Consumers and Financial Advice - UK - April 2008

Table of Contents

• 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
• 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, 2003-12Figure 75: Number of mortgage approvals by type of loan, 1999-2007Figure 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