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Consumers and Financial Advice - UK - April 2010

This report examines the current issues facing the financial advice market, focusing on consumer attitudes and behaviour. It considers the impact of proposed regulatory changes, the current size and shape of the intermediary marketplace and the growing influence of online sources of advice. Mintel’s exclusively commissioned consumer research analyses the different sources of advice used, consumer attitudes towards paying a fee for advice and general attitudes towards the financial advice market.

  • There is scope to expand professional financial advice services as nearly two-thirds of adults have either never sought financial advice or have only used one source of advice such as friends and family or bank/building society staff.
  • Bank staff are the most popular source of financial advice (after friends and family), although over the last 12 months the gap between bank/building society advisers and IFAs as channel of advice appears to have narrowed – in favour of IFAs.
  • IFA services are not the sole preserve of the wealthy. More than half of IFA clients have investible assets of between £1,000 and £50,000.
  • A third of adults prefer to take an independent approach to financial advice – opting to complete their own financial research and make their own decisions.
  • Proposals outlined in the Retail Distribution Review will require that consumers agree an upfront fee for investment advice, although Mintel’s consumer research reveals that around 31 million adults would be not prepared to pay a fee for advice.
  • Among those who would be prepared to pay a fee for investment advice nearly 70% would choose to pay less than £100, which is likely to be much lower than the hourly rate charged by most financial advisers.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Abbreviations
        • Future Opportunities

          • Embracing the media evolution
            • Creating a new relationship between advisers and consumers
            • Market in Brief

              • Most popular sources of financial advice
                • Figure 1: Trends for main sources of financial advice used, 2009 and 2010
              • Attitudes towards financial advice varies between different groups
                • Figure 2: Attitudes towards financial advice, February 2010
              • Online advice is growing in importance
                • Figure 3: Attitudes towards online sources of financial advice, June 2009
              • Regulatory upheaval – the Retail Distribution Review
                • There is little appetite for fee-based advice
                  • Figure 4: Amount people are prepared to pay upfront for independent financial advice, February 2010
                • Number of directly authorised financial advice firms falls
                  • Figure 5: Total number of directly authorised firms, 2006-09
                • Mortgage advice
                  • General insurance advice
                    • Financial advice (investments and pensions)
                    • Impact of the Retail Distribution Review

                      • Key points
                        • Outline of the RDR
                          • Potential opportunities and implications
                            • New categories for advice services
                              • Simplified and Basic Advice
                                • The new landscape for financial advice
                                  • Figure 6: Proposed regulatory landscape, 2013
                                • Charging structures
                                  • Improving professional standards
                                    • Costs and timeline for implementation
                                      • The IFA population set to decline
                                        • The IFA perspective
                                          • Figure 7: IFA views on the impact of the RDR, November 2009
                                        • Increase in capital requirements
                                        • Demographic and Macroeconomic Context

                                          • Key points
                                            • Ageing population drives demand for long-term saving products
                                              • Figure 8: Cohort life expectancy at age 60, by gender, 1981-2056
                                            • Auto-enrolment/NEST should boost market for pension advice
                                              • Low interest rates and rising inflation limit returns for savers
                                                • Figure 9: Monthly changes in the annual rate of inflation* and changes in the bank of england base rate, January 2005-10
                                              • FTSE rallies but investor confidence remains low
                                                • Figure 10: FTSE 100 and FTSE All Share – daily index movements, January 2004-January 2010
                                              • Demand for mortgage advice remains weak
                                                • Figure 11: Number of monthly mortgage approvals (seasonally adjusted), by type, December 2007-December 2009
                                            • Consumer Sentiment

                                              • Key points
                                                • Consumer confidence drives demand for advice
                                                  • Figure 12: GfK Consumer Confidence Barometer – UK, January 1988-January 2010
                                                • Debt repayment and savings are financial priorities
                                                  • Figure 13: Savings, investment, borrowing and debt repayment – consumers’ expected activity, quarterly indices, June 2002-December 2009
                                                • Intentions suggest a shift from spending to saving mentality
                                                  • Figure 14: Consumer financial priorities over the previous year and coming year, November 2009
                                                • But 2010 is expected to be a year of uncertainty
                                                  • Figure 15: Consumer expectations of macroeconomic changes, November 2009
                                              • SWOT Analysis

