Financial Services Marketing to the Affluent : Market Research Report

Financial Services Marketing to the Affluent

Published by: Key Note Publications Ltd

Published: Mar. 1, 2009 - 256 Pages

Executive Summary
1. Introduction: THE TOPIC; OBJECTIVES; METHODOLOGY; ORIGINAL RESEARCH; PROBLEMS IN THE RESEARCH PROCESS; DEFINITION
2. Strategic Overview: MARKET DYNAMICS; Identifying the Affluent; Changing Profiles of Affluence; Market Status and Values; DISTRIBUTION; COMPETITIVE STRUCTURE; Leading Companies; Foreign Presence; ADVERTISING AND PROMOTION; THE CONSUMER; MARKET FORECASTS; Downward Spiral; Responsibilities Rising; Flexible Opportunities?; KEY POINTS
3. Homing in on High Incomes: INCOME ACCELERATION AT THE TOP; TOUGH FOR WOMEN TO ATTAIN HIGH INCOMES; THE LONDON EFFECT; THE TOP 11,000: THOSE WITH INCOMES IN EXCESS OF £1M; Missing Local Knowledge; KEY POINTS
4. Managing Wealth: MONEY POURED INTO HOUSING; WEAK SAVINGS CULTURE; Savings and the Over-60s; AIDING WEALTH ACCUMULATION; Preparing For a New Economy; `SOLID' Investments; Wealth Management From High-Street Banks; Barclays Wealth; HSBC Premier and HSBC Private Bank; RBS Wealth Management; St James's Place Group/Lloyds Banking Group; Specialist Competitors: A Selection; Fisher Wealth Management; Close Wealth Management; Tilney Private Wealth Management; KEY POINTS
5. Fatal Debt: PAYING OFF DEBT CUTS CONSUMPTION OR SPURS RAPID INFLATION; RAIDING SAVINGS TO REPAY DEBT; KEY POINTS
6. Sourcing Financial Advice: PROBLEMS AND CONFUSION; CLEARER LABELLING; IS IT PROFESSIONAL TO ADVERTISE?; CONSOLIDATION; KEY POINTS
7. Promotion: MAIN MEDIA ADVERTISING EXPENDITURE; Expenditure on Financial Services Advertising Remains High; Advertising Expenditure in the Year Ending March 2006; Advertising Expenditure in the Year Ending March 2007; Advertising Expenditure in the Year Ending March 2008; Advertising Expenditure in the Year Ending September 2008; Main Media Advertising Trends in Key Product Categories; The Rise of Comparison Sites and Savings Products, and a Possible Revival For Mutuals; AGENCIES IN THE UK; TELEVISION; NEW MEDIA; SPONSORSHIP; GEO-DEMOGRAPHIC PROFILING; CACI; EuroDirect; Experian; Focus on Customer Retention; KEY POINTS
8. An International Perspective: INTRODUCTION; FOGGY VIEWS; MASSIVE SUMS AT RISK IN DERIVATIVES CONTRACTS; STATE AID AT A HIGH PRICE; `TOO BIG TO FAIL'; KEY POINTS
9. PEST Analysis: POLITICAL FACTORS; Nationalisation; ECONOMIC FACTORS; The Teetering Economy; SOCIAL FACTORS; Society Suffering; TECHNOLOGICAL FACTORS; Use of Modern Technology Is Double-Edged; KEY POINTS
10. Consumer Dynamics: OVERVIEW; PENSIONS; Ownership of Defined-Benefit Pensions — Unexpected Survey Results Suggest Confusion; Pensions Gap: Big Lead by Social Grade A in Defined-Contribution Pensions; Popularity of Property as a Pension Sinks — But Retains Some Allure For Social Grade A; Pension Shortfalls a Substantial Concern For Social Grade A — Almost Half Worry About Retirement Income; SAVINGS; Struggle to Increase Savings — Most in Social Grade A Have Not Added to Savings; Savings Depletion Is More Widespread Than Accrual — Four in Ten Withdraw Savings; Even