Report: UK IFAs 2007 TOC

Overview
- Catalyst
- Summary
- Methodology
Executive Summary
- The future outlook for the IFA market remains positive
  - IFAs remain the dominant distribution channel and there is little sign that their position will be significantly challenged in the near future
  - The Retail Distribution Review, as it currently stands, may enable alternative channels to compete against IFAs
  - However, the RDR is an ongoing process and there is clearly much discussion still to be undertaken
- SIPPs, REITs & Wraps are the products currently most in demand by UK investors
- The increasing number of acquisitions show that companies are making serious headway into the distribution network in the UK
  - Friends Provident' s acquisition of Sesame and AXA' s purchase of the Thinc Group are two of the biggest acquisitions
    - Friends Provident' s moves in the market have been particularly strategic
    - AXA completed its purchase of Thinc Destini
- There is a tough road ahead for IFAs in having to cope with various regulatory proposals
  - In particular TCF, MiFID, the RDR and increased capitalization of IFA businesses
  - Lack of capitalization is a problem and IFAs must look at securing a recurring income stream
Table of Contents
Table of figures
Table of tables
Market Focus
- Market Size
- Market Drivers
- Investor desire for self-control has proved a decisive factor in relation to choice of product
  - SIPPs are currently the most popular product among IFAs
  - Adequately servicing the mass market is still a problem area for IFAs
    - Many IFAs have chosen to shift their attention upmarket
    - Some advisors have abandoned specialization in pensions and investments to offer mortgage advice
    - Equity release plans are becoming more popular but there are still few advisers willing to advise clients on them
  - Many IFAs believe there are insufficient income products in the UK market
  - Ethical investments are also receiving some attention, but growth is plagued by a lack of clarification
  - Advisers should therefore take ethical investments more seriously and consider how to appropriately advise clients on them
- The IFA market sees little competition from other distribution channels
  - IFAs remain the dominant distribution channel and there is little sign that their position will change in the near future
  - The RDR, as it currently stands, may enable alternative channels to compete against IFAs
- SIPPs, REITs & Wraps are the products currently most in demand by UK investors, and are most suited for IFA sales
- Technological innovation has centered around fund supermarkets and Wrap platforms
  - Wrap platforms are becoming an increasingly prominent feature of the UK investment market
    - However, some advisers remain skeptical and are not so keen to embrace technological advances
    - The emergence of ' super Wraps' is blurring the boundary between manufacturer and distributor
  - Although fund supermarkets have particular growth potential, research suggests that half of advisers do not use them
    - In spite of slow take-up, fund supermarkets are adding flexibility to their platforms
- Many IFAs believe the fees versus commission argument to be redundant
  - IFA focus should reside on informing clients of an accurate figure for fees
  - And a move to replace commission with customer-agreed remuneration is welcomed by most in the industry
- Market Structure
  - The total number of IFA firms in the UK market has decreased by 3% over the past year
  - The number of network members has fallen by almost 35% since 2003
  - Total IFA firm turnover increased by a minor amount between 2006 and 2007
  - The number of IFAs selling life and pensions products has decreased in 2007
  - In addition to the decline in the number of IFA firms selling life and pensions products, the value of sales in this area has also decreased
  - The average IFA firm has experienced a decrease in turnover from life and pensions products
    - However, turnover is largely dependent upon product area
  - Product choice drives turnover
    - Regional IFAs focus on personal pensions, life assurance and investment bonds
    - Network firms are selling the most profitable products
  - Operational structure of IFA firms
    - Just over 80% of the known market has a turnover of less than £500,000
- The RDR has been the main piece of regulation in the UK IFA market
  - The review looks at areas such as commission structures, bias and low sector profitability
  - There remains widespread disagreement with the points raised in the review and calls for more discussion to take place
    - The review may place a significant amount of pressure on IFAs, whose existence may be under threat as a result of new categorization
