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Structured Deposit and Structured Investment Products - UK - February 2012

“In the trade-off between risk and return, consumers continue value capital protection over the potential for high returns. However, this does not mean that UK consumers are entirely risk-averse: more than 50% would consider investing a proportion of their savings and investments into products that carry a degree of risk to their capital.”

– Deborah Osguthorpe, Senior Financial Services Analyst

Some questions answered in this report include:

  • Can the market reverse the recent decline in sales volume?
  • How will the implementation of the RDR impact the market?
  • How comfortable are consumers with the concept of investment risk?
  • To what extent do consumers value capital protection over higher rewards?
  • What types of structured products appeal most to consumers?

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Table of contents

  1. Introduction

      • Market definitions and report scope
        • Structured product categories
          • Other terms and definitions
            • Abbreviations
            • Executive Summary

                • The market
                  • Sales volumes decline in 2010 and 2011
                    • Figure 1: UK structured products market, by sales volume, 2007-11
                  • Market factors
                    • Structured product market continues to face reputational challenges
                      • Regulatory scrutiny remains but RDR should be positive for the market
                        • Investor sentiment and saving intentions decline
                          • Companies, brands and innovation
                            • Retail banks play a major role in the structured product market
                              • Tackling counterparty risk and responding to market volatility
                                • The consumer
                                  • Around one in ten has a structured deposit product…
                                    • Figure 2: Saving product ownership, December 2011
                                  • …while 12% say that they own structured investment products
                                    • Figure 3: Investment product ownership, December 2011
                                  • More than 50% are prepared to take some degree of risk
                                    • Figure 4: Proportion of total savings and investments that consumers are prepared to invest in products that include some degree of risk, December 2011
                                  • Capital protection is valued over higher returns
                                    • Figure 5: Attitudes towards capital protection and potential returns, December 2011
                                  • FTSE 100 linked, capital protected products are seen as most appealing
                                    • Figure 6: Consumer appetite for typical features associated with structured products, December 2011
                                  • What we think
                                  • Issues in the Market

                                      • Can the market reverse the recent decline in sales volume?
                                        • How will the implementation of the RDR impact the market?
                                          • How comfortable are consumers with the concept of investment risk?
                                            • To what extent do consumers value capital protection over higher rewards?
                                              • What types of structured products appeal most to consumers?
                                              • Future Opportunities

                                                • Greater transparency to build trust and understanding
                                                  • Structured products could help to increase investment ownership among women
                                                  • Internal Market Environment

                                                    • Key points
                                                      • A troubled history
                                                        • Precipice bond losses
                                                          • Lehman Brothers collapse
                                                            • Keydata collapse leads to reputational damage through association
                                                              • Credit Suisse fined £5.95 million over sale of SCARPs
                                                                • Rebuilding trust and reputations
                                                                  • Formation of the UK Structured Products Association
                                                                    • Launch of StructuredProductReview.com
                                                                      • Improving product transparency and tackling counterparty risk
                                                                        • Vocal criticism of structured products market persists
                                                                          • Some have reservations about high street distribution
                                                                            • A hangover from the stock market boom
                                                                              • Regulatory context
                                                                                • Structured products remain on FSA radar
                                                                                  • Further FSA scrutiny on the horizon
                                                                                    • RDR to create a level playing field…
                                                                                      • … and should raise structured product awareness among advisers
                                                                                        • EU regulation – PRIPs and Mifid II
                                                                                        • Broader Market Environment

                                                                                          • Key points
                                                                                            • Consumers remain fearful of economic uncertainty
                                                                                              • Figure 7: UK consumer confidence, January 1997-December 2011
                                                                                            • Low savings rates increase the appeal of structured products
                                                                                              • Figure 8: Monthly changes in the rate of annual inflation* and Bank of England base rate – UK August 2007-November 2011
                                                                                            • Growth in retail savings balances has slowed
                                                                                              • Figure 9: Retail saving balances, deposits from households, 2004-11
                                                                                            • FTSE 100 experiences a volatile 2011
                                                                                              • Figure 10: FTSE 100 and FTSE All-Share – closing values, January 2005-December 2011
                                                                                            • Investor sentiment falls to a new low
                                                                                              • Figure 11: Intended investment activity, Q3/Q4 2002-Q4 11/Q1 2012
                                                                                            • UK consumers are becoming increasingly risk-averse
                                                                                              • Figure 12: Agreement with various statements associated with investment behaviour, 2007 -2011
                                                                                          • Competitive Context

