CHAPTER 1 EXECUTIVE SUMMARY 3
Market Focus 3
Sector Issues 3
Competitor Issues 4
Distribution Dynamics 5
CHAPTER 2 INTRODUCTION 13
What is this report about? 13
Who is the target reader? 13
How to use this report 13
CHAPTER 3 MARKET FOCUS 15
Introduction 15
Key findings 15
Growth in the unit-linked market has historically driven the single premium bond market 16
Unit-linked bond new business dwarfs that of With-Profits 17
The unit-linked market is forecast to contine growing at a rapid pace 18
Growth has been driven by the favourable structure of unit-linked offerings 20
The unit-linked product explained 20
The unit-linked bond market is growing on the back of its status as the leading life investment bond, as well as the freefall in with-profits sales 21
With-profits are currently underweight in equities, leading to low return compared to unit-linked bonds 21
Clients appreciate the flexibility, choice and transparency of a unit-linked offering 22
Unit-linked investors can react to market changes rapidly in order to maximise potential returns 23
Product flexibility has caused some industry experts to believe that commission-based advisors have an incentive to oversell bonds 23
But other experts believe the commission structure to be the most efficient and cost-effective method of advisor remuneration 24
Regulation in the investment bond market has not been specific to unit-linked products 25
The substitution effect of A-Day regulation has caused some investors to consider unit-linked product offerings 25
Treating Customers Fairly has been a key regulatory issue, helping to increase investor understanding of unit-linked products and preventing the possibility of mis-selling 26
Online platforms keep clients informed and offer another means of client-advisor communication 27
Wrap platforms should be part of the development process to address TCF 27
Some experts believe that TCF will filter out the poorly-structured and poorly-performing providers, while others believe FSA intervention may be necessary 28
Unit-linked products have several appealing structural features 29
Distribution bonds are unit-linked bonds' most viable alternative 29
Unit-linked is the dominant investment bond product, with distribution bonds leading the rest of the pack 29
Unit-linked investors may also be interested in non-life related investment products such as unit trusts, investment trusts or OEICs, which have lower charges but are less tax-efficient 30
UK clients should also look at offshore alternatives 31
Data 33
CHAPTER 4 SECTOR ISSUES 35
Introduction 35
Key findings 35
Product structure has been a key issue in the unit-linked market, as well as certain regulatory developments 36
Clients appreciate the flexibility, choice and transparency of a unit-linked offering 36
A-Day pensions regulation has increased the amount of money channelled into unit-linked products 36
Despite certain strengths, Treating Customers Fairly has forced providers to adapt their strategy and some have been more prepared than others 37
Some providers have been slow in addressing the TCF initiative 37
Some providers have been more meticulous, though this has come at a price 38
Unit-linked providers need to be fully aware of TCF and its implications, especially because of the upcoming initiative deadlines and the threat of FSA action 38
Non-life related investment products are not seen as a direct alternative to unit-linked products 39
The decision between unit-linked and non-life related investments depends on investor attitude to taxation 40
Innovation is a key strategic issue in the unit-linked space 40
Innovation is an important area for providers, given an increasing move towards product commoditization 40
Innovation has centred on the fringes of the product offering, rather than any major changes to the product structure itself 41
But innovation costs money and advisors can sometimes be reluctant to recommend new products 41
But equally increasing the fund range can spread risk 42
Wraps are likely to have a positive effect on the sales of unit-linked bonds 42
Providers are having to be proactive in addressing market issues 43
In general, TCF is forcing providers to make sure clients understand the unit-linked product, through revision of product literature, highlighting charges and alteration to the product marketing approach 43
Market research should also give providers good quality information to use as a basis for future product strategy 44
Providers need to focus on IFA service and changes to the stream of commission 45
Open architecture and online functionality are vital areas of best practice for unit-linked providers 46
Sesame has taken TCF one step further by launching an online TCF tool 48
CHAPTER 5 COMPETITOR ISSUES 49
Introduction 49
Key findings 49
The top ten providers dominate the unit-linked market 50
HBOS is the biggest provider of unit-linked products in the UK market 50
The top five unit-linked providers have maintained their stronghold on the market over the last five years 51
Product development has focused on offshore opportunities 52
Cofunds & Fundsnetwork have both moved to incorporate offshore Luxembourg-based funds in their offerings 52
Skandia & Hartford are two examples of key unit-linked providers 53
Skandia is one of the UK's leading providers of savings, investments, pensions & protection products 53
Hartford is a new entrant in the UK unit-linked space 53
Scottish Life have devised an innovative unit-linked offering 55
Scottish Life - Life of Riley Fund combines fund performance with protection 55
Fund supermarkets are key participants in the unit-linked market 56
Cofunds claims it is the UK's largest independent investment platform 56
Fundsnetwork is Fidelity's fund supermarket offering 57
Fundsdirect claims to have been the UK's first fund supermarket 58
Data 59
CHAPTER 6 DISTRIBUTION DYNAMICS 61
Introduction 61
Key findings 61
IFAs are the most popular means of distributing unit-linked products 62
IFAs will continue to dominate the distribution landscape in 2005 and beyond 62
Unit-linked bonds are often used for strategic purposes 64
Unit-linked bonds are looked upon favourably by IFAs, who value the versatility of the product 64
Another important feature is the ability to switch funds 65
Many investors specifically value the use of unit-linked bonds for Inheritance-tax planning purposes 65
The market's move towards fee-based advice will place increasing importance on the peripheral features of a product offering 65
Data 67
CHAPTER 7 APPENDIX 69
Definitions 69
Annual Management Charge 69
SynThesys Life Business Line Definitions 69
Single premium policy 70
Regular premium 70
New business 70
Life based investment products 70
Life Product Definitions 71
Single Premium Life 71
Annual Premium Life 73
ABI definitions of distribution channels 74
Future readings 76
Life and Pensions SPP 76
Interactive Databases 76
Reports and Briefs 76
Financial Advice Market SPP 77
SPP writing team 78
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