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The Future of UK Investment Bonds 2009

Datamonitor
June 2, 2009
264 Pages - SKU: DFMN2280571

Abstract Table of Contents Search inside this report Related Reports

Countries covered: United Kingdom

Introduction

The global financial crisis is having an impact on the investment bonds market. In spite of current challenges, providers can capitalize from consumers who are seeking out safer investment options that might give them a good return.

Scope

Examines the current shape of the investment bond industry and explore factors that are currently limiting new business.
Assesses strategies to combat barriers to consumer engagement with life-based investment bonds.
Identifies key competitors and examines their differing strategies in the UK investment bond market.

Highlights

Investment bonds need to attract the more cautious and less affluent consumer. Unit-linked bonds offer consumers the flexibility of spreading their investment risk across several asset classes all within one investment contract. It also offers transparency as the consumer can see how well or poorly the investment fund is doing.

Reasons to Purchase

Gain valuable insight into how to react to the latest innovations and developments in the investment bond market.
Understand the investment bond market, the distribution trends and the key drivers of new business.
Access Datamonitor's forecasts for the market and valuable knowledge of how the sector is set to develop.

Overview: Catalyst; Summary
EXECUTIVE SUMMARY: The total single premium life market grew slightly over the last five years; Providers should highlight the attractiveness of investment bonds in retirement planning; Wrap platforms are an important technology for the distribution of investment bonds; Table of Contents; Table of figures; Table of tables
THE FUTURE OF THE UK INVESTMENT BONDS MARKET: Introduction to the investment bond product; An investment bond is a life assurance policy primarily structured as in investment; A unit-linked bond is a single premium contract that offers flexibility and transparency with the possibility of better returns; The 'money market bond' category is a new classification from the ABI; Distribution bonds generate income based on the underlying assets of the distribution fund; With-profit bonds offer low volatility to investors; The 'guaranteed bond' category is a classification introduced by the ABI in 2008; The guaranteed equity bond is a unit-linked bond with some guarantee of capital return; Guaranteed income bonds and guaranteed growth bonds both secure the holder's capital; The market for investment bonds grew by 4% over the last five years; Sales of unit-linked bonds fell heavily as economic factors continue to weigh heavily against writing new business; The growth of distribution bonds faltered in 2008; The popularity of guaranteed bonds saw a reversal of fortunes; The with-profit bonds market performed well in 2008; The newly categorized money market bonds recorded healthy sales; The single premium life market will contract initially before seeing growth; Provider ability to supply guaranteed bonds will cause sales of guaranteed bonds to decline in 2009; Sales of unit-linked bonds will decline as consumers demand liquidity and elements of protection against market volatility; The market for money market bonds will contract over the next five years; Future sales of with-profit bonds will rise while sales of distribution bonds fall in tandem; Providers should put efforts into making consumers aware of the nature of risk and its link to return; Consumers are risk averse and shunning equity-based investments; Consumers lack confidence in equity-based products and are seeking safe haven in cash accounts; Investment bonds also need to attract to the cautious and less affluent consumer; Regulatory issues are impacting upon the distribution of investment bonds; The TCF initiative aims to create a more efficient and effective market; TCF will help investors be better informed about the risks associated with investment bonds; High commissions and poor quality of advice on the part of advisors are concerns in the investment bond market; Quality of advice accompanying investment decisions has come into question as investment bonds perform poorly; There is a misconception in the market that bonds are a no- or low-risk investment; However, poor quality service does exist in the bond market; The RDR aims to increase consumer access to financial products and services through offering a dual system of financial sales and advice
THE FUTURE OF PRODUCT INNOVATION IN INVESTMENT BONDS: Providers should highlight investment bonds as an alternative retirement strategy to revive sales; Investment bonds offer flexible retirement planning strategies for those approaching retirement; The ability to withdraw money in the lifetime of the investment makes investment bonds attractive to the changing retirement planning landscape; Investment bonds also offer the customer the advantage of income tax deferral; Providers should highlight the complementary nature of investment bonds to ordinary pension plans; Investment bonds are suitable for different investment strategies; A bond is also an efficient investment for inheritance tax planning; Investment bond providers should target those approaching retirement who want to secure their retirement ambitions; The rapidly ageing and increasingly affluent UK population is a potential key market; Providers have produced innovations to suit the risk-averse nature of today's investors; Providers have made attempts to satisfy the demand for guarantees and capital protection by risk wary customers; However, providers have found it difficult to protect itself against the risk of guarantees becoming too onerous; Technological innovations have centered around wrap platforms; There are eight key areas where a wrap platform will help overcome challenges; The tax complexity of bonds and income drawing options are making an online service attractive to IFAs; Wrap platforms are an efficient means for administering the whole client portfolio; Wrap platforms may have reached a proliferation peak; Datamonitor developed a definition for a 'pure wrap' that has become a market standard; Providers have put efforts towards supporting IFAs to make correct and decisive decision-making for their clients; AIG writes the highest in new business premiums in the investment bond market; AIG comes top of competitor rankings in the investment bond market despite recent negative press; AIG has been at the forefront of product innovation
THE FUTURE OF INVESTMENT BOND DISTRIBUTION: Distribution of investment bonds remains focused on the IFA channel; IFAs are the dominant distribution channel for investment bonds; Advisors are increasingly distributing non-unit linked bond products and shying away from unit-linked bonds; Unit-linked bond distribution is moving away from IFAs; Non unit-linked bond distribution through IFAs has grown rapidly sharply; The use of wrap technology by advisors will be a prominent driver of the UK investment bond market; The right wrap proposition will improve an IFA's client service and profitability; The emergence of IFA-developed wraps is blurring the boundary between manufacturer and distributor; Advisors are not keen to embrace technological advances; Value-focused concerns keep advisors skeptical regarding wrap propositions; The magnitude of picking the right wrap proposition delays uptake; IFAs face a challenge to improve their take-up of wrap platforms
APPENDIX: Definitions; Asset manager / Asset management company; Bank; Bid offer spread; Collective Investment Scheme; Exchange-Traded Fund; Fund of funds; Fund supermarket; Hedge fund; MiFID; Non-retail market; Retail market; Structured products; UCITS; Telesales; Other; Further reading; Ask the analyst; Datamonitor consulting; Disclaimer
List of Tables: Table 1: Single premium life market, new business premiums 2004-2008, £m APE; Table 2: Forecast single premium life market, new business premiums 2009-2013, £m APE; Table 3: The top 20 investment bond competitors, new business premiums 2008, £m APE; Table 4: Single premium life market, new business premiums segmented by distribution channel, £m APE; Table 5: Unit linked bond distribution 2004-2008, £ million APE; Table 6: Non-unit-linked bond distribution 2004-2008, £ million APE; Table 7: How interested would you be in any of these online services from a product provider?
List of Figures: Figure 1: The total single premium life market grew by 4% between 2004 and 2008 but saw a sharp decline in 2008; Figure 2: The market for investment bonds will suffer further declining sales in 2009; Figure 3: The accumulators are a significant part of the population in the UK; Figure 4: Pressure on the working age population is increasing as more people begin to retire; Figure 5: AIG was the top investment bond provider in 2008; Figure 6: IFAs are the main distribution channel for investment bonds; Figure 7: IFAs' share of unit-linked bond distribution continues to fall in 2008; Figure 8: Non-unit-linked bonds are distributed more by IFAs; Figure 9: IFAs do not show an interest in support services using new technology

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The Future of UK Investment Bonds 2009

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