                                                                                            • Key points
                                                                                              • Competing products used to diversify client portfolios
                                                                                                • Equity ISAs dominate retail investment product sales
                                                                                                  • Figure 13: Retail investment product sales, year to 31 March 2011
                                                                                                • Unit trusts/OEICs suffer a sharp fall in net sales
                                                                                                  • Figure 14: Retail sales of unit trusts and OEICs – UK-domiciled, 2006-11
                                                                                                • Investment bond sales continue to decline
                                                                                                  • Figure 15: Size of the onshore versus UK-distributed offshore investment bond market, by new premiums, 2005-11
                                                                                                • Instant access savings dominate the retail saving landscape
                                                                                                  • Figure 16: Ownership of cash-based savings products, December 2011
                                                                                              • SWOT Analysis

                                                                                                  • Figure 17: SWOT analysis of the UK structured products market,
                                                                                              • Who’s Innovating?

                                                                                                • Key points
                                                                                                  • Multi-counterparties and collaterisation used to spread risk and build confidence
                                                                                                    • Investec launch collaterised product option
                                                                                                      • Gilliat unveils first multi-counterparty product
                                                                                                        • Responding to market volatility and demand for cautious investment
                                                                                                          • Providing protection against inflation
                                                                                                            • Platforms represent an area for growth
                                                                                                            • Market Size and Forecast

                                                                                                              • Key points
                                                                                                                • Sales of structured products have fallen after peaking in 2009
                                                                                                                  • Figure 18: UK structured products market, by sales volume, 2007-11
                                                                                                                • Sales had almost doubled between 2007 and 2009
                                                                                                                  • Market forecast
                                                                                                                    • Figure 19: Forecast for UK structured products market, by sales volume, 2007-16
                                                                                                                    • Figure 20: Forecast for UK structured products market, by sales volume, 2007-16
                                                                                                                  • Forecast methodology
                                                                                                                    • Fan chart explained
                                                                                                                    • Market Share

                                                                                                                      • Key points
                                                                                                                        • Retail banks play major role in structured product market
                                                                                                                          • Figure 21: Top ten structured product providers (market share), in alphabetical order, 2011
                                                                                                                        • Top five providers accounted for 67% of sales value in 2011
                                                                                                                          • Figure 22: Market share for top five structured product providers, based on sales value, (providers not stated), 2011
                                                                                                                      • Companies and Products

                                                                                                                        • More than 900 products launched in 2011
                                                                                                                          • Figure 23: Number of products launched and number of products where FTSE 100 is the underlying index, 2007-11
                                                                                                                        • Company profiles
                                                                                                                          • Barclays
                                                                                                                            • Gilliat Financial Solutions
                                                                                                                              • Investec
                                                                                                                                • Legal & General
                                                                                                                                  • Lloyds Banking Group
                                                                                                                                    • RBS
                                                                                                                                      • Santander
                                                                                                                                      • Brand Communication and Promotion

                                                                                                                                        • Key points
                                                                                                                                          • Saving and investment adspend has edged upwards
                                                                                                                                            • Figure 24: Adspend on saving, investments and intermediary-related saving and investments, 2006/07-2010/11
                                                                                                                                          • Cash ISAs top the list of saving and investment adspend
                                                                                                                                            • Figure 25: Saving and investment related adspend, top 10 by product area, 2006/07-2010/11
                                                                                                                                          • Press dominates saving and investment adspend
                                                                                                                                            • Figure 26: Saving and investment related adspend, by media type (top 25), 2010/11
                                                                                                                                          • Retail banking providers top saving and investment adspend list
                                                                                                                                            • Figure 27: Saving and investment related adspend, by advertiser (top 25), 2010/11
                                                                                                                                          • A note on adspend
                                                                                                                                          • Channels to Market

                                                                                                                                            • Key points
                                                                                                                                              • Financial adviser share of the market is growing
                                                                                                                                                • Figure 28: Distribution of structured products – product availability by channel, by volume sold, 2007-11
                                                                                                                                              • RDR is expected to provide a springboard for the market…
                                                                                                                                                • … however, appetite for professional financial advice is declining
                                                                                                                                                  • Figure 29: Agreement with the statement ‘I usually consult a professional financial adviser before deciding on financial matters’, 2003-11
                                                                                                                                              • Saving Product Ownership

