Financial Services Marketing to ABs Market Assessment 2006: Industry Report

Financial Services Marketing to ABs Market Assessment 2006

Product Type: Market Research Report
Published by: Key Note Publications Ltd
Published: September 2006
Product Code: R310-1353

Description

In the 21st century UK, the ownership of capital assets and the receipt of profits are more important determinants of financial behaviour than income from work. Previously, financial services companies attempted to identify future high earners, and services for students were an important part of this strategy. However, the graduates of 2006 can no longer hope for both income sufficiency and security, unless they follow a small number of privileged occupations.

The notional increase in households' wealth in the UK is driven almost entirely by value rises in non-financial assets, mainly residential property. Financial liabilities have increased at almost the same rate as property values, meaning that, on paper, UK households as a whole are not more indebted — in relation to their assets — than they were in 2001. The significant influence of the residential property market, the main pillar of personal wealth, is a big worry: a crash would lead to loan defaults on a large scale. However, continued property price inflation — boosted by demand from the most affluent in the UK, and by money and immigrants from abroad — removes the property ladder from the reach of first-time buyers, even those in professional jobs. The bottom rungs of the ladder are supported increasingly by landlords buying to let. As young people are forced to switch from buying to renting, the implications for housing benefit are extremely serious and could, in time, lead to pressures for the reintroduction of rent controls, making buy-to-let less attractive for landlords.

First-time buyers need high incomes even to contemplate property purchase. The average mortgage loan to first-time buyers in April 2006 was £106,400 — the highest ever to that point. According to the Consumer Credit Counselling Service, a rising number of middle-income households are struggling to cope with their debts. Property prices and rents are driven up by the widening gap between the number of new households and the far smaller number of new homes; the incoming streams of foreign money and of immigrants; and the easy availability of remortgage finance granted to existing homeowners. In 2005, remortgages accounted for 41% of the value of all gross mortgage lending.

Banks and insurers seek to distribute their financial products through independent financial advisers (IFAs) to an increasing extent. IFAs are buffers between such organisations and litigious customers. The trend towards distribution through IFAs would have developed earlier and faster if more customers could afford their fees. Key Note commissioned exclusive consumer research for this report, which showed that more than three in ten (32.1%) of those in the highest social grade said that independent financial advice is too costly for them.

HSBC, The Royal Bank of Scotland Group (RBS), Barclays, HBOS and Lloyds TSB lead the provision of routine banking services to the UK's professionals and managers. Aviva, Prudential and Legal & General lead the life and pensions companies. Mass financial services remain largely in the hands of British companies.

The Direct Line, Norwich Union and Barclays brands recorded the greatest main media advertising expenditure in the year ending 31st March 2006. RBS, the parent of Direct Line, also had three other brands in the leading 15 advertisers in that period — NatWest bank, and the insurance brands Churchill and Privilege. Aviva's Norwich Union was the largest advertiser among the life and pensions companies, mainly because of its substantial direct general insurance business, motor insurance in particular. The group was also the leading advertiser of equity-release products to elderly homeowners.

Customer profiling methods have improved, but it is becoming harder to contact potential customers unless they have `opted in' to receive information by a specific channel. In the EU, the directive on Privacy and Electronic Communications, which prohibits unsolicited e-mails and short message service (SMS) text messages for direct marketing, came into effect on 11th December 2003.

Changes to the rules for inheritance tax in the UK make it harder for the affluent to pass on their assets, unless they are gifted unconditionally at least 7 years before death. The Chancellor has also limited tax-privileged pension savings, and has prevented residential property and luxury items from being included in self-invested personal pensions.

Key Note's survey revealed that there is a strong desire for assets to be passed down within the family, although the costs of nursing care in old age and inheritance tax can prevent this from happening. Those who can save are trying to put a little more aside and, according to the survey, a higher proportion of people are (in 2006) saving more than saving less. 8% of respondents in the A social grade admitted to having no savings at all, compared with 13.6% in the B social grade.

