Financial Services Marketing to BCs

Published by: Key Note Publications Ltd

Published: May. 1, 2009 - 290 Pages

Table of Contents

Executive Summary

1. Introduction

THE TOPIC

OBJECTIVES

METHODOLOGY

ORIGINAL RESEARCH

PROBLEMS IN THE RESEARCH PROCESS

DEFINITION

2. Strategic Overview

MARKET DYNAMICS

A Pattern of Decline

Socio-Economic Classification

Table 2.1: The UK Government’s Former and Current Occupational Categories

Table 2.2: Estimated Numbers of Male and Female Employees in the UK by Job Category (000), 2008

Figure 2.1: Estimated Numbers of Male and Female Employees in the UK by Job Category (000), 2008

Table 2.3: Typical Pay of B, C1 and C2 Occupational Groups in the UK (Full-Time and Part-Time Workers) by Sex — Median Gross Weekly Pay, Estimated Number of Jobs and Pay Gap (£, 000 and %), 2008

Table 2.4: Typical Pay of B, C1 and C2 Occupational Groups in the UK (Full-Time Workers Only) by Sex — Median Gross Weekly Pay, Estimated Number of Jobs and Pay Gap (£, 000 and %), 2008

Figure 2.2: Men in Full-Time Work in the UK in B, C1 and C2 Occupations — Median Gross Weekly Pay and Estimated Number of Jobs (£ and 000), 2008

Figure 2.3: Women in Full-Time Work in the UK in B, C1 and C2 Occupations — Median Gross Weekly Pay and Estimated Number of Jobs (£ and 000), 2008

Market Status and Values

Table 2.5: Net Wealth of the Household Sector in the UK (£bn), 1991, 2001 and 2006

DISTRIBUTION

COMPETITIVE STRUCTURE

Leading Companies

Banks

Insurers

Building Societies

Foreign Presence

ADVERTISING AND PROMOTION

CONSUMER TRENDS

MARKET OUTLOOK

Wanted: Stability and Security

Heavy Responsibilities

Transparency

KEY POINTS

3. Making the Most of Moderate Incomes

MODERATELY MEAGRE

Table 3.1: Income and Expenditure by Gross Income Decile in the UK — Fifth to Eighth Deciles (£ per week, gross), 2007

Table 3.2: Expenditure on Package Holidays Abroad, Holiday Spending and Meals and Alcoholic Drinks Away From Home by Household Income Decile in the UK — Fifth to Eighth Deciles (£ per week), 2007

WOMEN LOSE OUT

‘EGGS IN ONE BASKET’ — A PREOCCUPATION WITH HOUSING WEALTH

Table 3.3: Household Spending on Financial Services by Category — Fifth, Sixth, Seventh and Eighth Deciles and Average (Mean) For All Deciles (£ per week), 2007

SAVING LACKS APPEAL

Table 3.4: UK Households’ Savings Profile (% of households), 2002/2003, 2004/2005 and 2006/2007

SAVINGS AND PENSIONS

Table 3.5: All UK Benefit Units, and Those With Savings of at Least £20,000, by Type of Benefit Unit (number and %), 2006/2007

Figure 3.1: All UK Benefit Units, and Those With Savings of at Least £20,000, by Type of Benefit Unit (% of all benefit units), 2006/2007

PROBLEMS OF LOW RETURNS

Table 3.6: FTSE 100 Trend (index level), 1984-2009

Figure 3.2: FTSE 100 Trend (index level), 1984-2009

Table 3.7: FTSE 100 Movement (index level), April 2008-April 2009

Figure 3.3: FTSE 100 Movement (index level), April 2008-April 2009

‘SOLID’ INVESTMENTS

KEY POINTS

4. Coping With Debt

DEFLATION VERSUS QUANTITATIVE EASING

Table 4.1: UK Households’ Disposable Income and Spending (£m and ratio), 1997-2008

