Customer Loyalty in long-term investments 2007

There is currently little loyalty for providers of long-term financial services & this is set to worsen. Any attempt to encourage loyalty through schemes used elsewhere such as in the credit card market will have little success. The best way to encourage loyalty is by targeting the intermediaries, however in the current remuneration environment there is little progress that can be made.

Report Highlights
those that could be used by providers in this, more complex, market.

Highlights
Improving loyalty is vital, although the long-term area of the financial services industry lags behind that of the simpler areas of the market, such as credit cards and current accounts. There is little scope for lessons learnt elsewhere in the financial services industry to translate through to investments and long-term savings. Any progress that can be made in the long-term financial services industry needs to be made through a combination of changing remuneration structures and proactive strategic movements.
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Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Why is loyalty important? 2
Why do long-term financial services lag behind other areas of the industry? 2
Customer loyalty in the financial services industry is set to worsen 2
Practical steps to improving loyalty 2
Organizational steps to improving loyalty 2
Table of Contents 3
Overview 1 3
Catalyst 1 3
Summary 1 3
Executive Summary 2 3
Key Issues in customer Loyalty 6 3
Why is loyalty important? 6 3
Why do long-term financial services lag behind other areas of the industry? 8 3
Customer loyalty in the financial services industry is set to worsen 9 3
Various methods of improving customer loyalty have been attempted in financial services 11 3
Taking steps to improve loyalty 18 3
Practical steps to improving loyalty 18 3
Organisational steps to improving loyalty 20 3
APPENDIX 22 3
Definitions 22 3
Further reading 24 3
Ask the analyst 24 3
Datamonitor consulting 24 3
Disclaimer 24 3
Table of figures 4
Figure 1: More complex financial services products are harder for providers to promote loyalty 8 4
Figure 2: 59% of wealth managers think customer loyalty has decreased 10 4
Figure 3: Sales to existing customers peak around age 40 16 4
Table of tables 5
Table 1: % of IFAs operating a percentage of fee-based business 19 5
Key Issues in customer Loyalty 6
Why is loyalty important? 6
Increased loyalty increases share of wallet 6
Increased loyalty means higher retention rates 6
Providers with high loyalty levels can potentially have a less competitive offering 7
Greater loyalty to financial institutions could boost savings across the population as a whole 7
Lloyds TSB is seeing success in simultaneously boosting loyalty and increasing savings 7
Why do long-term financial services lag behind other areas of the industry? 8
Poor customer retention is estimated to cost the life and pensions industry around £900m per year 8
The long-term financial services market is highly intermediated 9
Long term financial services products are less commoditised 9
Long term products tend to be of higher value than short-term products where loyalty drives are focused 9
Customer loyalty in the financial services industry is set to worsen 9
Levels of customer loyalty are lower than providers perceive 10
Most high net worth client relationships last a minimum of 5 years 10
Various methods of improving customer loyalty have been attempted in financial services 11
85% of consumer credit cards in circulation will be offering some sort of reward for their usage by 2009 11
Building loyalty through partnerships 11
Potential for encouraging loyalty through partnerships in long-term savings 11
Building loyalty through affiliation 12
Potential for loyalty through affiliation for long-term savings 12
Loyalty and ethics 12
The Visa Green Card is an exception to the cynical view leveled at many so-called "green" credit cards 13
Standard Life is one example of a long-term financial services provider who is attracting customer loyalty through their ethical stance 13
The Old Mutual ethical fund is one of the top ten ethical fund performers in the UK market 14
Key opportunities exist for long-term financial services providers in boosting loyalty through an ethical stance 14
Loyalty and technology 14
Some loyalty schemes use technologically advanced systems 15
Potential for using technology to boost loyalty in long-term savings 15
Loyalty and cross-selling 15
Customers can be advantaged by purchasing complementary products 15
Cross-selling can be effective across the entire customer base 15
Britannia Building society uses a reward scheme to loyalty to boost cross-sales 16
Taking steps to improve loyalty 18
Practical steps to improving loyalty 18
Improving loyalty amongst intermediaries is vital 18
Intermediaries' relationship with broker consultants can impact loyalty 18
Loyalty will not improve significantly until remuneration structures can change 18
Once remuneration structures have shifted there could be the opportunity to build on this and boost loyalty 19
Technology being used to improve loyalty 19
Wrap accounts can be used as "financial Velcro" to mimic improvements in loyalty 19
Employing lessons from other areas of the industry 20
Organizational steps to improving loyalty 20
Maintaining privacy is key to maintaining customer loyalty 20
Trust in a bank is proven to generate higher sales 20
A reputation for clear and reliable communication is also important 20
APPENDIX 22
Definitions 22
Capital redemption policy / bond 22
Composite insurer 22
Defined contribution pension scheme 22
Defined benefits pension scheme 22
Group policy 22
Individual pension scheme 22
Individual policy 22
Life assurance 22
Occupational pension scheme 23
Pension insurance policy 23
Premium income 23
Regular premium 23
Single premium 23
Technical provisions 23
Traditional insurance 23
Unit-linked insurance 23
Further reading 24
Ask the analyst 24
Datamonitor consulting 24
Disclaimer 24

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Table 1: % of IFAs operating a percentage of fee-based business, 2005-2006 19


Figure 1: More complex financial services products are harder for providers to promote loyalty 8
Figure 2: 59% of wealth managers think customer loyalty has decreased 10
Figure 3: Sales to existing customers peak around age 40 16

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