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ISAs - UK - August 2009

ISSUES IN THE MARKET
Key issues
Market definitions
Abbreviations
FUTURE OPPORTUNITIES
Scope to expand the market further…
… but these are uncertain times
Pricing is key
Convenience and accessibility are vital too
Appeal to the mindset of younger adults
Consumer-friendly equity ISAs
MARKET IN BRIEF
ISA penetration increases
Subscriptions are also up
Wider savings environment
New industry developments
Provider rankings
ISA distribution mix
Advertising activity
The typical ISA subscriber is an AB aged 45+
Saver behaviour
Saver attitudes
INTERNAL MARKET ENVIRONMENT
Key points
Recent changes to simplify the scheme…
Figure 1: Recent and proposed changes to the ISA scheme, 2004-20
… have been welcomed by the investment industry…
… but there’s still scope for improvement say some
Allowance upped
New scheme structure
Figure 2: Illustration of annual investment limits, 2009/10 versus 2010/11
ISA transfers to be speeded up
Tax relief on equity ISAs a red herring?
Calls to reinstate 10% tax credit
BROADER MARKET ENVIRONMENT
Key points
Summary of the main market and macroeconomic developments
Less appetite for spending
Implication
With interest rates slashed, savers suffer reduced returns
Figure 3: Average annual changes in the bank base rate, CPI and RPI - UK, 2000-09
Implications for savers
Stockmarket turmoil – have we passed the bottom?
Figure 4: FTSE 100 and FTSE All Share – daily index movements, May 2000-May 2009
Implication for investors
The crunch effect
Number of higher-rate taxpayers declined in 2008/09
Figure 5: Number of basic and higher-rate taxpayers, 1998/99-2008/09
Insight and implication
Another target group, the over-50s, are growing in number
Figure 6: Size of the UK population, by age group, 1999-2013
Insight and implication
COMPETITIVE CONTEXT
Key points
ISAs complement other savings and investment products
Cash ISAs are the second-most popular savings and investment product
Figure 7: Penetration of ISAs and other savings and investment products, April 2009
Measuring the cash ISA gap
Market inhibitors
Cash ISA rates fare poorly against taxable accounts
Investors shift in favour of bonds
STRENGTHS AND WEAKNESSES IN THE MARKET
Figure 8: ISAs – strengths, weaknesses, opportunities and threats, 2009
WHO’S INNOVATING?
Key points
Price is the main differentiator
Rate-led business
Figure 9: Average month end cash ISA interest rates, May 03-May 09
Recent new cash ISA launches
Broad array of investment funds available to retail investors
Recent investment fund activity
LV= launches three funds targeted at different risk profiles
New Investec fund seeks to appeal to those who want capital protection
Low-charging Vanguard enters the UK investment market
TRADE PERSPECTIVE
About the participants
2009 ISA season
Crisis impact
Increase in annual limits welcomed
Mid-year chaos?
Promising outlook
MARKET SIZE AND FORECAST
Key points
£220 billion held in ISAs
Figure 10: Value of funds held in ISAs, 2004-08
New ISA subscriptions rose 5% in 2008/09
Figure 11: Number of ISA accounts and amounts subscribed, 1999-2000-2008/09
Insight and implication
Cash ISA subscriptions increased in 2009/10, while equity ISA subscriptions fell
Figure 12: Number of ISA accounts and amounts subscribed, segmented by type, 1999-2000-2008/09
Implication
Average subscription to equity ISA remained at previous year’s level
Figure 13: Average subscription per account, 1999-2000-2008/09
2008 saw ISA investors become more cautious
Figure 14: Total net retail unit trust/OEIC sales and net retail ISA sales, 2004-08
Confidence returning?