Figure 4.1: UK Households’ Disposable Income and Spending (£m), 1997-2008

DEBT LEVELLING OFF

Table 4.2: Monthly Amounts Outstanding of Sterling Net Lending to Individuals and Housing Associations in the UK — Secured Lending and Consumer Credit (£m), as at 31st December 2004-2008 and as at 31st January 2009 and 28th February 2009

Figure 4.2: Monthly Amounts Outstanding of Sterling Net Lending to Individuals and Housing Associations in the UK — Secured Lending and Consumer Credit (£m), as at 31st December 2004-2008

Table 4.3: Gross National Income of the UK at Current Prices and Annual Change in All-Items Retail Price Index (£m, % and percentage-point difference), 2004-2008

Figure 4.3: Gross National Income of the UK at Current Prices (£m), 2004-2008

EXAGGERATED INCOMES

LIMITED OPPORTUNITIES FOR FINANCIAL IMPROVEMENT

KEY POINTS

5. Sourcing Financial Advice

GLOBALISED MASKS

RETAIL DISTRIBUTION REVIEW

PROMOTING ADVICE

CONSOLIDATION IN ADVICE

KEY POINTS

6. Promotion

FALLING BACK

Table 6.1: Total Main Media Advertising Expenditure on Financial Services (£000), Years Ending December 2005-2008

CHANGING PROFILES

Table 6.2: Top 15 Most Heavily Advertised Financial Products by Main Media Advertising Expenditure (£000), Year Ending December 2005

Table 6.3: Top 15 Most Heavily Advertised Financial Products by Main Media Advertising Expenditure (£000), Year Ending December 2006

Table 6.4: Top 15 Most Heavily Advertised Financial Products by Main Media Advertising Expenditure (£000), Year Ending December 2007

Table 6.5: Top 15 Most Heavily Advertised Financial Products by Main Media Advertising Expenditure (£000), Year Ending December 2008

Table 6.6: Top 15 Most Heavily Advertised Financial Brands by Main Media Advertising Expenditure (£000), Year Ending December 2008

AGENCIES IN THE UK

MEDIA CHOICE

NEW MEDIA AND DIRECT MAIL

SPONSORSHIP

GEO-DEMOGRAPHIC PROFILING

CACI

EuroDirect

Experian

Use of Data For Customer Retention

KEY POINTS

7. An International Perspective

DUBIOUS LEADERSHIP

STATE-LED FINANCIAL PROTECTION

MASSIVE SUMS AT RISK IN DERIVATIVES CONTRACTS

STATE AID AT A HIGH PRICE

SOCIALISATION OF LOSSES

KEY POINTS

8. PEST Analysis

POLITICAL FACTORS

ECONOMIC FACTORS

Table 8.1: Additions to National Debt (£bn), June 2007-February 2009

Table 8.2 The UK’s Gross Domestic Product and All-Items Retail Price Index (£m, % and percentage-point difference), Fourth Quarter of 2005 to Fourth Quarter of 2008

Table 8.3: Central Government Receipts and Outlays (£m), January-December 2008 and January and February 2009

SOCIAL FACTORS

TECHNOLOGICAL FACTORS

KEY POINTS

9. Consumer Dynamics

OVERVIEW

Table 9.1: Summary of Survey Findings Regarding Financial Services (% of all respondents and % of respondents in social grades B, C1 and C2), December 2008

Savings, Debts and Property

PENSIONS

Pension Ownership Response Suggests Confusion

Pensions Gap

Table 9.2: Ownership of Defined-Benefit Pensions and Defined-Contribution Pensions (% of respondents), December 2008

Property Loses Lustre as an Investment For Bs, But C1s and C2s Are More Inclined to See Investment Value in Their Home

Almost Four in Ten Worry About Shortfall in Retirement Income

Table 9.3: Belief That Property Is the Best Investment For a Pension, and Concerns About Insufficient Retirement Income (% of respondents), December 2008

SAVINGS

Bs and C1s Focus on Building Up Savings

Running Down Savings More Widespread Than Adding to Them

Table 9.4: Changes in Levels of Savings Over the Past Year (% of respondents), December 2008