                                                                                                                                                • Key points
                                                                                                                                                  • Instant access accounts dominate cash-based savings landscape
                                                                                                                                                    • Figure 30: Saving product ownership saving product ownership, ISA and non-ISA accounts, December 2011
                                                                                                                                                  • Around one in ten have a structured product deposit account
                                                                                                                                                    • Men are more likely to take out a structured deposit account
                                                                                                                                                      • Figure 31: Structured deposit product ownership, by gender and age, December 2011
                                                                                                                                                    • Ownership is also linked to affluence
                                                                                                                                                      • Figure 32: Structured deposit product ownership, by socio-economic group and gross annual household income, December 2011
                                                                                                                                                      • Figure 33: Structured deposit account ownership, by current financial situation, December 2011
                                                                                                                                                    • Structured deposit accounts held by savers with multiple accounts
                                                                                                                                                      • Figure 34: Saving product ownership, by repertoire of saving product ownership, December 2011
                                                                                                                                                  • Investment Product Ownership

                                                                                                                                                    • Key points
                                                                                                                                                      • More than a third hold at least one investment product
                                                                                                                                                        • Figure 35: Investment product ownership, ISA and non-ISA accounts, December 2011
                                                                                                                                                      • Overlap between product holdings
                                                                                                                                                        • Figure 36: Cross analysis of investment product ownership, December 2011
                                                                                                                                                      • Adults aged 25-34 and 55+ are more likely to hold structured investments
                                                                                                                                                        • Figure 37: Structured investment product ownership, by gender and age, December 2011
                                                                                                                                                      • Financially healthy are more likely to hold structured investment products
                                                                                                                                                        • Figure 38: Structured investment product ownership, by socio-economic group and gross annual household income, December 2011
                                                                                                                                                        • Figure 39: Structured investment product ownership by current financial situation, December 2011
                                                                                                                                                    • Saving Attitudes and Preferences

                                                                                                                                                      • Key points
                                                                                                                                                        • Almost two fifths of savers would lock away funds for a better return
                                                                                                                                                          • Figure 40: Attitudes towards saving and savings products, December 2011
                                                                                                                                                        • But savers will generally look for simplicity
                                                                                                                                                          • More than a fifth are prime targets for structured deposit products
                                                                                                                                                            • Under-35s are more likely to see the attraction of structured products…
                                                                                                                                                              • Figure 41: Attitudes towards saving and savings products, by gender, age-group, socio-economic group and gross annual household income, December 2011
                                                                                                                                                            • … but older savers may be harder to convince
                                                                                                                                                              • Professional advice plays a key role in the structured deposit market
                                                                                                                                                                • Figure 42: Attitudes towards saving and saving products, by saving product ownership, December 2011
                                                                                                                                                            • Investment Attitudes and Preferences

                                                                                                                                                              • Key points
                                                                                                                                                                • Structured products can fit a range of investor preferences
                                                                                                                                                                  • Figure 43: Attitudes towards investing, December 2011
                                                                                                                                                                • Structured investment product holders appear to take a slightly more passive approach
                                                                                                                                                                  • Figure 44: Attitudes towards investing, by investment product ownership, December 2011
                                                                                                                                                                • Opportunities to expand ownership among women
                                                                                                                                                                  • Figure 45: Attitudes towards investing, by gender, age, socio-economic group and gross annual household income, December 2011
                                                                                                                                                                • Defined terms could be off-putting for younger investors
                                                                                                                                                                • Attitudes Towards Risk

                                                                                                                                                                  • Key points
                                                                                                                                                                    • More than 50% of consumers are prepared to take some investment risk
                                                                                                                                                                      • Figure 46: Proportion of total savings and investments that consumers are prepared to invest in products that include some degree of risk, December 2011
                                                                                                                                                                    • Only 14% of structured deposit holders are completely risk-averse
                                                                                                                                                                      • Figure 47: Attitudes towards risk, by saving product ownership, December 2011
                                                                                                                                                                    • Similar risk profiles are evident across retail investment market
                                                                                                                                                                      • Figure 48: Attitudes towards risk, by investment product ownership, December 2011
                                                                                                                                                                    • Risk-averse savers look for simple and easy to understand products
                                                                                                                                                                      • Figure 49: Attitudes towards saving and savings products, by attitudes towards risk, December 2011
                                                                                                                                                                    • Active investors are more inclined to take risks
                                                                                                                                                                      • Figure 50: Attitudes towards investing, by attitudes towards risk, December 2011
                                                                                                                                                                  • Balancing Risk and Reward