Although residential property is becoming the bedrock of household wealth in the UK, it is subject to erosion by means testing and inheritance tax. These factors, as well as parents' concerns to see their children become property owners, fuel `pre-heritance', as identified by Prudential. This refers to the transfer of assets to the next generation during the donor's lifetime. The rise of pre-heritance changes the market for financial services in retirement, so it is logical for Prudential and Aviva's Norwich Union to have identified retirement financial services as a major priority for the future. As inter-generational financial flows are brought forward, there are implications for future growth, as the costs of supporting a more dependent elderly population will soar. If the Government wants everyone to take financial responsibility for themselves, there will have to be policy changes, including reforms to long-term care funding and higher thresholds for inheritance tax.

Over the next 25 years, financial services groups will be competing ever more fiercely for the customers with high disposable incomes. However, the number of high-income consumers is likely to decline as the cost of living outruns wage rises. Uncertainty over future incomes favours flexible financial products, including current-account mortgages, flexible mortgages and offset mortgages, and equity release.

As property prices, and therefore mortgages, become larger, homebuyers will have less money to put into alternative investments, such as pensions. Indeed, the number of people contributing to pensions has fallen dramatically. The decline of defined-benefit pensions, into which employers used to make the majority of contributions, has a serious impact on young workers who may be fairly well paid, but who are failing to make enough provision for their retirement. The economic outlook indicates that, as a nation, the UK is going to become less affluent. Energy-related costs will absorb rising proportions of disposable incomes, advertisers will intensify their efforts to sell current consumption, and the Government will say that it cannot afford to raise state pensions far beyond their present levels in real terms.

Financial services companies need to be in tune with the changing world. General insurance specialists, such as Zurich, are perhaps more prepared than the mainstream retail banks for a world of fast-changing parameters. Trusted brand identities are beyond price as contexts change. Brand strength has to be allied with local management autonomy, in order to give the required flexibility. HSBC has the strongest global brand within UK-based financial services groups. Barclays, Halifax, Legal & General, Norwich Union and Prudential are prominent among other leading UK financial brands. Foreign groups with rising brands in the UK include AXA, ING and Zurich.

The concept of `one-word equity' is of growing importance, in order to cement brand name with brand value in consumers' minds. The way ahead for financial services is to build the brand, and be ready with clear information when customers seek out a financial product or supplier. There is also an urgent need to improve consumers' knowledge about the scope and remit of the different categories of financial adviser.

