UK IFAs 2009

Introduction

UK IFAs 2009 provides a definitive analysis of the IFA industry. It provides strategies that IFAs have to incorporate the changing face of consumer behaviors towards financial advice, regulatory pressures, product and pricing innovations and technological improvements to remain the dominant distribution channel for investment products.

Scope

*Comprehensive analyses of key product, pricing, regulation and competitor trends affecting the UK IFA industry.

*Utilizes primary research for insight into industry leaders' views on how market conditions and regulations will shape the future of the IFA market.

*Identifies key network competitors in the UK IFA market and their business efficiency.

Highlights

With many investors suffering losses to their savings and investment portfolios, consumers have become wary of seeking professional financial advice in the fallout from the recent failures of the financial industry.

However, regulatory changes are an opportunity for IFAs to design their future. With focus now on the advice & service offered, the product becomes less important and the level of investment service the advisor provides defines the segment.

Reasons to Purchase

*Gain valuable insight into market leaders' views of how the UK IFA market can capitalize on opportunities when emerging out of a recession.

*Understand the current and future issues the IFA market face and the key market drivers for new business.

*Identify key competitors and how efficiently their business operates.


Report Highlights
With many investors suffering losses to their savings and investment portfolios, consumers have become wary of seeking professional financial advice in the fallout from the recent failures of the financial industry.