  - Industry ' professionalism' should not be solely measured via qualifications
    - Monitoring ongoing professional training would be useful in ensuring advisers have the necessary qualifications and practical experience
  - Debate exists surrounding use of the term ' independent'
    - Introducing maximum commission may be one of the few ways to guarantee consumer confidence and eliminate suspicion of bias
    - A key point to be considered is whether the review will actually result in any benefit for the consumer
  - The RDR is an ongoing process and there is clearly much discussion still to be undertaken
  - The Otto Thoresen review may provide a better idea as to whether a generic advisory concept can be achieved
  - In addition to the RDR, TCF continues to be a serious consideration for IFA firms
  - MiFID is also a consideration for advisers with European clients ahead of the November 1st implementation deadline
  - Research suggests that the FSA is increasingly targeting smaller IFA firms
- Market Forecasts
  - IFAs' sales of unit-linked bonds are predicted to far surpass that of any other single premium product
  - Savings-related term assurance is expected to dominate the regular premium life market into 2011
  - As for single premium pension products, personal pensions and SIPPs are expected to dominate over the next five years
  - The regular premium pension landscape will be dominated by group personal pensions up to 2011
- Data
Competitor Focus
- Products and Innovation
  - Rather than focusing on specific products/innovation, competitors have tended to shift upmarket
- There have been some major IFA partnerships, but they seem to have had little effect on the overall shape of the market
  - Friends Provident' s acquisition of Sesame and AXA' s purchase of the Thinc Group are two of the biggest acquisitions
    - Friends Provident' s moves in the market have been particularly strategic
    - AXA completed its purchase of the Thinc Destini Group
    - Thinc has created a portal for non-regulated products
  - Tenet has signed agreements with various providers in order to pick up orphaned clients
  - Standard Life has taken up a 25% stake in Threesixty
  - Aegon purchased five IFAs to create Origen, as well as a 60% stake in Positive Solution
  - This acquisition activity shows that companies are making serious headway into the distribution network in the UK
  - Sesame' s provider survey shows there is still a big gap between the top and bottom providers in the way they interact with advisers
- There has been a significant amount of M&A activity in the IFA market over the last year
  - Sumus has completed takeovers of both FSAS and Deverill Black IFAs
  - Hampton has created a new IFA firm with the purchase of Victoria Financial
  - Towry Law has moved to pick up the advisers, assets and clients of MLP' s UK division
- Key Players
- Turnover per firm
  - Sesame continues to occupy the top spot in the list of the largest IFA networks by turnover
  - The top 10 market players have seen their market share eroded
- Sales staff per firm
- Turnover per salesperson
  - On average, smaller IFA networks tend to have more efficient sales forces in terms of revenue per salesperson
  - Sesame leads the pack in terms of the key players in the UK IFA market
- Sales and Marketing
  - As ever, emphasis on service is the key method of differentiation for the vast majority of IFA firms
    - However, research suggests that IFAs are not providing the high-quality service demanded by clients
  - Attracting new blood into the IFA industry will be a key challenge going forward
- There is a tough road ahead for IFAs in having to cope with various regulatory proposals
  - TCF, MiFID, the RDR and increased capitalization of IFA businesses will challenge the industry
- It is crucial for advisers to focus on securing a recurring income stream and better capitalizing their business
APPENDIX
- Definitions
  - Single premium policy
  - Regular premium
  - New business
  - Wrap accounts
- Product definitions
  - Life-based savings products
  - Life assurance
  - Single premium life
  - With-profit bond
  - Unit-linked bond
  - Income and growth bonds
  - Guaranteed Equity bonds
  - Distribution bonds
  - Purchased Life Annuities
  - Other bonds
  - Annual premium life
  - Endowment policy
  - Whole of Life Insurance
  - Term Assurance
  - Income Protection
  - Critical Illness
  - Collective Life
  - ISAs
  - Personal Pensions
  - Stakeholder Pensions
  - Group personal pensions
  - DSS rebates
  - Employer-sponsored stakeholder pension (ESS)
  - SIPPs (self-invested personal pensions)
  - FSAVC (Free-Standing Additional Voluntary Contributions)
- ABI definitions of distribution channels