Table of Contents

Executive Summary
1. Introduction: BACKGROUND; Overview; Methodology; Exclusive Consumer Research; Problems in the Research Process; DEFINITION
2. Strategic Overview: MARKET DYNAMICS; Who Are the Affluent?; Table 1: The UK Government's Former and Current Occupational Classifications; Table 2: Occupational Classification of Individuals in Great Britain by Current or Last Job by Sex (000 and %), 2004/2005; Identifying the Affluent; MARKET STATUS; MARKET VALUES; DISTRIBUTION; Competitive Structure; Leading Companies; Foreign Presence; MARKETING ACTIVITY; Advertising Trends; Top Advertisers; Consumer Trends; Savings; Debt; Financial Advice; Service Standards; Internet Banking; Financial Advertising; Investment in Property; Inheritance; MARKET OUTLOOK; Coping With Credit; Reluctance to Save; Government Leans on Private Sector; Flexible Opportunities; KEY POINTS; 3. Competitive Structure; LEADING COMPANIES; Foreign Presence; Top Advertisers; Advertising Trends; Consumer Trends; MARKET OUTLOOK; Coping With Credit; Reluctant To Save; Government Leans On Private Sector; Flexible Opportunities; Key Points
3. Locating High Incomes: HIGH-INCOME HEARTLAND: LONDON AND THE HOME COUNTIES; Table 3: UK Parliamentary Constituencies With the Highest Median Incomes (£), 2003/2004; WOMEN LAGGING; Table 4: Estimated Income Bands by Sex (000 and %), 2005/2006; Figure 1: Estimated Income Bands by Sex (000), 2005/2006; PROFESSIONAL WORK NO GUARANTEE OF ELEVATED INCOME; INCOMES PEAK BEFORE THE AGE OF AGE 50; Table 5: Weekly Household Income and Source of Income in the UK by Age of Household Reference Person (% and £), 2004/2005; Table 6: Changes in Household Incomes in the UK by Age of Household Reference Person (%), 2001/2002-2004-2005; OCCUPATIONS WITH THE LARGEST PAY CHEQUES; Table 7: Highest Median Weekly Earnings for Full-Time Males in Managerial and Professional Occupations in the UK (000 and £), 2005; Table 8: Highest Median Weekly Earnings for Full-Time Females in Managerial and Professional Occupations in the UK (000 and £), 2005; KEY POINTS
4. Who Owns the Wealth?: ONE-DIMENSIONAL WEALTH; Table 9: Net Wealth of the Household Sector in the UK at Constant 2004 Prices (£bn), 1991, 1996 and 2001-2004; Figure 2: Net Wealth of the Household Sector in the UK at Constant 2004 Prices (£bn), 1991, 1996 and 2001-2004; HOUSEHOLDS' SAVINGS STATIC; Table 10: Households' Savings Profile by Amount of Savings (% of households), 2001/2002 and 2004/2005; Table 11: UK Households by Amount of Savings and Total Weekly Household Income (% of households), 2004/2005; WEALTH CONCENTRATED AMONG PENSIONERS AND COUPLES WITHOUT CHILDREN; Table 12: Benefit Units in the UK by Amount of Savings and Total Weekly Income (% of benefit units), 2004/2005; FEW INVESTMENTS EVEN FOR HIGH-INCOME HOUSEHOLDS; Table 13a: UK Households by Type of Saving and Total Weekly Household Income — Up to £599 a Week (% of households), 2004/2005; Table 13b: UK Households by Type of Saving and Total Weekly Household Income — £600 to £1,000 or More a Week (% of households), 2004/2005; BROADER PORTFOLIOS REQUIRED; KEY POINTS
5. Debt Escalator: EVEN TOUGHER FOR FIRST-TIME BUYERS; OUTSTANDING DEBT; Table 14: Growth in Debt in the UK (£m and index 2001=100), 30th April 2001-2006; Table 15: Total Lending to Individuals by Type of Lender (% of amount outstanding), 30th April 2006; SAVINGS MIRAGE; Table 16: UK Households' Savings Ratio — Including and Excluding Changes in the Net Equity of Pension Funds (£bn and %), 2002-2005; Table 17: Average UK Households' Expenditure on Selected Financial Products (£), 1997/1998, 2001/2002 and 2004/2005; Table 18: UK Households' Weekly Expenditure on Selected Financial Products by Income Decile Group (£), 2004/2005; KEY POINTS
6. Promotion — Building Brands: THE ROYAL BANK OF SCOTLAND GROUP SPENDS MOST; Table 19: Main Media Advertising Expenditure by the Top 15 Financial Services Brands (£000 and %), Year Ending March 2006; PUSHING CREDIT; Table 20: Main Media Advertising Expenditure on Financial Services Relevant to ABs (£000 and %), Year Ending March 2006; Table 21: Main Media Advertising Expenditure on Selected Credit-Card Brands (£000), Year Ending March 2006; INTEGRATED MARKETING; Table 22: Key Creative Agencies for Advertising Financial Services to ABs, Year Ending March 2006; Table 23: Key Media Buying Agencies for Advertising Financial Services to ABs, Year Ending March 2006; TELEVISION AND PRINT MEDIA SPENDS IN DECLINE; Table 24: Advertising in the UK by Media Channel (%), 1994-2004; Figure 3: Advertising in the UK by Media Channel (%), 2004; Table 25: Advertising Expenditure in the UK by Media Channel (£m), 2000-2004; ONLINE IS THE KEY; INTEGRATED MARKETING; CAMEO, MOSAIC? AND ACORN — SUPPORTING ROLES; WITHOUT CUSTOMERS, THERE IS NO BUSINESS; KEY POINTS
