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The Future of UK Investment Bonds 2009

Published by: Datamonitor

Published: Jun. 2, 2009 - 264 Pages


Table of Contents


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

Abstract

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.


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