Consumers and Financial Advice - UK - April 2008

Published by: Mintel International Group Ltd.

Published: Apr. 1, 2008 - 91 Pages

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 ... 50

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

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. 113

APPENDIX - BROADER MARKET ENVIRONMENT

Figure 74: Total PDI, consumer expenditure and savings at current prices, 2003-12

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

Figure 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

APPENDIX: RESEARCH METHODOLOGY

Abstract

• Social and demographic trends suggest the need for financial advice will continue to increase. However, low levels of financial engagement continue to undermine market expansion.
• The market still suffers from relatively high levels of mistrust, which stems from previous miss-selling scandals and perception of commission-ledbias.
• The current economic slowdown will create challenging conditions for those operating within the market for financial advice, particularly for those offering mortgage and other borrowing advice.
• FSA proposals to reform the retail investment market and the introduction of a national money guidance service will have major implications for the future structure and outlook of the market.
• The Internet is becoming an important source of financial advice, this is set to increase in the future and will pose a major challenge to traditional forms of financial advice.
• Consumer research highlights the difference in attitudes towards various channels of advice, in terms of knowledge, cost, trust and other emotional factors.

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