7. An International Perspective: FINDING AND MONITORING CUSTOMERS; THE UK'S MAGNETIC ATTRACTION FOR FOREIGN MONEY; BARRIER TO WEALTH ACCUMULATION IN THE US; KEY POINTS
8. PEST Analysis: POLITICAL FACTORS; Moving the Goalposts; Pensions Curtailment; ECONOMIC FACTORS; UK Not Getting Any Richer; Hard-Pressed 30 to 49 Year-Olds; Table 26: Average Weekly Household Disposable Income and Expenditure by Age of Head of Household (£), 2000/2001 and 2004/2005; Starting to Save a Little More; SOCIAL FACTORS; Not Enough Homes; Problems for the Next Generation; TECHNOLOGICAL FACTORS; Coming Disruptions; The Global Society is Likely to be Disrupted; SUMMARY; KEY POINTS
9. Consumer Dynamics: SUMMARY OF RESULTS; Table 27: Summary of Results (% of respondents), 2006; Table 28: Summary of Results (% of respondents), 2002, 2003 and 2006; SAVINGS; My Savings Have Increased Over the Past Year; Table 29: My Savings Have Increased Over the Past Year (% of respondents), 2006; My Savings Have Decreased Over the Past Year; Table 30: My Savings Have Decreased Over the Past Year (% of respondents), 2006; I Have No Savings; Table 31: I Have No Savings (% of respondents), 2006; DEBT; My Debts Have Increased Over the Past Year; Table 32: My Debts Have Increased Over the Past Year (% of respondents), 2006; My Debts Have Decreased Over the Past Year; Table 33: My Debts Have Decreased Over the Past Year (% of respondents), 2006; I Have No Debts, Not Even a Mortgage on the Home I Live In; Table 34: I Have No Debts, Not Even a Mortgage on the Home I Live In (% of respondents), 2006; FINANCIAL ADVICE; Independent Financial Advice Is Too Expensive for Me to Afford; Table 35: Independent Financial Advice Is Too Expensive for Me to Afford (% of respondents), 2006; SERVICE STANDARDS; In My Experience, Banks Have Improved Their Standards of Customer Service Over the Past 2 Years; Table 36: In My Experience, Banks Have Improved Their Standards of Customer Service Over the Past 2 Years (% of respondents), 2006; In My Experience, Building Societies Have Improved Their Standards of Customer Service Over the Past 2 Years; Table 37: In My Experience, Building Societies Have Improved Their Standards of Customer Service Over the Past 2 Years (% of respondents), 2006; In My Experience, Insurance Companies Have Improved Their Standards of Customer Service Over the Past 2 Years; Table 38: In My Experience, Insurance Companies Have Improved Their Standards of Customer Service Over the Past 2 Years (% of respondents), 2006; INTERNET BANKING; I Have Full Confidence in Internet Banking; Table 39: I Have Full Confidence in Internet Banking (% of respondents), 2006; FINANCIAL ADVERTISING; Advertisements Help Me to Decide Which Financial Products to Buy; Table 40: Advertisements Help Me to Decide Which Financial Products to Buy (% of respondents), 2006; INVESTMENT IN PROPERTY; Property is the Best Investment for a Pension; Table 41: Property is the Best Investment for a Pension (% of respondents), 2006; INHERITANCE; I Would Like to Leave My Assets to My Children or Other Relatives; Table 42: I Would Like to Leave My Assets to My Children or Other Relatives (% of respondents), 2006; KEY POINTS
