UK IFAs 2011

Datamonitor, November 2011, Pages: 104

The UK IFAs 2011 assesses the strategies IFAs have to address regulatory pressures and the threat from other distribution channels. IFAs face substantial challenges to adapt their business model for the Retail Distribution Review which will be implemented in 2013 The industry must also confront the changing behaviors consumers have towards financial advice to remain profitable.

Scope:

- Identify and effectively target consumer segments in the provision of certain types of advice.
- Benchmarking against other IFA business structures to enhance efficiency and determine the correct utilization of wrap platforms.
- Enhance knowledge of how regulation will drive and inhibit the IFA market and the opportunities and threats facing them.
- Provides analysis of the key life and pension products, including how the economic climate stimulates will affect individual product lines.

Highlights:

- In 2010, IFAs accounted for 74% of the total life and pensions market whilst bancassurance accounted for just 7%. The IFA distribution channel is well sought after in the UK for the provision of professional knowledge regarding consumer's financial planning needs.
- Between 2007 and 2011 the number of small IFA firms witnessed a compound annual decline of 20% and held 17% of the market compared to 2007 where they were the largest business structure accounting for 37% of the market.
- Consumers’ low willingness to pay for financial advice poses a key threat to IFAs in the post-RDR landscape with a fee-based charging model. IFAs will go upmarket and target HNW clients to obtain a recurring income stream thereby leaving mass market clients orphaned to financial advice.

Reasons to buy:

- How IFAs can effectively align their business structure in order to adapt to changing consumer needs post-RDR.
- Access The forecasts for the market, gaining valuable insight of how the sector is set to develop.
- Identify the threat from other distribution channels taking away market share in the distribution of life and pensions products.