Among Social Grade A, One in Seven People Lack Savings; DEBT; Top Socio-Economic Group Largely Avoids Taking on Additional Debt; Social Grade A Out in Front For Reducing Their Debts; Only a Quarter of Those in Social Grade A Are Completely Debt-Free; ONLINE BANKING; Online Banking Is a Mainstream Activity, But the Old Are Left Out; Confidence in Online Banking Matches Its Use — But Big Scope For Faith in This Channel to Increase; INDEPENDENT FINANCIAL ADVICE; Doubts About the Value of Independent Financial Advice — But More Than Half of Social Grade A Think It Is Worth Paying For; Financial Advice Is Unaffordable For More Than a Third of Respondents, and Even For Some in Social Grade A; TAX AVOIDANCE; Groundswell of Opposition to Tax Avoidance by Wealthy Individuals; MEANS TESTING; A Real But Minority Issue: Only One in Three Blame Means Testing For Low Savings; KEY POINTS
11. Company Profiles: INTRODUCTION; ABBEY (SANTANDER); Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; ALLIANCE & LEICESTER (SANTANDER); Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; AVIVA; Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; BARCLAYS; Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; CO-OPERATIVE FINANCIAL SERVICES; Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; HBOS (MERGED WITH LLOYDS TSB IN JANUARY 2009 TO FORM LLOYDS BANKING GROUP, NOW CONTROLLED BY UK GOVERNMENT); Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; HSBC; Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; LEGAL & GENERAL; Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; LLOYDS TSB (MERGED WITH HBOS IN JANUARY 2009 TO FORM LLOYDS BANKING GROUP, NOW CONTROLLED BY UK GOVERNMENT); Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; NATIONAL SAVINGS & INVESTMENTS; Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; NORTHERN ROCK (UK GOVERNMENT, THROUGH UK FINANCIAL INVESTMENTS LTD); Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; THE POST OFFICE (ROYAL MAIL HOLDINGS); Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; PRUDENTIAL; Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; THE ROYAL BANK OF SCOTLAND (CONTROLLED BY UK GOVERNMENT, THROUGH UK FINANCIAL INVESTMENTS LTD); Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; RSA INSURANCE; Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; STANDARD LIFE; Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; ZURICH FINANCIAL SERVICES; Corporate Strategy, Advertising and Distribution; Profitability; Future Company Developments; THE FINANCIAL SERVICES COMPENSATION SCHEME; GOVERNMENT INFLUENCE; KEY POINTS
12. The Future: WORLD TRENDS; UK PERSPECTIVES; PROSPECTS FOR AFFLUENT SUB-GROUPS; Graduates in Relatively Secure Jobs; Entrepreneurs; Family Businesses; Directors of Large Companies; Entertainment/Media Stars; Public-Sector Top Jobs; Heirs and Heiresses of Fortunes/Trust-Fund Beneficiaries; Spouses/Partners of Wealthy Persons, Alive or Deceased; THE AFFLUENT IN THE UK; KEY POINTS
14. Further Sources: Associations; Companies — Financial; Companies — Marketing; Publications; General Sources; Government and Official Sources; Other Sources; Key Note Sources