C1s and C2s Typical in Lack of Savings, But Bs Buck the Trend

Table 9.5: Those With No Savings At All (% of respondents), December 2008

DEBT

More C2s Add to Debts Than Cut Them

C1s More Successful Than Bs and C2s in Reducing Debts

Table 9.6: Changes in Levels of Debt Over the Past Year (% of respondents), December 2008

Fewer Than Three in Ten Bs, C1s and C2s Are Without Debt

Table 9.7: Those Who Are Completely Debt Free and Have No Mortgage (% of respondents), December 2008

ONLINE BANKING

Bs, C1s and C2s Are Above Average in Use of Online Banking

Bs, C1s and C2s More Likely Than Average to Have Full Confidence in Online Banking

Table 9.8: Those Who Bank Online, and Those Who Have Full Confidence in Online Banking (% of respondents), December 2008

INDEPENDENT FINANCIAL ADVICE

Doubts About the Value of Independent Financial Advice

Only One in Four Bs But More Than a Third of C1s and C2s Say That Independent Financial Advice Is Too Costly

Table 9.9: Those Who Believe That Financial Advice Is Worth Paying For, and Those For Whom Financial Advice Is Unaffordable (% of respondents), December 2008

TAX AVOIDANCE

Six in Ten Oppose Ease of Tax Avoidance For the Wealthy

Table 9.10: Those Who Think That It Is Too Easy For Wealthy Individuals to Avoid Paying Taxes (% of respondents), December 2008

MEANS TESTING

Means-Testing Barrier Is a Significant But Minority Issue

Table 9.11: Those Who Believe That Means Testing For State Welfare Benefits Discourages Saving (% of respondents), December 2008

KEY POINTS

10. Company Profiles

THE ARTS OF ACCOUNTANCY

ALL CHANGE

BANKS THAT THE UK GOVERNMENT DOES NOT CONTROL

Barclays

Corporate Strategy, Advertising and Distribution

Profitability

Table 10.1: Financial Results for Barclays PLC (£m, number, % and £), Years Ending 31st December 2005-2007

Future Company Developments

HSBC

Corporate Strategy, Advertising and Distribution

Profitability

Table 10.2: Financial Results for HSBC Holdings PLC ($m, number, % and $), Years Ending 31st December 2006-2008

Future Company Developments

Grupo Santander (Spain)

Abbey

Corporate Strategy, Advertising and Distribution

Profitability

Table 10.3: Financial Results for Abbey National PLC (£m, number, % and £), Years Ending 31st December 2005-2007

Alliance & Leicester

Corporate Strategy, Advertising and Distribution

Profitability

Table 10.4: Financial Results for Alliance & Leicester PLC (£m, number, % and £), Years Ending 31st December 2005-2007

Future Company Developments

BANKS THAT ARE OWNED OR CONTROLLED BY THE UK GOVERNMENT

HBOS (Merged With Lloyds TSB in January 2009 to Form Lloyds Banking Group)

Corporate Strategy, Advertising and Distribution

Profitability

Table 10.5: Financial Results for HBOS PLC

(£m, number, % and £), Years Ending 31st December 2005-2007

Future Company Developments

Lloyds TSB (Merged With HBOS in January 2009 to Form Lloyds Banking Group)

Corporate Strategy, Advertising and Distribution

Profitability

Table 10.6: Financial Results for Lloyds TSB Group PLC (£m, number, % and £), Years Ending 31st December 2005-2007

Future Company Developments

National Savings & Investments

Corporate Strategy, Advertising and Distribution

Profitability

Future Company Developments

Northern Rock

Corporate Strategy, Advertising and Distribution

Profitability

Table 10.7: Financial Results for Northern Rock PLC (£m, number, % and £), Years Ending 31st December 2005-2007

Future Company Developments

The Post Office (Royal Mail Holdings)

Corporate Strategy, Advertising and Distribution

Profitability

Table 10.8: Financial Results for Post Office Ltd (£m, number, % and £), Years Ending 26th March 2006 and 2007, and 53 Weeks Ending 30th March 2008