                                                  • Figure 16: Financial advice market – summary of strengths, weaknesses, opprtunities and threats, 2010
                                              • Size and Structure of the Intermediary Market

                                                • Key points
                                                  • Number of directly authorised firms continues to decline
                                                    • Figure 17: Total number of directly authorised firms, 2006-09
                                                  • The number of DA mortgage firms fell by 25% in 2009
                                                    • Figure 18: Number of directly authorised retail intermediary firms, by sector (primary category), 2006-09
                                                  • The number of IFAs is expected to fall over next few years
                                                    • Figure 19: Number of financial advice ARs and DA intermediary firms, by type 2006-09
                                                  • Mortgage intermediary sector in flux
                                                    • Figure 20: Number of mortgage and other home finance ARs and DA intermediary firms, by type 2006-09
                                                  • General insurance intermediary market dominated by ARs
                                                    • Figure 21: Number of general insurance ARs and DA intermediary firms, by type 2006-09
                                                • Adviser Firm Rankings

                                                    • Sesame are the leading financial advice firm
                                                      • Figure 22: Top 15 financial advisers in the UK based on relevant turnover, 2009
                                                    • About the top three
                                                      • Sesame
                                                        • Openwork
                                                          • Honister Capital
                                                          • Brand Communication and Promotion

                                                            • Key points
                                                              • Financial advice adspend falls in 2009
                                                                • Figure 23: Advertising expenditure for financial advice services, 2007-09
                                                              • Independent and non-independent sectors use different media
                                                                • Figure 24: Advertising expenditure of financial advice, by media types, 2009
                                                              • A range of providers advertise in the independent advice market
                                                                • Figure 25: Top ten advertisers of independent financial advice, 2009
                                                              • Banks dominate the non-independent sector
                                                                • Figure 26: Top ten advertisers of non-independent financial advice, 2009
                                                            • Online Sources of Advice

                                                              • Key points
                                                                • The growing role of online advice
                                                                  • Figure 27: Most popular sources of advice for a range of financial products, (includes banking, general insurance and long-term products) June 2009
                                                                • Consumer opinions regarding the internet as source of advice
                                                                  • The internet provides a good starting point
                                                                    • Figure 28: Attitudes towards online sources of financial advice, June 2009
                                                                  • Finance website usage is dominated by banking providers
                                                                    • Figure 29: Top 20 financial websites, by unique visitor numebrs, February 2010
                                                                  • But information sites have gained a significant presence
                                                                    • Finance information site usage increases during 2009
                                                                      • Figure 30: Unique visitors to selected finanical advice/information websites, February 2009-February 2010
                                                                  • The Consumer – Product Ownership and Wealth Distribution

                                                                    • Key points
                                                                      • Note on consumer research
                                                                        • Non-advised products dominates financial product ownership
                                                                            • Figure 31: Financial products ownership, February 2010
                                                                          • Demographic profile varies between product sectors
                                                                            • Figure 32: Demographic profile for product ownership in key markets for financial advice, February 2010
                                                                          • Wealth distribution remains largely unchanged over the last 12 months
                                                                              • Figure 33: Trends in total value of investible assets, 2009-10
                                                                            • An overview of wealth distribution
                                                                              • Wealth increases with age
                                                                                • Figure 34: Demographic profile of consumers with different levels of investible assets, February 2010
                                                                              • The correlation between investible assets and product ownership
                                                                                • Figure 35: Financial products owned by total value of savings, investments, February 2010
                                                                            • The Consumer – Sources of Financial Advice