Abstract

Services for students used to be an important part of financial services companies' strategy, because a degree was a passport to a secure income. This is no longer the case. Recent routes to affluence have included: achieving commercial success as an entrepreneur; appointment to a directorship in a large company; making an impact in the entertainment or media industries; attaining a top job in the public sector; receipt of a large inheritance; or marrying into money.

Social grade A, part of the focus of this report, is composed of managers and senior officials and professionals. Public-sector jobs account for a high proportion of those in the `A' category, and public-sector employees enjoy better pension provision than most in the private sector. However, not all `A' occupations are well rewarded financially, and there are all sorts of other people, such as sports professionals and entertainers, who have large incomes but sometimes for a limited period. Individuals with high incomes have had the easiest access to credit, including mortgages. Falling property prices are a trap for mortgaged managers and professionals in socio-economic group A, in particular.

The banking landscape underwent a seismic shift in 2008. The Royal Bank of Scotland (RBS), the UK's second-largest banking group, fell under government control. Northern Rock and Bradford & Bingley's mortgage arm were nationalised. The Government also backed a deal for Lloyds TSB to take over HBOS and emerged with a large minority stake in the resulting Lloyds Banking Group; this later became a majority holding. HSBC and Barclays were the only major UK banking groups to remain free of substantial UK state influence, although in the case of Barclays, two Middle Eastern investors increased their stake to almost one-third.

The experiment of demutualising building societies, which began in 1989 with Abbey, failed totally. Not one of the demutualised societies remained independent. By 2009, the surviving building societies and other mutual societies were gaining kudos for being `safer' than their commercial rivals.

Financial services providers invest heavily in customer and prospect profiling, adding motivational and lifestyle data to basic geo-demographics. The marketing consultancy services provided by leading suppliers of geo-demographic classifications are expected to grow while the wider economy is in recession. In financial services, important brand values include trust, confidence and competence, but these attributes have suffered serious damage from the late 1990s onwards.

Key Note's consumer research found that although one in four respondents in social grade A had reduced their levels of indebtedness during the previous year, only a quarter were completely debt-free as at December 2008. Furthermore, one in seven had no savings at all at the end of 2008, a higher proportion than in mid-2006. Those in social grade A were more likely than average to be worried about having inadequate income in retirement. More than half of them thought that it was worth paying for independent financial advice — but even in this relatively affluent group, two in every 13 said they could not afford to pay for such advice.

Affluent households pumped their money into property in 2007. Spending on property dwarfed the amounts put into pensions and investments. Only households in the top 10% by income are, on average, saving adequately for retirement. Nurturing savings will have to become a social priority for the future, and banks will need to acquire more deposits as they reduce their leverage ratios. Only just over one in every six households in the UK had £20,000 or more in savings in 2007.

The huge debt overhang in the UK stands less chance of being paid off as the economy shrinks. The British Isles are so over-dependent on services and so lacking in a real productive economy that the task of regeneration is extremely difficult. Unregulated derivatives trading has created mountainous financial liabilities because traders took account only of risks they recognised.

As a result of the very high levels of household and personal debt, the finances even of affluent households are at risk from falling house prices, falling real incomes, low interest rates for savings, low returns on investments and future higher taxation rates to service the mushrooming national debt. Investments that are both promising and low risk are in very short supply.

The spectre of quantitative easing — increasing the money supply — faced the world in 2009. Quantitative easing devalues each affected currency and thus all assets that are traded in those currencies. This measure could risk further damage to the UK's battered financial sector.

Apart from investment in Brazil, Russia, India and China, a trend in the early 21st century is rising investment interest in agriculture, infrastructure, energy, commodities and environmental technology. In the UK, ethical and sustainable investments are of growing importance. Only a few advisers and financial services organisations specialise in these `new economy' areas.

In the future, executives' and directors' bonuses will need to relate more closely to long-term performance. The weaker prospects for big bonuses and for astronomical salaries have implications for wealth managers, who will have to work harder to attract clients and to deliver positive returns.

The profile of affluence is set to change, not least because taxation revenues will have to rise dramatically so that the Government can repay its mounting debts. Therefore, policy options will have to include reducing the size of the public sector, cutting future pension benefits for public-sector staff, and extracting more tax from the private sector. Problems would include a corporate and super-rich flight to tax havens, so that the middle classes lacking this option would be hit for more tax, reducing consumer spending. Wealth managers who specialise in tax efficiency are likely to experience increasing demand for their services. There will also still be a central role for property, especially for equity release. In time, receipts from equity release could be recycled into new mortgages.

2009 is a turning point in the world economy. The steep slide down could be transformed into the careful construction of more sustainable economies. In the UK, 2009 is a time for cautious mutual societies, which are emerging into the mainstream again now that the demutualisation bubble has punctured.

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Financial Services Marketing to the Affluent

Table of Contents

Abstract