Is There Any Money in Advice? - UK

ISSUES IN THE MARKET

Key issues covered in the report

Abbreviations

INSIGHTS AND OPPORTUNITIES

There are clear opportunities for the banking sector to exploit

Mortgages and pensions represent particularly attractive markets

Inheritance tax planning and ISAs also provide distinct opportunities

Advisers need to do more to promote the value of their services

They also need to allay consumer fears over cost and rebuild trust

MARKET IN BRIEF

A variety of factors are driving demand for financial advice

Advisers’ key markets have seen strong growth in recent years

Trade perspective: Consumers remain resistant to fee-based advice

Mintel’s research findings: Sources of advice

Mintel’s research findings: Demand for advice

Mintel’s research findings: Drivers and deterrents

MARKET FACTORS - DRIVING THE MARKET ONWARDS

Key points

A variety of factors will influence demand for financial advice

Figure 1: Factors influencing the demand for financial advice

Rising life-expectancy has heightened the need for advice…

Figure 2: Expectation of life at birth, by gender, 1900-2050

…particularly when it comes to pensions

Erosion of state support is raising the need for self-provision…

…and not only in the pension market

Workplace benefit provision is also being eroded

An end to the job for life

Self-employment presents new problems

Changing lifestyles are boosting demand for advice…

…as well as pushing finance down the list of priorities

Rising debt levels have also created a need for advice

Figure 3: Total household debt, balances outstanding, 1992-2006

Increased product complexity…

…and a lack of clarity

MARKET CONSTRAINTS

Key points

A lack of trust is constraining demand for financial advice

The industry needs to improve its tarnished image

High street banks are no exception

Consumer apathy is also felt to be constraining the market

This problem is exacerbated by low levels of financial literacy…

…although the FSA is working to combat this issue

The Internet has allowed some consumers to take personal control

Online tools risk marginalising advice

MAIN MARKETS FOR FINANCIAL ADVICE

Key points

Financial advice covers a broad spectrum of needs

PENSIONS

A key market for financial advisers

Figure 4: Individual pension sales, 2001-06

Growth overstated by transfer business

A-day changes are having a significant impact on the market

INVESTMENTS

The investments market is also important to the advice industry

Figure 5: Net retail unit trust/OEIC sales, 2001-06

TAX PLANNING

Inheritance tax receipts soar…

Figure 6: Inheritance tax, receipts and number of estates liable, 2000/01-2005/06

…ensuring that tax planning will provide increasing opportunities

MORTGAGES

Mass-market advice opportunities

Figure 7: Gross mortgage advances, by type of loan, 2001-06

FINANCIAL ADVICE - THE MARKET STRUCTURE

Key points

More than 5,000 financial advice firms are registered with the FSA

Figure 8: Number of directly authorised financial advice firms and mortgage intermediaries, 2006 and 2007

Depolarisation has altered the structure of the industry

FINANCIAL ADVICE - MARKET SIZE

Key points

Is there any money in advice?

Profitability varies widely

Mortgage and pensions markets offer the most potential

Figure 9: Potential market size versus need for advice, May 2007

The IFA sector still dominates the main markets for financial advice

Figure 10: Single-premium individual investment business income, 2006

Bancassurers hold a significant share of regular-premium life sales

Figure 11: Regular-premium individual life business income, 2006

IFAs enjoy a large share of individual pension product sales

Figure 12: Regular-premium individual pension business income, 2006

Figure 13: Single-premium individual pension business income, 2006

THE HIGH STREET BANK IN A DEPOLARISED WORLD

Key points

Banks enjoy potential advantages in offering financial advice

There are now a range of business models that can be adopted

HSBC was the first bank to announce a shift to multi-tied status

Barclays has also adopted a multi-tied approach

Other banks have retained emphasis on their bancassurance arms

IFAS - FEES OR COMMISSION?

Key points

Remuneration has traditionally been via commission payments…

…but this system has led to accusations of adviser bias

Depolarisation signalled a shift from commission to a menu of fees

There still appears to be resistance to fee-based advice…

…but the proportion of consumers opting to pay fees is rising

Further FSA reforms could speed up the trend to fee-based advice

The new system would incorporate a wider definition of ‘fees’

BROKERS - A ROLE FOR THE SPECIALISTS?

Key points

The need for mortgage advice has heightened in recent years

Brokers have benefited from this increase in choice and complexity

Mortgage brokers are now a common source of advice

Figure 14: Where consumers would go for advice regarding a mortgage or a remortgage, December 2006

The intermediary sector looks set to retain a position of prominence

Home Inspection Plans will provide a boost for estate agents

TRADE PERSPECTIVE

Opinion is evenly divided over the current state of the market

A broad range of factors appear to be hindering market growth

Regulatory requirements have added to the cost base

Investments and pensions are seen as particularly profitable

Most consumers are still resistant to fee-based advice

The drive for higher-level qualifications could boost the industry

THE CONSUMER - SOURCES OF ADVICE

Key points

Survey background

Branch staff are the most common source of financial advice

Figure 15: Sources used for advice on financial matters, May 2007

Implications and opportunities

Sources of advice vary by age and socio-economic status

Figure 16: Sources used for advice on financial matters, by age/socio-economic group, May 2007

Half of all adults have sought advice from a professional adviser

Figure 17: Sources used for advice on financial matters, by gender, age, socio-economic group, lifestage

and Mintel’s Special Groups, May 2007

Implications and opportunities

Scottish consumers typically turn to branch staff for advice

Figure 18: Sources used for advice on financial matters, by working status, income, TV region and ACORN

group, May 2007

Broadsheet readers tend to prefer professional advisers

Figure 19: Sources used for advice on financial matters, by technology users, newspaper readership,

commercial TV viewing and supermarket usage, May 2007

ABC1s account for two thirds of the IFA customer base

Figure 20: Professional adviser customer profiles, by gender, age, socio-economic group and lifestage, May

