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Published by: Mintel International Group Ltd.
Published: Apr. 11, 2002 - 126 Pages
Table of Contents
Introduction and Abbreviations
The advice industry is set for fundamental change
Mintel's consumer research focuses on charging for advice
Global information and research
Definitions
Abbreviations
Definitions
Executive Summary
The need for advice has never been greater
The Internet presents a new tool for imparting financial advice
Are consumers able to make appropriate choices?
IFA networks set to be strengthened as a result of market reform
IFAs are the most important source of premium income
One fifth of adults are regular IFA users
Figure 1: Percentage of adults who usually consult a professional adviser before deciding on
financial matters, 1993-2001
18.3 million adults have sought independent advice
Background
Paying for financial advice
Consumers should be given the choice of fees or commissions
Advisers must provide protections when selling financial products
Government is shaping the future of financial services distribution
The UK has the world's most highly regulated financial services sector
The advice market is set for significant reform
What would removing polarisation mean for advisers?
Consumers put first in proposed major reform of financial advice
The Need for Financial Advice
Ageing population puts strain on the state healthcare system
Figure 2: Illustration of UK adult population trends, by age group, 1990-2005
Consumers must save harder to finance longer retirements
Figure 3: Life expectancy at birth and selected ages, 1971-98
The pensioners support ratio will decrease significantly in the long term
Figure 4: Pensioner support ratio, 2000, 2005 and 2015
Age and affluence are key determinants of financial product ownership
Figure 5: Financial product ownership, by age/socio-economic group, January 2002
Independent Financial Advice and Market Reforms
The FSA is keen to introduce wholesale reforms to the advice market
The FSA: Reforming the market for advice
The vision of the FSA
FSA identifies several key failures in the advice industry
The proposed remedies spell out wholesale change for IFAs
Multi-tying: the most significant proposed change
Many IFAs are in uproar over end to polarisation
Current remuneration reward adviser for maximising sales
Fees set to become increasingly important to IFA remuneration
Is the defined-fee system unworkable?
The switch to fee-based advice will be easier for some IFAs
Commission trails provide an alternative to fees
Trail commissions help IFAs build up the value of their businesses
Consumers see £70 per hour as reasonable for independent advice
Are there enough people prepared to pay for advice?
Depolarisation should yield economies of scale for multi-tied advisers
IFAs become more focused on commissions and fees
Is tolerance of fee-based advice linked to income and asset levels?
Internet and Financial Advice
Figure 6: British Internet penetration, at home, work or place of study, 1998-2001
Figure 7: British Internet penetration, 1998-2002
What impact will the Internet have on the independent advice industry?
Explosive growth in online purchasing
Figure 8: Online activity among investors, 2000-01
Internet empowerment pushes IFAs towards partnership role
Figure 9: Market direction for financial services advice
Stakeholder pensions are well suited to the online environment
IFAs and the Financial Information Landscape
The media and other information providers play an important role
Financial services providers advertising budgets run into the millions
Figure 10: Total financial services industry adspend, 1995-2001
IFAs account for a minute proportion of total adspend
Trade organisations are playing an increasingly visible role
Financial Literacy and the Market Advice
Many consumers are unable to make appropriate choices for themselves
Face-to-face advice is important when selling complex financial products
Figure 11: Likelihood that advice received about financial products and services will be the most suitable, shown against the cost of advice
The advantages of using an IFA come at a cost
Consumers are beginning to bypass IFAs in search of lower costs
Are the fears of IFAs unfounded?
IFA Networks
IFA networks reduce the administrative burden for IFAs at a cost
Identifying the largest IFA networks
Figure 12: Leading IFA networks, March 2002
IFA networks likely to be the greatest beneficiary of depolarisation
Prospects for multi-disciplinary partnerships go off the boil
Some life offices put all their business through IFA channels
Market Size
2001 is a record year for new regular premium business
Figure 13: Equivalent annual premium income (expressed as regular + 10% of single premiums), 1996-2001
Regular premium pension income doubles in past few years
Figure 14: New individual regular premiums, by value, 1997-2001
Spectacular growth in single premium business plateaus in 2001...
