Is There Any Money in Advice? - UK - August 2007

Table of Contents

• Issues in the Market
• Key issues covered in the report
• Abbreviations
• Insights and Opportunities
• There are clear opportunities for the banking sector to exploit
• Mortgages and pensions represent particularly attractive markets
• Inheritance tax planning and ISAs also provide distinct opportunities
• Advisers need to do more to promote the value of their services
• They also need to allay consumer fears over cost and rebuild trust
• Market in Brief
• A variety of factors are driving demand for financial advice
• Advisers' key markets have seen strong growth in recent years
• Trade perspective: Consumers remain resistant to fee-based advice
• Mintel' s research findings: Sources of advice
• Mintel' s research findings: Demand for advice
• Mintel' s research findings: Drivers and deterrents
• Market Factors -- Driving the Market Onwards
• Key points
• A variety of factors will influence demand for financial advice
  • Figure 1: Factors influencing the demand for financial advice
• Rising life-expectancy has heightened the need for advice...
  • Figure 2: Expectation of life at birth, by gender, 1900-2050
• ...particularly when it comes to pensions
• Erosion of state support is raising the need for self-provision...
• ...and not only in the pension market
• Workplace benefit provision is also being eroded
• An end to the job for life
• Self-employment presents new problems
• Changing lifestyles are boosting demand for advice...
• ...as well as pushing finance down the list of priorities
• Rising debt levels have also created a need for advice
  • Figure 3: Total household debt, balances outstanding, 1992-2006
• Increased product complexity...
• ...and a lack of clarity
• Market Constraints
• Key points
• A lack of trust is constraining demand for financial advice
• The industry needs to improve its tarnished image
• High street banks are no exception
• Consumer apathy is also felt to be constraining the market
• This problem is exacerbated by low levels of financial literacy...
• ...although the FSA is working to combat this issue
• The Internet has allowed some consumers to take personal control
• Online tools risk marginalising advice
• Main Markets for Financial Advice
• Key points
• Financial advice covers a broad spectrum of needs
• Pensions
• A key market for financial advisers
  • Figure 4: Individual pension sales, 2001-06
• Growth overstated by transfer business
• A-day changes are having a significant impact on the market
• Investments
• The investments market is also important to the advice industry
  • Figure 5: Net retail unit trust/OEIC sales, 2001-06
• Tax planning
• Inheritance tax receipts soar...
  • Figure 6: Inheritance tax, receipts and number of estates liable, 2000/01-2005/06
• ...ensuring that tax planning will provide increasing opportunities
• Mortgages
• Mass-market advice opportunities
  • Figure 7: Gross mortgage advances, by type of loan, 2001-06
• Financial Advice -- The Market Structure
• Key points
• More than 5,000 financial advice firms are registered with the FSA
  • Figure 8: Number of directly authorised financial advice firms and mortgage intermediaries, 2006 and 2007
• Depolarisation has altered the structure of the industry
• Financial Advice -- Market Size
• Key points
• Is there any money in advice?
• Profitability varies widely
• Mortgage and pensions markets offer the most potential
  • Figure 9: Potential market size versus need for advice, May 2007
• The IFA sector still dominates the main markets for financial advice
  • Figure 10: Single-premium individual investment business income, 2006
• Bancassurers hold a significant share of regular-premium life sales
• Figure 11: Regular-premium individual life business income, 2006
• IFAs enjoy a large share of individual pension product sales
  • Figure 12: Regular-premium individual pension business income, 2006
  • Figure 13: Single-premium individual pension business income, 2006
• The High Street Bank in a Depolarised World
• Key points
• Banks enjoy potential advantages in offering financial advice
• There are now a range of business models that can be adopted
• HSBC was the first bank to announce a shift to multi-tied status
• Barclays has also adopted a multi-tied approach
• Other banks have retained emphasis on their bancassurance arms
• IFAs -- Fees or Commission?
• Key points
• Remuneration has traditionally been via commission payments...
• ...but this system has led to accusations of adviser bias
• Depolarisation signalled a shift from commission to a menu of fees
• There still appears to be resistance to fee-based advice...
• ...but the proportion of consumers opting to pay fees is rising
• Further FSA reforms could speed up the trend to fee-based advice
• The new system would incorporate a wider definition of ' fees'
• Brokers -- A Role for the Specialists?
