UK Investment Bonds 2008
Datamonitor
October 24, 2008 10 Pages - SKU: DFMN1933639
|
|
Countries covered: United Kingdom
Introduction
The report provides analysis of the UK investment bond market. Insight is given into market size and growth, including Datamonitor forecasts to 2012. There is analysis of the impact of changes to capital gains tax on the viability of the bond, and the key sector issues and distribution channels are also reviewed.
Scope- Special feature examines wrap platforms in the distribution of bonds, focusing on how this technology can enable a better functioning market.
- Insight into the product and technological innovations that are taking place in the market to ensure the continued viability of the investment bond.
- Reviews the economic turmoil, tax and regulatory changes that are challenging the investment bond market.
- Details of current gross single new premium investment bond business and forecasts the market to 2012.
Highlights
Wrap technology is the way forward for promoting and selling investment bonds, and there are eight key areas where a wrap platform overcomes the challenges of investment bonds. these challenges arise from the flexibility of the bond product.
Despite the possible negative impact of changes to CGT, the investment bond market continues to grow with gross single premium new business representing over one third of the total UK fund market in 2007.
Economic turmoil is the most challenging issue facing the market, although the regulatory framework is placing demands on providers and advisors and changes to taxation have significantly impacted on the bond market.
Reasons to Purchase- Unique insight into the investment bond market, particularly the tax and regulatory changes that are driving innovations in the market.
- Provides details of current gross single new premium investment bond business and forecasts the market to 2012.
- Insight into the product and technological developments that are taking place in the investment bond market.
|
- Overview
- Catalyst
- Summary
- Executive Summary
- Wrap platforms are an important technology for overcoming the challenges of investment bonds
- There has been strong growth in guaranteed income and growth bonds
- The investment bond market is facing a number of challenges
- There remains life in the investment bond
- Table of Contents
- Table of figures
- Table of tables
- SPECIAL FEATURE: THE ROLE OF WRAP PLATFORMS IN THE DISTRIBUTION OF BONDS
- Wrap technology is the way forward for promoting and selling investment bonds
- Wrap platforms have evolved from the funds supermarkets of the late 1990s
- Datamonitor developed a definition for a 'pure wrap' that has become a market standard
- Wrap accounts are set for a period of expansion and then consolidation
- There remains a challenge for IFAs to improve their take-up of wrap platforms
- The flexibility of bonds makes them an attractive investment to a wide range of customers
- There are eight key areas where a wrap platform will help overcome challenges
- The RDR is altering the distribution landscape, with mass affluent and high net worth investors set to benefit from a higher level of advice
- New FSA guidelines require investment bonds to come with full and focused financial advice
- The complexity around bonds can make it difficult to determine the optimum investment portfolio
- Wrap platforms accommodate the FSA's move toward a more transparent model concerning charges
- Innovative example: Clerical Medical has worked with IFAs to help them move toward a technologically based business model
- TCF is being integrated into wrap platforms to ensure customers receive full product information
- The tax complexity of bonds and income drawing options are making an online service attractive to IFAs
- Innovative example: Clerical Medical has devised online calculators to help IFA clients with investment bond tax calculations
- Individual investor circumstances need to be considered and wrap platforms make 'switching' easy
- Wrap platforms are an efficient means for administering the whole client portfolio
- Innovative product and marketing example from Australia: BT Financial Group operates a 'baby wrap', providing an insightful case study via its website
- Innovative products can be brought quickly to market via a wrap platform
- Innovative example: Zurich forms a partnership with wrap platform Ascentric to offer its Sterling investment bond online to IFAs
- IFAs are encouraged to adopt a more efficient business model
- Much of the work for saving the bond has been done; now strategy needs to turn to technology
- MARKET CONTEXT
- Introduction to the investment bond product
- An investment bond is a life assurance policy primarily structured as an investment
- A unit-linked bond is a single premium contract that offers flexibility and transparency with the possibility of better returns
- High income bonds offer high income payouts to investors but carry the risk of loss of capital
- 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 new ABI classification
- 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
- Various products have evolved from traditional with-profits insurance bonds to compete with the unit trust market
- Unit-linked bonds remain the mainstay but investors are moving toward guaranteed and distribution bonds