                                                                              • Key points
                                                                                • Friends and family are the most popular source of advice
                                                                                  • Figure 36: Trends for main sources of financial advice used, 2009 and 2010
                                                                                • Banks still lead the way
                                                                                  • Demographic influences on advice sources used
                                                                                    • Figure 37: Key demographics for main sources of advice, February 2010
                                                                                  • Most people are reliant on one source of advice
                                                                                    • Figure 38: Number of sources of advice used, February 2010
                                                                                    • Figure 39: Sources of advice used, by the number of sources of advice used, February 2010
                                                                                  • Many mass-market consumers use multiple sources of advice
                                                                                    • Figure 40: Total value of savings and investible assets, by the number of sources advice used, February 2010
                                                                                  • Sources of advice are greatly influenced by product complexity…
                                                                                    • Figure 41: Sources of advice used, by ownership of selected financial products, February 2010
                                                                                  • … and by the level of wealth
                                                                                    • Figure 42: Sought advice or guidance for financial matter, by total value of savings and investments, February 2010
                                                                                  • 50% of IFA customers could be described as mass market
                                                                                    • Figure 43: IFA usgae by level of savings and investible assets, February 2010
                                                                                • The Consumer – Paying for Financial Advice

                                                                                  • Key points
                                                                                    • There is little appetite for paying upfront fees for investment advice
                                                                                        • Figure 44: Amount people are prepared to pay upfront for independent financial advice, February 2010
                                                                                      • Mixed opinion to paying fees over commission
                                                                                        • People who have used IFAs are more willing than average to pay fees…
                                                                                          • Figure 45: Amount people are prepared to pay for independent financial advice, by selected sources of advice used, February 2010
                                                                                        • … but the majority will still need convincing to pay a fee for advice
                                                                                          • Almost 50% of key IFA targets would not pay an upfront fee for advice
                                                                                            • Figure 46: Amount people are prepared to pay for independent financial advice, by total value of savings, investments, February 2010
                                                                                          • Affordability determines the likelihood to pay for financial advice…
                                                                                            • Figure 47: Amount people are prepared to pay for independent financial advice, by household income, February 2010
                                                                                          • ... and lifestage also influences the appetite to pay a fee for advice
                                                                                            • Regional variations could also impact charging structures
                                                                                            • The Consumer – Attitudes towards Financial Advice

                                                                                              • Key points
                                                                                                • A third of people prefer to conduct their own research
                                                                                                    • Figure 48: Attitudes towards financial advice, February 2010
                                                                                                  • Only 27% of adults agree that IFAs offer a valuable service
                                                                                                    • Raising standards should help to increase perception of value
                                                                                                      • Most IFA customers believe that IFAs provide a valuable service
                                                                                                        • Figure 49: Attitudes towards financial advice, by selected sources of advice used, February 2010
                                                                                                      • The influence of the internet as a source of advice
                                                                                                        • Figure 50: Attitudes towards financial advice, by total value of savings, investments, February 2010
                                                                                                      • Some self-reliant consumers could benefit from financial advice
                                                                                                        • Figure 51: Cross-analysis of most popular attitudes towards financial advice, February 2010
                                                                                                      • The link between commission and poor advice
                                                                                                        • Figure 52: Cross-analysis of next most popular attitudes towards financial advice, February 2010
                                                                                                    • The Consumer – Targeting Opportunities

                                                                                                      • Key points
                                                                                                        • Target group analysis
                                                                                                          • Figure 53: Target groups for attitudes towards financial advice, February 2010
                                                                                                          • Figure 54: Attitudes towards financial advice, by target groups, February 2010
                                                                                                        • Financial adviser advocates
                                                                                                          • Financial adviser cynics
                                                                                                            • Straightforward Finances
                                                                                                              • Uninterested
                                                                                                              • Appendix – The Changing Landscape for Financial Advice

                                                                                                                • Key points
                                                                                                                  • A complex and fragmented market
                                                                                                                    • Figure 55: Overview of the market for financial advice, 2010
                                                                                                                  • Improving financial capability – Money Guidance
                                                                                                                    • The development of investment platforms
                                                                                                                      • Platform providers
                                                                                                                      • Appendix – Regulatory Changes

