broadly positive about bank branch staff
Figure 68: Responses to words associated with emotional factors about IFA and bank branch channels,, by sources of advice used in the past for saving and investments, 2008
Targeting opportunities – Attitudes to the main channels of advice
Figure 69: Categorisation of word association statements
More than half are positive about bank staff as a source of advice
Figure 70: Overview of attitudes towards IFAs and Bank/building society branch staff, January 2008
Who is open to IFA advice?
Figure 71: Key demogrpahic findings for IFA attitudinal target groups, January 2008
Key targets for branch advice
Figure 72: Key demogrpahic findings for Bank branch attitudinal target groups, January 2008
Some people remain indifferent to financial advice
Figure 73: Cross tabulation of groups 1) IFA customers and 2) bank branch staff customers, January 2008
APPENDIX – BROADER MARKET ENVIRONMENT
Figure 74: Total PDI, consumer expenditure and savings at current prices, 2003-12
Figure 75: Number of mortgage approvals by type of loan, 1999-2007
Figure 76: Overview of household debt, balances outstanding, 1997-2007
APPENDIX: THE CONSUMER – PRODUCT OWNERSHIP
Figure 77: Overall product ownership, by gender, age, soco-economic group, household income, housing tenure, region, daily newspapaers, sunday newspapers, daily internet usgage, mobile phone providers and supermarket usage, January 2008
Figure 78: Types of savings and investment products held, by gender age, soco-economic group, household income, housing tenure, region, daily newspapaers, sunday newspapers, daily internet usgage, mobile phone providers and supermarket usage, January 2008
Figure 79: Level of assets held, by gender age, soco-economic group, household income, housing tenure, region, daily newspapaers, sunday newspapers, daily internet usgage, mobile phone providers and supermarket usage, January 2008
APPENDIX: THE CONSUMER – SOURCES OF ADVICE
Figure 80: Sources of advice used in the past for savings and investments, by gender age, soco-economic group, household income, housing tenure, region, daily newspapaers, sunday newspapers, daily internet usgage, mobile phone providers and supermarket used, January 2008
Figure 81: Sources of advice likely to be used in the future for savings and investments, by gender age, soco-economic group, household income, housing tenure, region, daily newspapaers, sunday newspapers, daily internet usgage, mobile phone providers and supermarket used, January 2008
Figure 82: Number of sources of advice used in the past by channel of advice, January 2008
Figure 83: Agreement with statements about saving and investing, by gender, age, socio-economic group, gross annual household income and housing tenure, January 2008
Figure 84: Agreement with statements about saving and investing, by region, daily papers, weekend papers, daily personal internet usage and supermarket usage, January 2008
APPENDIX:THE CONSUMER – ATTITUDES TO CHANNELS OF ADVICE
Figure 85: Responses to words associated with knowledge and risk of different channels of advice, by level of assets held, January 2008
Figure 86: Responses to words associated with the trustworthiness of different channels of advice, by level of assets held, January 2008
Figure 87: Responses to words associated with the cost of different channels of advice, by level of assets held, January 2008
Figure 88: Responses to words associated with the emotional factors of different channels of advice, by level of assets held, January 2008
Figure 89: Responses to words associated with knowledge and risk of different channels of advice, by sources of advice used in the past for saving and investments, 2008
Figure 90: Responses to words associated with the trustworthiness of different channels of advice, by sources of advice used in the past for saving and investments, 2008
Figure 91: Responses to words associated with the costs associated with different channels of advice, by sources of advice used in the past for saving and investments, 2008
Figure 92: Responses to words associated with emotional factors about the different channels of advice, by sources of advice used in the past for saving and investments, 2008
Figure 93: Number of positive/negative views held greater than the number of negative/postive views held – Independent financial advisers
Figure 94: Number of positive/negative views held greater than the number of negative/postive views held – Staff at bank/building society branch