- Life insurance companies sell investment bonds and a favorable tax structure has been key to this core part of their business
- Under the old regime the tax structure gave a clearer advantage to investment bonds
- In the 2008 Budget, the chancellor announced dramatic changes to capital gains tax
- The tax treatment of investment bonds has not changed
- Investment bonds are taxed within the income tax regime rather than as capital gains
- The investment bond market continues to grow with gross single premium new business representing over one third of the total UK fund market in 2007
- The investment bond market has grown on a par with the mutual fund market
- Investment bonds have increased in popularity during 2007
- Unit-linked bonds dominate the single premium life market, although there has been keen growth in income and growth bonds
- The unit-linked market has underpinned growth in the single premium bond market
- Guaranteed equity bonds are a risky investment and IFAs have shied away from them
- With-profits bonds have probably had their day as a market leader
- Guaranteed income and growth bonds are proving to be popular new investment products
- Guaranteed income bonds pay a regular income while guaranteed growth bonds guarantee capital appreciation
- Distribution bonds have also increased in popularity between 2003-2007
- Going forward, the appropriateness of a bond for any individual investor is more complex to determine, but it remains a viable investment product
- An initial fear of disaster in the bond world has not materialized, but providers have put a lot of work into achieving this outcome
- The best investment product depends on individual circumstances but there are three key facts which keep a bond broadly attractive as an investment
- Only 5% of the population pays CGT
- The majority of bond holders are basic rate tax payers at the time of encashment and the changes to CGT make bonds even more attractive for these investors
- An investment bond is a flexible product that can be adapted as an individual's circumstance change
- There are clear circumstances (both general and specific) where a bond is an advantageous investment
- Investors in mutual funds pay tax on gains and on income which gives bonds an advantage
- A higher rate tax payer can receive income from a bond and defer tax
- Bonds can be assigned to avoid an income tax charge
- A bond is an efficient investment for inheritance tax planning
- An investment bond can help a retired person avoid the age allowance trap
- Investment bonds are not included as means for individuals needing long term care
- It is not all favorable news for investment bonds
- Providers have made some product, service and technological innovations to help IFAs and clients understand the complexities of investment choices
- Clerical Medical is forging ahead in the innovation stakes
- Clerical Medical has devised online calculators to help IFA clients determine the appropriateness of bonds
- Clerical Medical has channeled a lot of resources into encouraging IFAs to use its technology platform
- Legal and General has broker-consultants who work closely with IFAs
- Life companies are tending to offer a full range of bond products while emphasizing their flexibility, especially the ability to switch without incurring a tax charge
- Greater focus on the offshore bond market will also help providers bridge any gap
- SECTOR ISSUES
- Economic turmoil is the most challenging issue faced by the market
- The regulatory framework is placing demands on providers and advisors
- 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
- When investments turn sour blame is assigned to commission-induced product bias and quality of advice but should it be a case of 'let the buyer beware'?
- There is a misperception in the market that bonds are a no- or low-risk investment so it is important that initiatives such as TCF and the RDR are implemented to protect buyers and sellers
- Poor quality service does exist
- Innovative example: Novia adds TCF management tools to wrap platform
- The RDR aims to increase consumer access to financial products and services through offering a dual system of financial sales and advice
- Innovative example: Fidelity FundsNetwork introduces 'RDR proof' investment solutions which include bonds
- Concerns about providers in the investment bond market include poor returns and high exit fees
- Poor returns and high exit fees in a underperforming market leave investors in an impossible situation
- Concerns about product structure have led to innovations to offer greater flexibility and transparency
- Changes to taxation have significantly impacted on the investment bond market
- Product and technological innovation are important issues in the UK bond market
- DISTRIBUTION CHANNELS FOR INVESTMENT BONDS
- IFAs dominate the distribution of life products in the UK
- IFAs dominate the provision of investment products and financial advice
- The IFA channel accounts for over 70% of total life and pensions sales in the UK
- IFAs are well-established in the market but many are shifting their focus upmarket
- Some differences have emerged in the distribution of unit-linked and non-unit-linked bonds
- Unit-linked bond distribution has moved away from IFA/whole of market advisors toward single tie advisors