                                                                                                                        • Key points
                                                                                                                          • A changing regulatory backdrop
                                                                                                                            • Depolarisation
                                                                                                                              • TCF
                                                                                                                                • MiFID
                                                                                                                                  • RDR
                                                                                                                                    • Forthcoming regulatory changes – beyond the RDR
                                                                                                                                      • PRIPs
                                                                                                                                        • Mortgage Market Review
                                                                                                                                          • Political change could see further regulatory change
                                                                                                                                            • Intermediary firms face FSA fee structure changes
                                                                                                                                            • Appendix – The Consumer – Product Ownership and Wealth Distribution

                                                                                                                                                • Figure 56: Demographic breakdown for product ownership in key markets for financial advice, February 2010
                                                                                                                                                • Figure 57: Demographic breakdown of consumers with different levels of investible assets, February 2010
                                                                                                                                            • Appendix – The Consumer – Paying for Financial Advice

                                                                                                                                                • Figure 58: Amount prepared to pay to independent financial advisor for advice about investing or pensions, by demographics, February 2010
                                                                                                                                            • Appendix – The Consumer – Attitudes to Financial Advice

                                                                                                                                                • Figure 59: Attitudes towards financial advice, by demographics, February 2010
                                                                                                                                                • Figure 60: Attitudes towards financial advice, by demographics, February 2010
                                                                                                                                            • Appendix – The Consumer – Targeting Opportunities

                                                                                                                                                • Figure 61: Target groups, by demographics, February 2010
                                                                                                                                                • Figure 62: Ownership of financial products, by target groups, February 2010
                                                                                                                                                • Figure 63: Value of investible assets, by target groups, February 2010
                                                                                                                                                • Figure 64: Sources of financial advice used, by target groups, February 2010
                                                                                                                                                • Figure 65: Amount people are prepared to pay for independent financial advice, by target groups, February 2010

                                                                                                                                            Companies Covered

                                                                                                                                            • Alliance & Leicester
                                                                                                                                            • Asda Group Ltd
                                                                                                                                            • Association of British Insurers
                                                                                                                                            • Bank of America Corporation
                                                                                                                                            • Bank of England
                                                                                                                                            • Barclays Bank plc
                                                                                                                                            • Brewin Dolphin Holdings PLC
                                                                                                                                            • Citizens Advice Bureau
                                                                                                                                            • Co-operative Group
                                                                                                                                            • Financial Services Authority (The)
                                                                                                                                            • Friends Provident plc
                                                                                                                                            • Gfk NOP
                                                                                                                                            • GoCompare
                                                                                                                                            • Government Actuary's Department (GAD)
                                                                                                                                            • Grupo Santander Central Hispano S.A.
                                                                                                                                            • Hargreaves Lansdown Plc
                                                                                                                                            • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                            • HSBC Private Bank (UK) Limited
                                                                                                                                            • Investment Management Association
                                                                                                                                            • JPMorgan Chase & Co
                                                                                                                                            • Jupiter Unit Trust Managers Ltd
                                                                                                                                            • Legal & General Group PLC
                                                                                                                                            • Lighthouse Group Plc
                                                                                                                                            • Lloyds Banking Group
                                                                                                                                            • London Stock Exchange plc
                                                                                                                                            • Money Portal Limited
                                                                                                                                            • MoneySupermarket.com Limited
                                                                                                                                            • Morley Fund Management
                                                                                                                                            • Nationwide Building Society
                                                                                                                                            • NatWest
                                                                                                                                            • NFU Mutual
                                                                                                                                            • Office of Fair Trading
                                                                                                                                            • Outdoor Advertising Association of Great Britain
                                                                                                                                            • Royal Bank of Scotland Group plc
                                                                                                                                            • Skandia UK
                                                                                                                                            • Tenet Group Ltd
                                                                                                                                            • Threadneedle Investment Services Ltd
                                                                                                                                            • Twitter, Inc.
                                                                                                                                            • Yahoo! UK & Ireland
                                                                                                                                            • Zurich Financial Services

                                                                                                                                            Consumers and Financial Advice - UK - April 2010

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