10. Company Profiles: INTRODUCTION; Table 43: Financial Services Organisations in the UK's Largest 100 Companies List by Market Value (£m), 2006; ABBEY; Corporate Strategy; Advertising and Distribution; Profitability; Table 44: Financial Results for Abbey National PLC (£000, % and £), Years Ending 31st December 2002-2005; Future Company Developments; ALLIANCE & LEICESTER; Corporate Strategy; Advertising and Distribution; Profitability; Table 45: Financial Results for Alliance & Leicester PLC (£000, % and £), Years Ending 31st December 2002-2005; Future Company Developments; AVIVA (NORWICH UNION); Corporate Strategy; Advertising and Distribution; Profitability; Table 46: Financial Results for Aviva PLC (£000, % and £), Years Ending 31st December 2002-2005; Future Company Developments; BARCLAYS; Corporate Strategy; Advertising and Distribution; Profitability; Table 47: Financial Results for Barclays PLC (£000, % and £), Years Ending 31st December 2002-2005; Future Company Developments; HBOS (BANK OF SCOTLAND AND THE HALIFAX); Corporate Strategy; Advertising and Distribution; Profitability; Future Company Developments; HSBC; Corporate Strategy; Advertising and Distribution; Profitability; Table 48: Financial Results for HSBC Holdings PLC ($000, % and $), Years Ending 31st December 2002-2005; Future Company Developments; LEGAL & GENERAL; Corporate Strategy; Advertising and Distribution; Profitability; Table 49: Financial Results for Legal & General Group PLC (£000, % and £), Years Ending 31st December 2002-2005; Future Company Developments; LLOYDS TSB; Corporate Strategy; Advertising and Distribution; Profitability; Table 50: Financial Results for Lloyds TSB Group PLC (£000, % and £), Years Ending 31st December 2002-2005; Future Company Developments; NORTHERN ROCK; Corporate Strategy; Advertising and Distribution; Profitability; Table 51: Financial Results for Northern Rock PLC (£000, % and £), Years Ending 31st December 2002-2005; Future Company Developments; PRUDENTIAL; Corporate Strategy; Advertising and Distribution; Profitability; Table 52: Financial Results for Prudential PLC (£000, % and £), Years Ending 31st December 2002-2005; Future Company Developments; ROYAL & SUNALLIANCE; Corporate Strategy; Advertising and Distribution; Profitability; Table 53: Financial Results for Royal & SunAlliance Insurance Group PLC (£000, % and £), Years Ending 31st December 2002-2005; Future Company Developments; THE ROYAL BANK OF SCOTLAND; Corporate Strategy; Advertising and Distribution; Profitability; Table 54: Financial Results for The Royal Bank of Scotland Group PLC (£000, % and £), Years Ending 31st December 2002-2005; Future Company Developments; STANDARD LIFE; Corporate Strategy; Advertising and Distribution; Profitability; Future Developments; ZURICH FINANCIAL SERVICES GROUP; Corporate Strategy; Advertising and Distribution; Profitability; Future Company Developments; THE POST OFFICE; NATIONAL SAVINGS & INVESTMENTS; KEY POINTS
11. The Future: THE PRESENT CONTEXT; Property Is Dominant; Flexible Finance and Equity Release; Buy-to-Let; Pressure to Give Assets Away; Ethical Concerns; Globalisation — Reshaping Social Grade Categories; Coping With Debt; Pension Dreams and Retirement Ashes; FORECASTS; Table 55: Forecast Net Wealth of the Household Sector in the UK at Current Prices (£bn), 2005-2010; Figure 4: Forecast Net Wealth of the Household Sector in the UK at Current Prices (£bn), 2005-2010; COMPANIES PREPARED FOR CHANGE; Predictions Updated; Brands for Tomorrow; KEY POINTS
13. Consumer Confidence: METHODOLOGY; KEY FINDINGS THIS QUARTER; THE WILLINGNESS TO BORROW; Confidence Declines Again; Table A: The Average Amount Consumers Are Willing to Borrow in Order to Purchase Expensive Items at Current and Constant November 2004 Prices (£ and £bn), May 2005, August 2005, November 2005, February 2006 and May 2006; Signs That the Decline Could be Bottoming Out; Table B: The Number of Adults Willing to Borrow in Order to Purchase Expensive Items (000 and %), May 2005, August 2005, November 2005, February 2006 and May 2006; THE WILLINGNESS TO SPEND FROM SAVINGS; Sharp Decline in Spending from Savings; Table C: The Average Amount Consumers Are Willing to Spend from Savings in Order to Purchase Expensive Items at Current and Constant November 2004 Prices (£ and £bn), May 2005, August 2005, November 2005, February 2006 and May 2006; Table D: The Proportion of Adults Without Any Savings (%), May 2005, August 2005, November 2005, February 2006 and May 2006; Borrowing Grows in Relative Importance; Table E: The Average Amounts Adults are Confident Spending to Purchase Expensive Items (£ and %), May 2005, August 2005, November 2005, February 2006 and May 2006
14. Further Sources: Associations; Publications; General Sources; Government Sources; Other Sources; Bisnode Sources

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