Future Company Developments

The Royal Bank of Scotland Group

Corporate Strategy, Advertising and Distribution

Profitability

Table 10.9: Financial Results for The Royal Bank of Scotland Group PLC (£m, number, % and £), Years Ending 31st December 2005-2007

Future Company Developments

INSURANCE GROUPS (PUBLICLY QUOTED)

Aviva

Corporate Strategy, Advertising and Distribution

Profitability

Table 10.10: Financial Results for Aviva PLC (£m, number, % and £), Years Ending 31st December 2005-2007

Future Company Developments

AXA (France)

Corporate Strategy, Advertising and Distribution

Profitability

Table 10.11: Financial Results for AXA Insurance UK PLC (£m, number, % and £), Years Ending 31st December 2005-2007

Future Company Developments

Legal & General

Corporate Strategy, Advertising and Distribution

Profitability

Table 10.12: Financial Results for Legal & General Group PLC (£m, number, % and £), Years Ending 31st December 2005-2007

Future Company Developments

Prudential

Corporate Strategy, Advertising and Distribution

Profitability

Table 10.13: Financial Results for Prudential PLC (£m, number, % and £), Years Ending 31st December 2005-2007

Future Company Developments

RSA Insurance

Corporate Strategy, Advertising and Distribution

Profitability

Table 10.14: Financial Results for RSA Insurance Group PLC (£m, number, % and £), Years Ending 31st December 2005-2007

Future Company Developments

Standard Life

Corporate Strategy, Advertising and Distribution

Profitability

Table 10.15: Financial Results for Standard Life PLC (£m, number, % and £), Years Ending 31st December 2005-2007

Future Company Developments

Zurich Financial Services (Switzerland)

Corporate Strategy, Advertising and Distribution

Profitability

Future Company Developments

MUTUAL FINANCIAL SERVICES GROUPS

Co-operative Financial Services

Corporate Strategy, Advertising and Distribution

Profitability

Future Company Developments

Nationwide Building Society

Corporate Strategy, Advertising and Distribution

Profitability

Future Company Developments

SPECIALIST EXAMPLES

Paragon

Table 10.16: Financial Results for The Paragon Group of Companies PLC (£m, number, % and £), Years Ending 30th September 2006-2008

Zopa

Table 10.17: Financial Results for Zopa Ltd (£m, number, % and £), 74 Weeks Ending 31st December 2005 and Years Ending 31st December 2006 and 2007

KEY POINTS

11. The Future

EMERGING MEGA ECONOMIES: BRAZIL, RUSSIA, INDIA AND CHINA

ENVIRONMENTAL CONSTRAINTS

REPAIRING THE ECONOMY

FINANCIAL SERVICES COMPENSATION SCHEME: CONTRIBUTIONS SYSTEM CONSIDERED UNFAIR

THE TURNER REVIEW

INDIVIDUAL RESPONSES

EARNINGS SPREAD TOO WIDE

Table 11.1: Average Remuneration of Board Directors and Other Staff in Leading Banks and Insurers in the UK, Ranked by the Size of the Multiple (£ and multiple), 2007/2008

PENSIONS: THE GREAT UNKNOWN

PROSPECTS FOR MIDDLE BRITAIN

Bs — Those in Moderately Paid Professional, Managerial and Technical Roles

C1s — Skilled Non-Manual Workers

C2s — Skilled Manual Workers

RISK AVERSION

INDICATIONS FROM THE BUDGET 2009

KEY POINTS

12. Glossary

13. Further Sources

Associations

Companies — Financial

Companies — Marketing

Publications and Information

General Sources

Government and Official Sources

Other Sources

Key Note Sources

Key Note Research

The Key Note Range of Reports

Abstract

The Bs, C1s and C2s who make up ‘Middle Britain’ do not have a broad base of affluence. Most of their wealth is in residential property, supported by (beleaguered) pension funds. The apparent affluence of the 1990s and early 2000s was funded mainly on credit and property equity withdrawal.