  - Independent Financial Advisors (IFAs)
  - Direct sales forces
  - Tied agents
  - Multi-tied agents
  - Bancassurance
  - Direct marketing
  - Telesales
  - Other
- Matrix-Data definitions
  - IFA firm types
  - Grossed Annual Aggregate Turnover
  - IFA salespeople
- Methodology
  - Regression analysis is unsuitable forlife and pensions forecasting
  - Datamonitor uses a qualitative forecasting methodology for life and pensions
- Further reading
- Ask the analyst
- Datamonitor consulting
- Disclaimer
- List of Tables
  - Table 1: Total number of IFA firms selling life & pensions products, segmented by product, 2006 and 2007
  - Table 2: Contribution of life & pensions products to IFA firms' gross aggregate turnover, 2006-07, (£m)
  - Table 3: Gross aggregate turnover per IFA firm selling life & pensions products, 2006-07 (£000s)
  - Table 4: Total UK IFA firms by turnover, 2006-07
  - Table 5: Sales of single premium life products via the IFA channel, segmented by product type, 2002-06, (£m)
  - Table 6: Sales of regular premium life products via the IFA channel, segmented by product type, 2002-06, (£m)
  - Table 7: Sales of single premium pension products via the IFA channel, segmented by product, 2002-06, (£m)
  - Table 8: Sales of regular premium pension products via the IFA channel, segmented by product, 2002-06, (£m)
  - Table 9: Total number of IFA firms in the UK market, 2006-07
  - Table 10: Gross IFA turnover in the UK, segmented by type of firm, 2006-07, (£m)
  - Table 11: Average IFA turnover, segmented by type of firm, 2006-07, (£m)
  - Table 12: Number of IFAs in the UK selling life and pensions products, segmented by product type, 2006-07
  - Table 13: Number of regional IFA firms in the UK market and their gross aggregate turnover, 2007
  - Table 14: Number of network IFA firms in the UK market and their gross aggregate turnover, 2007
  - Table 15: Forecast sales of single premium life products via the IFA channel, 2007-11, (£m)
  - Table 16: Forecast UK sales of regular premium life products via the IFA channel, 2007-11, (£m)
  - Table 17: Forecast UK sales of single premium pension products via the IFA channel, 2007-11, (£m)
  - Table 18: Forecast UK sales of regular premium pension products via the IFA channel, 2007-11, (£m)
  - Table 19: Turnover of the UK' s IFA networks by competitor, 2006
  - Table 20: Sales size of the top 20 IFA firms in the UK by turnover, 2007
  - Table 21: Turnover per salesperson within the top 20 IFA firms by turnover, 2007 (£000s)
- List of Figures
  - Figure 1: Unit-linked bonds currently account for more than three quarters of total single premium life sales through the IFA channel
  - Figure 2: Mortgage-related & savings-related term assurance accounts for approximately two thirds of total regular premium life sales through the IFA channel
  - Figure 3: Personal pensions continued to dominate the single premium pensions market in 2006
  - Figure 4: Group personal pensions continued to dominate the regular premium pensions market in 2006
  - Figure 5: Network member numbers have decreased significantly since 2006
  - Figure 6: Network members have declined substantially since 2003
  - Figure 7: Total IFA turnover increased by 1.3% between 2006 and 2007
  - Figure 8: National IFA firms have seen a significant decrease in average turnover per firm since 2006
  - Figure 9: The number of IFAs selling life assurance products has continued to decline in 2007
  - Figure 10: Personal pensions are the most popular product among regional IFA firms
  - Figure 11: IFA Network members frequently sell products that bring in high sales revenue
  - Figure 12: Smaller firms account for more than four fifths of the IFA market
  - Figure 13: Just over 80% of the known market has a turnover of less than £500,000 in 2007
  - Figure 15: Despite strong distribution bond growth, unit-linked bonds will dominate IFA sales of single premium life products over the next five years
  - Figure 14: Distribution bonds will show strong growth over the next 5 years
  - Figure 16: Savings-related term assurance will dominate regular premium life sales into 2011
  - Figure 17: Personal pensions and SIPPs will be responsible for the highest IFA sales in the single premium pension market over the next five years
  - Figure 18: Group personal pensions dominate IFAs sales of regular premium pensions over the next five years
  - Figure 19: Sesame had the largest annual turnover in 2006
  - Figure 20: Sesame leads the way in terms of sales force in 2007
  - Figure 21: Virtual Net Europe and Sesame have the most efficient sales forces out of the top 20 IFA firms in 2007
  - Figure 22: ' Quasi-Delphi' forecasting technique

UK IFAs 2007

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