2007

Almost a quarter of consumers have used four or more sources

Figure 21: Number of sources used for advice on financial matters, May 2007

Implications and opportunities

More than a quarter of ABs have used five or more sources

Figure 22: Number of sources used for advice on financial matters, by gender, age and socio-economic

group, May 2007

Branch staff and family or friends dominate the single-source group

Figure 23: Repertoire analysis on number of sources used for advice on financial matters, May 2007

Dissecting the sample according to sources of advice used

Figure 24: Typologies based upon sources of advice used for financial matters, by gender, age, socioeconomic

group and TV region, May 2007

THE CONSUMER - DEMAND FOR ADVICE

Key points

Pensions and mortgages present opportunities for financial advisers

Figure 25: Proportion of adults who think selected financial products are relevant to them, by gender, May

2007

Implications and opportunities

Four in ten 45-54-year-olds expressed an interest in pensions

Figure 26: Proportion of adults who think selected financial products are relevant to them, by age group,

May 2007

Tax key for older consumers

Inheritance tax planning is relevant to almost a quarter of ABs

Figure 27: Proportion of adults who think selected financial products are relevant to them, by socioeconomic

group, May 2007

A mortgage is the product most consumers would seek advice on

Figure 28: Proportion of adults who would consider using a financial adviser to arrange various products, by

gender, May 2007

Implications and opportunities

The 25-44s are most likely to want advice on mortgages

Figure 29: Proportion of adults who would consider using a financial adviser to arrange various products, by

age group, May 2007

C2s are likely to be a key target audience for certain products

Figure 30: Proportion of adults who would consider using a financial adviser to arrange various products, by

socio-economic group, May 2007

Prospective mortgage customers are most likely to approach an adviser

Figure 31: Adults who would approach a financial adviser as a proportion of those who think products are

relevant to them, May 2007

10 million consumers would use an adviser to arrange a mortgage

Figure 32: Estimated ‘potential market size’ for selected financial products, May 2007

Mortgage and pensions markets are particularly attractive

Figure 33: Potential market size versus need for advice, May 2007

Around one in ten consumers hold savings of more than £50,000

Figure 34: Amounts consumers hold in savings and investments, May 2007

Implications and opportunities

ABs tend to have comparatively large amounts of savings

Figure 35: Amounts consumers hold in savings and investments, by gender, age, socio-economic group

and age/socio-economic group, May 2007

Third age consumers tend to hold relatively large sums in savings

Figure 36: Amounts consumers hold in savings and investments, by lifestage, income, TV region and

newspaper readership, May 2007

People with large sums in savings are more likely to use an adviser

Figure 37: Proportion of adults who would consider using a financial adviser to arrange various products, by

amounts consumers hold in savings and investments, May 2007

THE CONSUMER - DRIVERS AND DETERRENTS

Key points

Lack of product knowledge is a key reason for seeking advice

Figure 38: Reasons for seeking professional financial advice, by gender, May 2007

Implications and opportunities

Three in ten 25-44s are driven by the fear of making a mistake

Figure 39: Reasons for seeking professional financial advice, by age group, May 2007

Almost a third of ABs want to receive non-biased information

Figure 40: Reasons for seeking professional financial advice, by socio-economic group, May 2007

People with high savings balances value non-biased advice

Figure 41: Reasons for seeking professional financial advice, by amounts consumers hold in savings and

investments, May 2007

Some consumers feel they can cope without a financial adviser

Figure 42: Concerns about using a professional adviser, by gender, May 2007

Implications and opportunities

The cost of advice is more of a concern to younger consumers

Figure 43: Concerns about using a professional adviser, by age group, May 2007

ABs often prefer to conduct their own research

Figure 44: Concerns about using a professional adviser, by socio-economic group, May 2007

Savers with high balances fear advice will be driven by commission

Figure 45: Concerns about using a professional adviser, by amounts consumers hold in savings and

investments, May 2007

THE FUTURE

What does Mintel’s research tell us?

Advisers need to do more to promote the value of their services

The slow drift from commission- to fee-based advice will continue

PRODUCT OWNERSHIP - DETAILED DEMOGRAPHICS

Figure 46: Most commonly held financial services products, by gender, age, socio-economic group, marital

status, lifestage, Mintel’s Special Groups, working status, household income, tenure, region, ACORN

category, media usage and supermarket usage, May 2007

Figure 47: Next-most commonly held financial services products, by gender, age, socio-economic group,

marital status, lifestage, Mintel’s Special Groups, working status, household income, tenure, region, ACORN

category, media usage and supermarket usage, May 2007

ADVICE USED - DETAILED DEMOGRAPHICS

Figure 48: Sources of advice used, by gender, age, socio-economic group, marital status, lifestage, Mintel’s

Special Groups, working status, household income, tenure, region, ACORN category, media usage and

supermarket usage, May 2007

RELEVANT FINANCIAL SERVICES PRODUCTS - DETAILED DEMOGRAPHICS

Figure 49: Most relevant financial services products, by gender, age, socio-economic group, marital status,

lifestage, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category,

media usage and supermarket usage, May 2007

Figure 50: Next most relevant financial services products, by gender, age, socio-economic group, marital

status, lifestage, Mintel’s Special Groups, working status, household income, tenure, region, ACORN

category, media usage and supermarket usage, May 2007

APPENDIX: RESEARCH METHODOLOGY