OVERVIEW
-Catalyst
-Summary
EXECUTIVE SUMMARY
-Financial advisors have increased their share of the single premium life market
-Larger IFAs are becoming more efficient at generating turnover
-Only 29% of consumers spoke to an IFA regarding financial advice
-Life and pensions will remain under the distribution arm of financial advisors
MARKET CONTEXT
-Introduction
-Financial advisors have increased their share of the single premium life market
?Within the investment bond market, IFAs generate the most new business through the sale of unit-linked bonds
?IFAs are able to promote with-profits bonds to consumers who are not willing to take high risks
?Guaranteed bonds are not a strong market for IFAs
?Distribution bonds are a popular investment with consumers who prefer lower risk options
?Money market bonds have failed to remain popular, as new business through IFAs has dropped dramatically
-IFAs remain the dominant distribution channel within the regular premium life market
?Non-mortgage-related term assurance has continued its expansive growth post-
?Income protection continues to be predominantly sold by IFAs
?Standalone critical illness has failed to remain a key product
?IFAs have been unable to remain a dominant distribution channel for whole-of-life
-85% of the pensions market is distributed through a financial advisor
?Despite a decline in new business premiums, personal pensions are still the dominant product within the single premium pensions market
?Group personal pensions growth is a positive indicator for the success of NEST implementation
IFA BUSINESS STRUCTURES
-Introduction
-Larger IFA business structures are becoming more efficient at creating turnover
?The majority of IFAs operate with four or less sales staff
?Financial advisors create most of their revenue through advising on investments
?Aggregator sites will challenge the IFA channel, particularly in the protection market
-RDR regulation will change the business model to either holistic, generalist, and specialist
?IFAs will offer three distinct propositions to the market post-RDR
?The fee-based model will be a key driver in creating a more sustainable advice market
?IFAs are looking for profitable consumer segments to target under the RDR
?Wealth managers will also have to adhere to the regulations implemented by the RDR
-The usage of wrap platforms is highly utilized by IFAs
?Large IFA business structures are utilizing more than 11 wrap platforms in an attempt to remain independent
?85% of advisors now use platforms to conduct their business
?Advisors are likely to conduct more life and pensions business through wraps in the next 12 months
CONSUMER RELATIONSHIPS WITH IFAS
-Introduction
-Only 29% of consumers spoke to an IFA regarding financial advice
?Consumers' relationships with their primary banks are a threat to financial advisors
?Consumers seek out IFAs for advice on savings, investments, and mortgages over tax and inheritance planning
-A total of 65% of consumers are unlikely to visit a financial advisor in the next six months
?In the future, consumers will seek out IFAs for their retirement concerns
?Over one-third of consumers feel they are not wealthy enough to visit an IFA
MARKET FORECASTS
-Introduction
-Life and pensions will remain under the distribution arm of financial advisors
-IFAs will remain the dominant distributor of the life market
?IFAs are set to remain the dominant distributor within the regular premium life market
?The demand for professional knowledge within the investment bond market will continue
-IFAs will remain unchallenged in the pensions market
?Group personal pensions remain popular among IFAs within the regular premium market
?The single premium pensions market will continue to be sold predominantly through IFAs
APPENDIX
-Definitions
?Single premium policy
?Regular premium
?New business
?Wrap accounts
?Life-based savings products
-Product definitions
?Life assurance
?Single premium life
?With-profits bond
?Unit-linked bond
?Income and growth bonds
?Guaranteed equity bonds
?Distribution bonds
?Purchased life annuities
?Other bonds
?Annual premium life
?Endowment policy
?Whole-of-life insurance
?Term assurance
?Income protection
?Critical illness
?Collective life
?ISAs
?Personal pensions
?Stakeholder pensions
?Group personal pensions
?DSS rebates
?Employer-sponsored stakeholder pension
?Self-invested personal pensions
?Free-standing additional voluntary contributions
-ABI definitions of distribution channels
?Independent financial advisors
?Direct sales forces
?Tied agents
?Multi-tied agents
?Bancassurance
?Direct marketing
?Telesales
?Other
-Matrix Solutions definitions
?IFA firm types
?Grossed annual aggregate turnover
?IFA sales people
?Registered Individual
?Sales Size provided by firm
?Turnover
?Estimate turnover
-Data tables
-Methodology
-Further reading
-Ask the analyst
-Disclaimer
TABLES
-Table: Total life and pensions new business premiums split by distribution channel (£m APE), 2006–
-Table: Single premium life market, new business premiums (£m APE), 2006–
-Table: Single premium life new business premiums through IFAs (£m), 2006–
-Table: New business premiums for guaranteed bonds, split by distribution channel, 2006–
-Table: Regular premium life new business premiums through IFAs (£m APE), 2006–
-Table: Total pensions market, new business premiums (£M APE), split by distribution channel, 2006–
-Table: Single premium pensions new business through IFAs, 2006–
-Table: Regular premium pensions new business through IFAs (£m APE), 2006–
-Table: Insurance is now a product most consumers feel in control of themselves
-Table: Fewer advisors are working alongside life and pensions providers since using an investment platform
-Table: Efficiency is the most valued feature of a wrap platform
-Table: Consumers earning higher incomes are more likely to visit a financial advisor in the next six months
-Table: Total life and pensions market, new business premiums (£m APE), 2011–