Winners and losers
ISA market forecast: A mixed bag
Figure 15: Forecast of new ISA business, by component, 2008/09-2013/14
Factors incorporated
MARKET SHARE
Key points
Cash ISA market has seen some new entrants over the past couple of years
M&A activity shakes up the cash ISA rankings
Figure 16: Provider share of cash ISA customer base, April 2009
Government-backed providers have grown share
Figure 17: Top 11 cash ISA providers, by customer share (rebased), 2009
Insight and implication
Building societies fare well in the cash ISA market
Figure 18: Share of cash ISA balances outstanding, by main types of provider, March 2009
Leading ISA fund managers
Fidelity tops ISA fund rankings
Figure 19: Top 15 unit trust/OEIC ISA fund managers, by value of funds under management, 2007-09
Steady consolidation
COMPANIES AND PRODUCTS
 SELECTED COMPANY PROFILES
Fidelity
Legal & General
Lloyds Banking Group
Nationwide Building Society
RBS Group
Grupo Santander
BRAND COMMUNICATION AND PROMOTION
Key points
Many ISA providers cut back their ISA advertising in 2008/09
Figure 20: Total advertising expenditure on ISAs, by product category, 2004/05-2008/09
Insight and implication
Figure 21: Average monthly adspend on ISAs as a percentage of annual adspend, 2008
The press is the preferred media channel
Figure 22: Proportional distribution of adspend on ISAs, by main media, 2004/05-2008/09
Halifax maintains position as largest ISA advertiser
Figure 23: Top 15 ISA advertisers, 2007/08 and 2008/09
CHANNELS TO MARKET
Key points
Cash ISAs are predominately sold direct to consumers
IFAs are the top advice source for equity ISA investors
Figure 24: Preferred sources of investment advice, by cash and equity ISA holders, April 2009
Equity ISAs: the main routes to market
All channels experienced a decline in gross ISA fund sales in 2008
Figure 25: Gross retail sales of unit trust and OEIC ISAs, by distribution channel, 2004-08
Insight and implication
Fund supermarkets continue to be the dominant sales channel
Figure 26: Proportional representation of gross retail unit trust and OEIC ISA sales, by channel, 2004-08
The rise of the fund supermarkets
What they offer
The leading fund platforms
THE CONSUMER – VALUE OF INVESTIBLE ASSETS
Key points
Survey background
Half of UK adults have some level of savings
Figure 27: Value of savings and other investible assets, April 2009
Wealth increases with age
Figure 28: Value of savings and other investible assets, by age, April 2009
Insight and implication
One in four ABs are in the affluent to HNW category
Figure 29: Value of savings and other investible assets, by gender and socio-economic group, April 2009
THE CONSUMER – ISA OWNERSHIP
Key points
Cash ISA is the second most popular savings product
Figure 30: Savings and investment products owned, by age, April 2009
Consumers favour fixed-rate products
Take-up of ISAs has increased over the past year…
Figure 31: Change in ISA penetration between 2008 and 2009
Insight and implication
…but there’s scope to expand the market further
Figure 32: ISA gap assessment, April 2009
Insight and implication
55-64-year-olds use ISAs the most
Figure 33: Savings and investment products owned, by age, April 2009
Insight and implication
Gender variation
Figure 34: Savings and investment products owned, by gender and socio-economic group, April 2009
Insight and implication
ABs really like ISAs
Insight and implication
Personal wealth is a key determiner of ISA ownership
Figure 35: Savings and investment products owned, by level of investible assets, April 2009
Insight and implication
CHAID analysis identifies older ABs as the main target group for ISAs
Figure 36: Target groups identified for the ISA market, April 2009
THE CONSUMER – INVESTOR BEHAVIOUR
Key points
Around one in four contributed the maximum to their cash ISA
Figure 37: Agreement with statements about ISA usage, April 2009
Insight and implication
Some customer churn
Insight and implication
More make regular payments than deposit lump sums
Insight and implication
Over a fifth of savers withdrew money from their cash ISA in 2008/09
Figure 38: Agreement with awareness statement, April 2008
Regular saver products will appeal most to the under-35s
Figure 39: Agreement with statements about ISA usage, by age, April 2009
Insight and implication
Men are much more inclined to deposit lump sums into their cash ISA
Figure 40: Agreement with statements about ISA usage, by gender and socio-economic group, April 2009
THE CONSUMER – TARGETING OPPORTUNITIES
Key points
Instant access is a popular feature
Figure 41: Agreement with statements about ISAs and saving in general, April 2009
Insight and implication
Merely half of all equity ISA investors think ISAs are a great way to save
Insight and implication
A quarter of 55-64-year-olds say low returns makes saving pointless
Figure 42: Agreement with statements about ISAs and saving in general, by age, April 2009
Insight and implication
One in five ABs think now is a good time to invest in equities
Figure 43: Agreement with statements about ISAs and saving in general, by gender and socio-economic group, April 2009
Insight and implication
Further analysis
APPENDIX – OWNERSHIP OF ISAS
Figure 44: Ownership of cash and equity ISAs, by demographic, April 2009
APPENDIX – DEMOGRAPHIC PROFILE OF ISA SUBSCRIBERS
Figure 45: Demographic profile of cash and equity ISA subscribers, April 2009

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