Figure 15: New Individual single premium income, by value, 1997-2001
... while group premiums experience dramatic growth
Figure 16: New group premiums income, by value, 1997-2001
IFAs collect £33.9 billion in new individual single premium income
Figure 17: Total new individual single premiums, by distribution channel, 1998-2001
IFAs are the source of 56.5% of regular premium income
Figure 18: Total new individual regular premiums, by distribution channel, 1998-2001
IFAs are the source of 60.8% of individual single premium life
Figure 19: New single premium income for individual life, by distribution channel, 1998-2001
IFAs challenge direct providers' pole position in regular premiums market
Figure 20: New regular premium income for individual life, by distribution channel, 1998-2001
IFAs dominate regular premium individual pensions
Figure 21: New single premium income for individual pensions, by distribution channel, 1998-2001
Banks could help the direct salesforces channel claw back market share
Figure 22: New regular premium income for individual pensions, by distribution channel, 1998-2001
Independent advice is essential when purchasing annuities or drawdown
Figure 23: New single premium income for pension annuities and income drawdown, by distribution channel, 1998-2001
The new wave of direct providers are building market share
Figure 24: New single premium income for collective investment schemes, by distribution channel, 1998-2001
IFAs fail to make inroads in the regular premium collective investments market
Figure 25: New regular premium income for collective investment schemes, by distributio
channel, 1998-2001
IFAs significantly increase the size of the single premiums industry
Figure 26: Sources of single premium IFA income, 1998 & 2001
IFAs strengthen their pension position
Figure 27: Sources of regular premium IFA income, 1998 and 2001
The Consumer
Figure 28: Socio-demographic profile of the sample, January 2002
Attitudes towards independent advice stays static
Figure 29: Level of agreement with financial management statements (based on all those
agreeing with the statements), 1993-2001
Is there a market for advice waiting to be tapped?
For the overwhelming majority, saving and investing is a low priority
Figure 30: Spending priorities, 1992, 1997 and 2001
Defining the potential market
Figure 31: Respondents who have used an IFA in the past, by product sector, January 2002
Independent advice: examining the hottest prospects
Figure 32: Respondents who have used an ifa, by socio-demographic characteristics,
Jan-02
Almost four in ten ABs have used an IFA for investment advice
The young come into contact with an IFA when arranging pensions
Brokers help the young to search through a sea of mortgage deals
Significant opportunity exists to expand the intermediation market
Figure 33: Likelihood of using an ifa in the future, by product sector, January 2001
Expanding the market for independent advice and intermediation
Figure 34: Respondents who, in the future, would consider using an ifa, by socio-demographic characteristic, January 2002
Pensions mis-selling perturbs few young from seeking IFA advice
Many consumers are open to the idea of mortgage intermediation
Consumer sentiment is split over paying fees and commissions
Figure 35: Payment preferences for advice, January 2002
ABs prefer that IFAs be remunerated by fees rather than commissions
Figure 36: Payment preferences for independent advice, by socio-demographic characteristic,
Jan-02
Commissions will be a bitter pill for some consumers to swallow
Over a third of IFA users are unaware of the cost of advice they receive
Figure 37: Awareness of the cost of any advice received or commissions paid to the adviser,
Jan-02
Fewer than half of 35-44s know how much independent advice will cost
Figure 38: Awareness of the cost of any advice received or commissions paid to the adviser,
by socio-demographic characteristics, January 2002
Reputation and quality of advice are key to the selection of a provider
Figure 39: Factors influencing consumers' selection of a financial services provider or adviser,
Jan-02
Brands carry weight in consumers' selection decision
High quality advice is expectation among all consumers
Figure 40: Factors influencing consumers' selection of a financial service provider or advisor, by gender and age, January 2002
Half of ABs are influenced by costs and charges
Figure 41: Factors influencing consumers' selection of a financial services provider or adviser, by socio-economic group and working status, January 2002
Direct channels: the modern medium for ABC1s aged 16-34
Figure 42: Factors influencing consumers' selection of a financial services provider or adviser, by Special Group, January 2002
Further analysis
AbstractFor many consumers, having to plan and arrange finances can be a daunting task - especially given that there are so many different products and providers to choose from. To help, there are various different sources of advice and several different types of adviser who can guide and assist the consumer. Insurance brokers and other intermediaries can help choose 'general insurance' (such as home, car, travel and sickness insurance), however, the focus of this report is on authorised financial advisers and mortgage advisers.
Authorised advisers assist consumers who are considering making long-term investments - such investments include: personal pensions; most types of life insurance; and some types of health insurance; collective investments and other investments based on stocks and shares, bonds and endowment policies. Mortgage advisers assist consumers in selecting suitable home loans.
Authorised advisers have benefited from the well-developed UK market for saving, investments, pensions and long-term insurance. They have also profited from decreasing competition from the insurance companies, which in recent years have made significant cutbacks to their salesforces. Increasingly, financial advice firms have become more important to the distribution of financial products claiming an ever-greater share of premiums. The prospect of acquiring a stake in the growing advice market has led to a rush of financial advisers registering with the industry regulators.
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