-Table: Regular premium life market (£m APE), 2011–
-Table: Forecast single premium life market (£m APE), 2011–
-Table: Regular premium pensions market, new business premiums (£m APE), 2011–
-Table: Single premium pensions market, new business premiums (£m APE), 2011–
-Table: IFA response to RDR regulation
-Table: The platform advisors use most often
-Table: IFAs likely response to RDR "independent" requirements
-Table: Question: "how will wealth managers offset the predicted increased costs from RDR regulation?"
-Table: With-profits bond market split by distribution channel (£m APE), 2006–
-Table: Guaranteed bonds, new business premiums (£m APE), split by distribution channel
-Table: Money market bonds, new business premiums (£m APE), 2008–
-Table: Regular premium life market (£m APE), 2006–
-Table: Term assurance market, new business premiums (£m APE), 2006–
-Table: Total pensions market, new business premiums (£m APE), 2006–
-Table: Total IFAs segmented by business structure
-Table: Total gross turnover, 2007–
-Table: New business premiums for IFAs split by product, 2008–
-Table: Consumers preferred advice channel
-Table: Percentage of consumers who paid for advice when they visited a financial advisor
-Table: Consumers who would be willing to pay for advice split by income band
-Table: Financial products consumers would go to an advisor for
-Table: Demand for financial advice split by income band
-Table: Consumers level of concern regarding their finances
-Table: Reasons as to why consumers are not engaging with IFAs
-Table: Percentage of advisors who conduct business through wrap platforms
-Table: The amount of business IFAs expect to conduct via a wrap platform in the next year
-Table: The channel consumers used to take out their pension
-Table: Total life and pensions market, new business premiums (£m APE), 2011–
-Table: 40% of IFAs expect to see an increase in guaranteed bonds within the next six months
FIGURES
-Figure: Sales of life and pensions products are heavily weighted with IFAs
-Figure: Despite a rapid decline, unit-linked bonds still underpin the single premium life market for IFAs
-Figure: IFAs have increased their share of the with-profits bond market
-Figure: IFAs will cease trade of guaranteed investment bonds
-Figure: The attractiveness of money market bonds has declined over the last two years
-Figure: Non-mortgage-related term features heavily among IFAs
-Figure: IFAs have seen non-mortgage-related term surpass sales of mortgage-related term
-Figure: IFAs account for the largest percentage of new business premiums in the pensions market
-Figure: After a two year decline, sales of personal pensions through IFAs are increasing
-Figure: Group personal pensions increased in 2010 after a slight decrease in
-Figure: Network appointed representatives are now the dominant business structure among IFAs
-Figure: Most IFA firms are fairly efficient, requiring between one and four sales staff
-Figure: Gross turnover has declined 20% from its peak in
-Figure: Investments and pensions provide the largest source of income for IFAs
-Figure: Most consumers rely on their employer to provide their pension
-Figure: IFAs will need to clarify their advice level for the benefit of the consumer
-Figure: A holistic approach will see firms form lifelong relationships with their clients
-Figure: Generalists will appeal to the mass market who require "simple" advice
-Figure: Specialist advisors will appeal to those with a high investment portfolio
-Figure: Key steps firms must take in order to be ready for RDR implementation
-Figure: 5% of IFAs expect to see a strong decline in the IFA market
-Figure: 68% of IFAs will attempt to increase their share of existing customers' wallet
-Figure: 54% of wealth managers are expected to be defined as restricted post-
-Figure: One-quarter of wealth management firms expect to pass on the cost of the RDR to the client
-Figure: National IFAs utilize the availability of more than 11 wrap platforms
-Figure: Skandia is the most popular wrap platform among advisors
-Figure: Over two-thirds of IFAs use more than one platform
-Figure: Advisors use platforms as an efficient means of investing consumers funds
-Figure: Over half of IFAs see wraps as a key part of their business
-Figure: The UK is becoming more aligned through platform usage
-Figure: Advisors are likely to conduct more life and pensions business through wraps in the next 12 months
-Figure: Primary banks are the institution most consumers go to for advice
-Figure: Only 11% of consumers who visited an advisor paid for the service they received
-Figure: The more income a consumer receives the more important it becomes to protect themselves financially
-Figure: Consumers with liquid assets above £250,000 are inclined to pay an advisor to manage their portfolio
-Figure: Savings, investments, and mortgages dominated discussions between IFAs and consumers
-Figure: Savings and investments advice is sought after by affluent customers
-Figure: Those on lower incomes are very unlikely to visit a financial advisor in the next six months
-Figure: Consumers are more concerned about their retirement income
-Figure: 36% of consumers believe their investment is unworthy of an IFA
-Figure: IFAs will grow their market share within the life and pensions market
-Figure: IFAs will continue to dominate the regular premium life market
-Figure: Non-mortgage-related term accounts for over 50% of the regular premium life market
-Figure: IFAs dominate the single premium life market due to their high risk and complexity
-Figure: IFAs will lose their share of the with-profits bond market
-Figure: IFAs remain the first port of call within the regular premium pensions market
-Figure: Sales of GPPs through IFAs will increase to 82%
-Figure: After a slight decline, IFAs will increase their share of the single premium pensions market
-Figure: IFAs will lose personal pensions market share

- Bank of England
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