However, regulatory changes are an opportunity for IFAs to design their future. With focus now on the advice & service offered, the product becomes less important and the level of investment service the advisor provides defines the segment.
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Overview 1
Catalyst 1
Summary 1
Executive Summary 2
The RDR produces three key challenges on the market structure and competition for IFAs 2
IFAs are likely to remain uncontested as the dominant distribution channel 2
The RDR demonstrates clarity of offering and value to customers but will cause IFAs to bear large costs 2
Wraps continue to be a key technological enabler for advisors 3
Economic turmoil and challenging consumer behaviors are affecting the financial advisory market 3
Prevailing economic conditions are a challenge for the IFA market and its customers 3
It is crucial for advisors to focus on securing a recurring income stream and better capitalizing their business 4
Table of Contents 5
Table of figures 6
Table of tables 7
IFAs remain a dominant distribution channel 8
IFAs have a commanding lead in the sales of life and pensions products in the UK 8
Ongoing economic conditions has affected total regular premium life sales for IFAs 9
Term assurance 10
Sales of savings-related term see resurgence as the housing market continues to negatively affect mortgage-related term 10
Income protection sales saw a slight reversal in fortunes in 2008 11
Sales of CII have declined as economic factors continue to weigh heavily against writing new business 12
Consumer caution regarding household financial stability saw an increase in sales of whole-of-life insurance 13
The total single premium life market faced a 39% decline in new business in 2008 13
Sales of unit-linked bonds fell heavily as economic factors continue to weigh heavily against writing new business 14
The growth of distribution bonds faltered in 2008 15
The popularity of guaranteed bonds with IFAs saw a reversal of fortunes 16
Personal pensions dominate IFAs' single and regular premium pensions income 17
The rise of popularity in SIPPs among IFAs have been subdued by the state of the economy 20
Forecasts at the product level shows the continuing reign of the IFA channel 20
IFAs are forecast to remain the strongest distribution channel going forward 20
Sales of term assurance by IFAs is forecasted to lead the regular premium life market 22
Future sales of mortgage-related term will be impacted by the current pessimistic housing market 22
Sales of savings-related term are expected to rise as customers grow more cautious over their finances 23
IP will continue to have small market share 24
Unit-linked bonds will continue their lead in single premium life sales by IFAs 24
Provider ability to supply guaranteed bonds will hinder sales of guaranteed bonds for IFAs 25
Datamonitor forecasts group personal pensions to dominate the regular premium pensions market 26
The market will increasingly be shaped by SIPP products at the expense of stakeholder and personal pensions 28
However, the increasing interest in SIPPs does not necessarily signal an end for personal and stakeholder pensions 29
The impact of RDR on the IFA model 31
Introduction 31
The RDR demonstrates clarity of offering and value to IFAs' customers 31
The RDR produces three key impacts on the market structure and competition for IFAs 32
Higher qualification requirements will intensify competitive pressure on IFAs 34
The proposed remuneration structure may cause investors to switch from the IFA route to bancassurance 35
New independence requirement for advisors will improve the reputation of financial advice 37
Whatever uncertainty surrounds the impact of RDR, changes to an IFA's business model are essential for success 38
IFAs need a combined industry effort in managing the transition process 38
The overall focus of regulation should be on meeting customers' needs and demands 39
The end-customer should receive clarity of communication if the RDR is to succeed 39
Challenging market drivers exist for IFAs 41
Consumers' desire for financial self control is a driver for choice of advice channel 41
Changing the consumer mindset will be a challenge as consumers are unwilling to pay for advice 41
The financial stability of banks is important to consumers when making financial decisions 41
IFAs perceive high street banks as the biggest competitor for clients in their market 42
However, the recently tarnished brand reputation of banks will limit their entry into the life, pensions and investment market 44
Online price comparison sites are also a strong contender for IFAs' client base 44
Aggregator sites challenge the distribution landscape and more pertinently protection sales 44
Aggregator sites have become a trusted source of financial service in the current climate 45
Aggregator sites offer a wealth of opportunity 45
Concerns and criticisms have been leveled at non-advised sales 46
Problems are also arising between the direct sales and advisor channels 47
Economic turmoil represents the biggest challenge for the IFA market 47
Providers' product innovations must focus on the risk profile of today's consumers 49
Individual savings accounts stand out as the product IFAs are most positive about 49
Advisors are uncertain about the future sales of investment bonds 50
Protection sales can be maintained if their importance is highlighted in the current economic climate 51
Individual SIPPs will prove to be a less difficult sale compared to other pension products 52
The increasing interest in SIPPs does not necessarily signal the end of personal and stakeholder pensions 52
Technology is a key enabler for financial advisors 53
Wraps continue to be demanded by advisors and investors 53
The emergence of IFA-developed wraps is blurring the boundary between manufacturer and distributor 54
The regulatory framework is influencing the uptake of wrap platforms by advisors 54
The changing pricing structure of the IFA market creates pull factors towards wraps 54
IFAs' choice on independence will depend upon enormously different wrap propositions 54
Treating Customers Fairly continues to be at the forethought of IFAs 55
The TCF initiative aims to create a more efficient, effective and fair market 55
Advisors are struggling with their endeavors towards a TCF environment 55
IFAs should revisit their sales and marketing strategies to differentiate from their peers 56
Emphasis on service is the key method of differentiation for the vast majority of IFA firms 56
Attracting new blood into the IFA industry will be a key challenge going forward 57
It is crucial for advisors to focus on securing a recurring income stream and better capitalizing their business 57
Market Focus 58
The total number of IFA firms in the UK market has fallen 58
The UK IFA market structure has seen an emergence of firms with appointed representatives 59