- Non-unit-linked bond distribution by IFAs has grown rapidly, making up for the fall-off in unit linked bonds
- Wrap technology is the way forward for IFAs promoting and selling life products
- APPENDIX
- The changes to CGT which took effect in April 2008
- The changes to CGT are more far-reaching than their intended target
- The tax structure of investment bonds
- A tax charge can arise whenever a ""chargeable event"" occurred
- Top slicing relief
- An investment bond carries a 5% tax deferred withdrawal allowance
- 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
- Methodology
- Bibliography
- Further reading
- Ask the analyst
- Datamonitor consulting
- Disclaimer
- List of Tables
- Table 1: Total retail investment fund market (investment bonds and mutual funds), £ million (gross), 2003-07
- Table 2: Forecast single premium life market, £ million APE, 2008-12
- Table 3: Total single premium life market, £ million APE, 2003-07
- Table 4: Clerical Medical online calculator for IFAs
- Table 5: Use of use offshore bonds by IFA clients
- Table 6: The TCF Centre is an innovative portal to help monitor TCF outcomes
- Table 7: Fidelity FundsNetwork 'RDR proof' investment solutions
- Table 8: Unit linked bond distribution, £ million APE, 2003-07
- Table 9: Non-unit-linked bond distribution, £ million APE, 2003-07
- List of Figures
- Figure 1: The future of the retail distribution of investment products has a simple landscape
- Figure 2: Wrap platform process structure
- Figure 3: BT offers a entry level 'baby wrap' to investors
- Figure 4: Products that offer guarantees and smoothing compete with the unit-linked market
- Figure 5: Tax structure of an investment bond
- Figure 6: Total retail investment fund market (investment bonds and mutual funds), £ million (gross), 2003-07
- Figure 7: Forecast single premium life market, £ million APE, 2008-12
- Figure 8: Total single premium life market, £ million APE, 2003-07
- Figure 9: Financial Advisors dominate life and pensions new business
- Figure 10: Unit linked bond distribution, £ million APE, 2003-07
- Figure 11: Non-unit-linked bond distribution, £ million APE, 2003-07
"
More United Kingdom Brokerages Reports
Collective Investment Schemes in the UK - Industry Market Research Report by
IBISWorld
Collective Investment Schemes in the UK This industry includes the administration of UK domiciled (non-real estate) investment trusts and unit trusts/open-ended investment companies, along with the ...
Investment Banking & Securities Brokerage in the UK - Industry Market Research Report by
IBISWorld
Investment Banking & Securities Brokerage in the UK Investment banks and brokers act as intermediary between those wishing to raise capital (the ‘sell side’) and those ...
Fund Management Activities in the UK - Industry Market Research Report by
IBISWorld
Fund Management Activities in the UK This industry includes portfolio and fund management activities provided on a fee or contract basis for individuals, businesses and others. ...
A Comprehensive Study Of The UK Private Equity Companies Market In 2010, Rating & Valuing Each Of The 205 Companies That Operate In Today's Market by
Plimsoll Publishing Ltd.
The Plimsoll Analysis provides you with the most up to date and comprehensive analysis of the top 9 companies operating the market. It is ...
Ethical Investment Products in the United Kingdom by
MarketLine
Introduction Ethical Investment Products in the United Kingdom industry profile provides top-line qualitative and quantitative summary information including: market size (value 2006-10, and forecast to 2015). ...
See all reports like this >>
More United Kingdom Reports
A Comprehensive Study Of The UK Video Conferencing Equipment Market In 2010, Rating & Valuing Each Of The 30 Companies That Operate In Today's Market by
Plimsoll Publishing Ltd.
The Plimsoll Analysis provides you with the most up to date and comprehensive analysis of the top 9 companies operating the market. It is ...
A Comprehensive Study Of The UK Tableware Market In 2010, Rating & Valuing Each Of The 166 Companies That Operate In Today's Market by
Plimsoll Publishing Ltd.
The Plimsoll Analysis provides you with the most up to date and comprehensive analysis of the top 9 companies operating the market. It is ...
A Comprehensive Study Of The UK Surveyors & Valuers Market In 2010, Rating & Valuing Each Of The 943 Companies That Operate In Today's Market by
Plimsoll Publishing Ltd.
The Plimsoll Analysis provides you with the most up to date and comprehensive analysis of the top 9 companies operating the market. It is ...
A Comprehensive Study Of The UK Subsea Engineering Market In 2010, Rating & Valuing Each Of The 142 Companies That Operate In Today's Market by
Plimsoll Publishing Ltd.
The Plimsoll Analysis provides you with the most up to date and comprehensive analysis of the top 9 companies operating the market. It is ...
A Comprehensive Study Of The UK Structural Engineering Consultancy Market In 2010, Rating & Valuing Each Of The 300 Companies That Operate In Today's Market by
Plimsoll Publishing Ltd.
The Plimsoll Analysis provides you with the most up to date and comprehensive analysis of the top 9 companies operating the market. It is ...
See all reports like this >>
Share this report
Other tasks Related Markets Brokerages Reports Free Alert Me service Receive bi-weekly email alerts on new market research Sign Up Today!
|