The number of independent retail banks in the UK shrank in 2008 and the collapse has continued in 2009. The building societies helped to shore up UK financial services, and would have formed an even stronger foundation if most of the leading societies had not demutualised in the 1990s.

Middle Britain’s preoccupation with borrowing to build up housing wealth has reduced the sums available for pensions, savings and investments, on which many households have spent very little in recent years. Furthermore, real interest rates fell below zero on many instant-access accounts in 2009. The hardest hit among B, C1 and C2 savers include the many over-65s who do not use the Internet and thus cannot access online accounts, which generally offer higher rates than branch or postal accounts. One option for individuals with capital, who want to earn a better return on it, is direct lending via schemes such as the online social lender Zopa, although social lending schemes on this model are not covered by the Financial Services Compensation Scheme (FSCS).

In 2007, UK households collectively spent around £19.69bn more than their income. Many mortgage borrowers overstated their incomes to get the loans they wanted. Falling house prices and declining pension funds, as well as the near-zero interest rates on savings, rising unemployment and stagnant incomes mean lower consumption, which in the absence of rising exports results in a decline in gross domestic product (GDP). Taxation revenues fall, making it harder for the Government to balance public spending and reduce the inflating National Debt. Despite high debt levels among individuals, the amounts are small compared with the uncertain but vast sums at risk in financial derivatives.

Paid-for advice is often too expensive for people on moderate incomes. Key Note’s consumer research showed that one person in three believed they could not afford independent financial advice — but more importantly, only one in three people agreed that financial advice was worth paying for. During 2008, the Financial Services Authority (FSA) conducted a Retail Distribution Review, which recommended much clearer differentiation between independent advice and sales information.

Bank profits were privatised but losses have been socialised; thus, taxpayers are getting the worst possible deal. People on middle incomes, who are generally without the capacity to set up tax-avoidance schemes, can expect to pay more tax, yet their pension savings have shrunk. The bill for future public-sector pensions looks unaffordable. For the typical middle-income UK household in 2008 and into 2009, the financial options have narrowed, and, as a result, lifestyle options have narrowed too.

According to Key Note’s consumer research, the view that property was the best investment for a pension was less common in 2008 than in 2006. Among the Bs, only one in five thought that property was the best investment for a pension, compared with more than half who thought this in 2006. Of the various socio-economic groups, the Bs were the most likely to have increased their savings in 2008, closely followed by the C1s. However, more people had reduced their savings in 2008 than had increased them. One person in eight said they had no savings at all — although the Bs were by far the least likely socio-economic group to be without savings. Confidence in online banking soared between 2002 and 2006 but advanced only slowly between 2006 and 2008. In 2008, more than half of the Bs and just under half of the C1s and C2s said they had full confidence in online banking. Nearly six in ten Bs used online banking services, well above the overall average of four in ten.

The published accounts of banks, insurers and other financial enterprises often fail to give investors, customers and analysts a clear understanding of the financial strengths and weaknesses of each business. There is no single global standard for financial reporting, which adds to the confusion. The structure of banking in the UK was dismantled in 2008. As at the start of May 2009, only two large groups, HSBC and Barclays, remained outside UK State control.

The individuals who make up Middle Britain have to decide whether to trust the State to look after them in the future, or whether to plan for a future in which welfare benefits will be lower than in 2009. There is an ethical issue of whether those who could but do not insure or save should, in the future, receive more from public funds than those who save as much as they can afford.

Falling property prices do not help existing mortgagees who plunge into negative equity, and no matter how cheap property becomes, unless solutions to negative equity are found, the property market will not operate efficiently.

The abandonment of private-sector defined-benefit pensions means that today’s middle earners are likely to face financial hardship in retirement. The many Bs and C1s who work in the public sector are likely to be hit in coming years by a phasing out of defined-benefit public-sector pensions.

For Middle Britain, participation in financial services (apart from current accounts, savings, mortgages, loans and credit cards) is likely to be dominated by obligatory products such as motor insurance and home insurance for mortgagees, as well as by protection products such as life, income-protection, critical-illness and payment-protection insurances, and by compensation products, notably personal injury compensation.

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