The UK IFA market is still dominated by small firms with less than five sales staff 60
IFA firms are seeing higher turnover in investment and pensions products during the economic downturn 61
The investment bond market continues to be buoyed by 'guaranteed' elements to products 62
Advisors have a prime opportunity to revisit clients, increase consumer awareness and change perceptions of protection 63
However, protection products are expected to be increasingly distributed direct-to-consumer 64
The total IFA firm turnover increased over the last 12 months 64
Nearly half of the known IFA market have a turnover of less than £500k 65
Competitor Focus 67
Consolidation continues to be the theme for IFAs as firms seek better capitalization 67
Regulatory pressures and the hunt for scale creates positive drivers for consolidation 67
Sesame has created a network heavyweight with the acquisition of Bankhall 67
Competitors have tended to shift up market rather than focusing on products and innovation 68
Sesame continues its top reign of the largest IFA networks by turnover and sales staff 68
Sesame retains its top spot in 2009 as the biggest IFA network by turnover 68
Sales staff by firm sees Sesame having the largest sales force 71
Smaller IFA firms achieve higher positions in efficiency per sales staff 73
Sesame maintains it lead position in the list of key players in the UK IFA market 75
APPENDIX 76
Definitions 76
Single premium policy 76
Regular premium 76
New business 76
Wrap accounts 76
Product definitions 76
Life-based savings products 76
Life assurance 76
Single premium life 77
With-profit bond 77
Unit-linked bond 77
Income and growth bonds 77
Guaranteed equity bonds 77
Distribution bonds 78
Purchased life annuities 78
Other bonds 78
Annual premium life 78
Endowment policy 78
Whole of life insurance 78
Term assurance 79
Income protection 79
Critical illness 79
Collective life 79
ISAs 79
Personal pensions 79
Stakeholder pensions 79
Group personal pensions 79
DSS rebates 80
Employer sponsored stakeholder pension (ESS) 80
Self invested personal pensions 80
Free-Standing Additional Voluntary Contributions (FSAVC) 80
ABI definitions of distribution channels 80
Independent financial advisors 80
Direct sales forces 80
Tied agents 80
Multi-tied agents 80
Bancassurance 81
Direct marketing 81
Telesales 81
Other 81
Matrix-Data definitions 81
IFA firm types 81
Grossed annual aggregate turnover 81
IFA sales people 81
Methodology 82
Regression analysis is unsuitable for Life and Pensions forecasting 82
Datamonitor uses a qualitative forecasting methodology for life and pensions 82
Further reading 83
Ask the analyst 83
Datamonitor consulting 83
Disclaimer 83
List of Tables
Table 1: Total life and pensions new business by distribution channel 2004-2008, £m APE 9
Table 2: Total regular premium life new business premiums by distribution channel 2004-2008, £m APE 9
Table 3: Regular premium life new business through IFAs 2004-2008, £m APE 12
Table 4: Total single premium life new business premiums by distribution channel 2004-2008, £m APE 14
Table 5: Single premium life new business premiums through IFAs 2004-2008, £m APE 16
Table 6: Regular premium pensions new business through IFAs 2004-2008, £m APE 18
Table 7: Single premium pensions new business through IFAs 2004-2008, £m APE 19
Table 8: Forecast total life and pensions new business by distribution channel 2009-2013, £m APE 21
Table 9: Forecast regular premium life new business through IFAs 2009-2013, £m APE 24
Table 10: Forecast single premium life new business through IFAs 2009-2013, £m APE 26
Table 11: Forecast regular premium pensions new business through IFAs 2009-2013, £m APE 27
Table 12: Forecast single premium pensions new business through IFAs 2009-2013, £m APE 29
Table 13: Who do you see as the main competition for clients in your market? 43
Table 14: To what extent do you see the following as a challenge for the IFA market? 49
Table 15: How do you see business in each of the following areas changing over the next six months? 51
Table 16: The structure of the UK IFA market 60
Table 17: Number of sales staff in IFA firms, 2005-2009 61
Table 18: Grossed aggregate turnover by product segment, £m 64
Table 19: Annual turnover of IFA firms 2005-2009 66
Table 20: Turnover of the UK IFA networks b competitor in 2009 70
Table 21: Size of IFA network firms by sales staff in 2009 72
Table 22: Turnover per salesperson within the UK IFA networks in 2009 74
List of Figures
Figure 1: Financial advisors lead in the sale of life and pensions products 8
Figure 2: Term assurance dominates regular premium life sales for IFAs 10
Figure 3: Sales of investment bonds through IFAs have significantly declined in 2008 15
Figure 4: Group personal pensions command regular premium pension sales by IFAs 17
Figure 5: Personal pensions dominate single premium pensions market for IFAs 19
Figure 6: Independent advisors will continue their reign in the distribution of life and pensions products 21
Figure 7: Term assurance will continue to be popular in regular premium life sales for IFAs 22
Figure 8: Unit-linked bonds will command single premium life sales by IFAs over the next five years 25
Figure 9: Group personal pensions are forecasted to dominate the regular premium pensions market 27
Figure 10: Single premium pensions new business by IFAs will grow by a slender 3% over the next 5 years 28
Figure 11: The RDR proposes a three way split for advice 32
Figure 12: The RDR creates three key challenges for the IFA model 33
Figure 13: The requirement for higher professional qualifications will have a significant impact for IFAs 34
Figure 14: The new remuneration proposals will come to pass with a high impact on IFAs 36
Figure 15: New independence requirements places a high severity of challenge on the IFA model 37
Figure 16: Consumers are not willing to pay up front for professional financial advice 42
Figure 17: High street banks pose the biggest threat to advisors 43
Figure 18: IFAs perceive current economic conditions to be the most important challenge to their market 48
Figure 19: IFAs perceive ISAs to have the most growth potential over the next six months 50
Figure 20: The total number of IFA firms in the UK declined sharply from 2008 58
Figure 21: Firms of appointed representatives dominate the UK IFA market structure 59
Figure 22: Small firms with less than five sales staff dominates the UK IFA market 60
Figure 23: IFAs continue to generate most of their revenue from investment and pension products 62
Figure 24: The gross annual turnover of UK IFA firms have steadily increased over the past 5 years 65
Figure 25: Sesame continues its domination in IFA networks by turnover 69
Figure 26: Sesame tops the sales force list in 2009 71
Figure 27: Hart Insurance Brokers head the most efficient sales force out of UK IFA networks 73
Figure 28: "Quasi-Delphi" forecasting technique 82

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