• Key points
• The need for mortgage advice has heightened in recent years
• Brokers have benefited from this increase in choice and complexity
• Mortgage brokers are now a common source of advice
  • Figure 14: Where consumers would go for advice regarding a mortgage or a remortgage, December 2006
• The intermediary sector looks set to retain a position of prominence
• Home Inspection Plans will provide a boost for estate agents
• Trade Perspective
• Opinion is evenly divided over the current state of the market
• A broad range of factors appear to be hindering market growth
• Regulatory requirements have added to the cost base
• Investments and pensions are seen as particularly profitable
• Most consumers are still resistant to fee-based advice
• The drive for higher-level qualifications could boost the industry
• The Consumer -- Sources of Advice
• Key points
• Survey background
• Branch staff are the most common source of financial advice
  • Figure 15: Sources used for advice on financial matters, May 2007
• Implications and opportunities
• Sources of advice vary by age and socio-economic status
  • Figure 16: Sources used for advice on financial matters, by age/socio-economic group, May 2007
• Half of all adults have sought advice from a professional adviser
  • Figure 17: Sources used for advice on financial matters, by gender, age, socio-economic group, lifestage and Mintel' s Special Groups, May 2007
• Implications and opportunities
• Scottish consumers typically turn to branch staff for advice
  • Figure 18: Sources used for advice on financial matters, by working status, income, TV region and ACORN group, May 2007
• Broadsheet readers tend to prefer professional advisers
  • Figure 19: Sources used for advice on financial matters, by technology users, newspaper readership, commercial TV viewing and supermarket usage, May 2007
• ABC1s account for two thirds of the IFA customer base
  • Figure 20: Professional adviser customer profiles, by gender, age, socio-economic group and lifestage, May 2007
• Almost a quarter of consumers have used four or more sources
  • Figure 21: Number of sources used for advice on financial matters, May 2007
• Implications and opportunities
• More than a quarter of ABs have used five or more sources
  • Figure 22: Number of sources used for advice on financial matters, by gender, age and socio-economic group, May 2007
• Branch staff and family or friends dominate the single-source group
  • Figure 23: Repertoire analysis on number of sources used for advice on financial matters, May 2007
• Dissecting the sample according to sources of advice used
  • Figure 24: Typologies based upon sources of advice used for financial matters, by gender, age, socio-economic group and TV region, May 2007
• The Consumer -- Demand for Advice
• Key points
• Pensions and mortgages present opportunities for financial advisers
  • Figure 25: Proportion of adults who think selected financial products are relevant to them, by gender, May 2007
• Implications and opportunities
• Four in ten 45-54-year-olds expressed an interest in pensions
  • Figure 26: Proportion of adults who think selected financial products are relevant to them, by age group, May 2007
• Tax key for older consumers
• Inheritance tax planning is relevant to almost a quarter of ABs
  • Figure 27: Proportion of adults who think selected financial products are relevant to them, by socio-economic group, May 2007
• A mortgage is the product most consumers would seek advice on
  • Figure 28: Proportion of adults who would consider using a financial adviser to arrange various products, by gender, May 2007
• Implications and opportunities
• The 25-44s are most likely to want advice on mortgages
  • Figure 29: Proportion of adults who would consider using a financial adviser to arrange various products, by age group, May 2007
• C2s are likely to be a key target audience for certain products
  • Figure 30: Proportion of adults who would consider using a financial adviser to arrange various products, by socio-economic group, May 2007
• Prospective mortgage customers are most likely to approach an adviser
  • Figure 31: Adults who would approach a financial adviser as a proportion of those who think products are relevant to them, May 2007
• 10 million consumers would use an adviser to arrange a mortgage
  • Figure 32: Estimated ' potential market size' for selected financial products, May 2007
• Mortgage and pensions markets are particularly attractive
  • Figure 33: Potential market size versus need for advice, May 2007
• Around one in ten consumers hold savings of more than £50,000
  • Figure 34: Amounts consumers hold in savings and investments, May 2007
• Implications and opportunities
• ABs tend to have comparatively large amounts of savings
  • Figure 35: Amounts consumers hold in savings and investments, by gender, age, socio-economic group and age/socio-economic group, May 2007
• Third age consumers tend to hold relatively large sums in savings
  • Figure 36: Amounts consumers hold in savings and investments, by lifestage, income, TV region and newspaper readership, May 2007
• People with large sums in savings are more likely to use an adviser
  • Figure 37: Proportion of adults who would consider using a financial adviser to arrange various products, by amounts consumers hold in savings and investments, May 2007
• The Consumer -- Drivers and Deterrents
• Key points
• Lack of product knowledge is a key reason for seeking advice
  • Figure 38: Reasons for seeking professional financial advice, by gender, May 2007
• Implications and opportunities
• Three in ten 25-44s are driven by the fear of making a mistake
  • Figure 39: Reasons for seeking professional financial advice, by age group, May 2007
• Almost a third of ABs want to receive non-biased information
  • Figure 40: Reasons for seeking professional financial advice, by socio-economic group, May 2007
• People with high savings balances value non-biased advice
  • Figure 41: Reasons for seeking professional financial advice, by amounts consumers hold in savings and investments, May 2007
• Some consumers feel they can cope without a financial adviser
  • Figure 42: Concerns about using a professional adviser, by gender, May 2007
• Implications and opportunities
• The cost of advice is more of a concern to younger consumers
  • Figure 43: Concerns about using a professional adviser, by age group, May 2007
• ABs often prefer to conduct their own research
  • Figure 44: Concerns about using a professional adviser, by socio-economic group, May 2007
• Savers with high balances fear advice will be driven by commission
  • Figure 45: Concerns about using a professional adviser, by amounts consumers hold in savings and investments, May 2007
• The Future
• What does Mintel' s research tell us?
• Advisers need to do more to promote the value of their services
• The slow drift from commission- to fee-based advice will continue
• Product Ownership -- Detailed Demographics
  • Figure 46: Most commonly held financial services products, by gender, age, socio-economic group, marital status, lifestage, Mintel' s Special Groups, working status, household income, tenure, region, ACORN category, media usage and supermarket usage, May 2007
  • Figure 47: Next-most commonly held financial services products, by gender, age, socio-economic group, marital status, lifestage, Mintel' s Special Groups, working status, household income, tenure, region, ACORN category, media usage and supermarket usage, May 2007
• Advice Used -- Detailed Demographics
  • Figure 48: Sources of advice used, by gender, age, socio-economic group, marital status, lifestage, Mintel' s Special Groups, working status, household income, tenure, region, ACORN category, media usage and supermarket usage, May 2007
• Relevant Financial Services Products -- Detailed Demographics
  • Figure 49: Most relevant financial services products, by gender, age, socio-economic group, marital status, lifestage, Mintel' s Special Groups, working status, household income, tenure, region, ACORN category, media usage and supermarket usage, May 2007
  • Figure 50: Next most relevant financial services products, by gender, age, socio-economic group, marital status, lifestage, Mintel' s Special Groups, working status, household income, tenure, region, ACORN category, media usage and supermarket usage, May 2007