                                                                                                                                                                    • Key points
                                                                                                                                                                      • Capital protection is valued more than high returns
                                                                                                                                                                        • Figure 51: Attitudes towards capital protection and potential returns, December 2011
                                                                                                                                                                      • The risk-averse are weak prospects for structured product providers
                                                                                                                                                                        • Figure 52: Attitudes towards capital protection and potential returns, by attitudes towards risk, December 2011
                                                                                                                                                                      • Opportunities to cross-sell structured products among existing holders
                                                                                                                                                                        • Figure 53: Attitudes towards capital protection and potential returns, by ownership of structured deposit and structured investment products, December 2011
                                                                                                                                                                    • Appetite for Typical Structured Product Features

                                                                                                                                                                      • Key points
                                                                                                                                                                        • Single index, FTSE-linked products hold the widest appeal
                                                                                                                                                                          • Figure 54: Consumer appetite for typical features associated with structured products, December 2011
                                                                                                                                                                        • Striking a balance between value and product complexity
                                                                                                                                                                          • Structured product holders also favour FTSE-linked, capital protected plans
                                                                                                                                                                            • Figure 55: Appetite for typical structured product features, by structured deposit and structured investment product holders, December 2011
                                                                                                                                                                          • Higher risk takers will consider a wider range of indices and asset classes
                                                                                                                                                                            • Figure 56: Appetite for typical structured product features, by attitudes towards risk, December 2011
                                                                                                                                                                        • Appendix – Market Forecast

                                                                                                                                                                            • Figure 57: Structured product market forecast – best and worst case scenario, 2011-16
                                                                                                                                                                        • Appendix – Saving Product Ownership

                                                                                                                                                                            • Figure 58: Saving product ownership, by demographics, December 2011
                                                                                                                                                                            • Figure 59: Repertoire of saving product ownership, by demographics, December 2011
                                                                                                                                                                        • Appendix – Investment Product Ownership

                                                                                                                                                                            • Figure 60: Investment product ownership, by demographics, December 2011
                                                                                                                                                                        • Appendix – Saving Attitudes and Preferences

                                                                                                                                                                            • Figure 61: Most popular attitudes towards saving and saving products, by demographics, December 2011
                                                                                                                                                                            • Figure 62: Next most popular attitudes towards saving and saving products, by demographics, December 2011
                                                                                                                                                                        • Appendix – Investment Attitudes and Preferences

                                                                                                                                                                            • Figure 63: Most popular attitudes towards investing, by demographics, December 2011
                                                                                                                                                                            • Figure 64: Next most popular attitudes towards investing, by demographics, December 2011
                                                                                                                                                                        • Appendix – Attitudes Towards Risk and Rewards

                                                                                                                                                                            • Figure 65: Attitudes towards risk, by demographics, December 2011
                                                                                                                                                                        • Appendix – Balancing Risk and Reward

                                                                                                                                                                            • Figure 66: Attitudes towards capital protection and potential returns, 5-point scale, December 2011
                                                                                                                                                                            • Figure 67: Attitudes towards high returns but with no capital protection, by demographics, December 2011
                                                                                                                                                                            • Figure 68: Attitudes towards medium returns with reasonable level of capital protection, by demographics, December 2011
                                                                                                                                                                            • Figure 69: Attitudes towards lower returns with full capital protection, by demographics, December 2011
                                                                                                                                                                        • Appendix – Appetite for Typical Structured Product Features

                                                                                                                                                                            • Figure 70: Appetite for typical structured product features, by demographics, December 2011

                                                                                                                                                                        Companies Covered

                                                                                                                                                                        • Alliance & Leicester
                                                                                                                                                                        • Arbuthnot Banking Group
                                                                                                                                                                        • Aviva Plc
                                                                                                                                                                        • Barclays Bank plc
                                                                                                                                                                        • Bradford & Bingley plc
                                                                                                                                                                        • Gilliat Financial Solutions
                                                                                                                                                                        • Grupo Santander Central Hispano S.A.
                                                                                                                                                                        • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                        • HSBC Holdings plc
                                                                                                                                                                        • Intrinsic Financial Services
                                                                                                                                                                        • Investec
                                                                                                                                                                        • Legal & General Group PLC
                                                                                                                                                                        • Lloyds Banking Group
                                                                                                                                                                        • Morgan Stanley & Co International Ltd
                                                                                                                                                                        • NatWest
                                                                                                                                                                        • Rensburg Sheppards
                                                                                                                                                                        • Royal Bank of Scotland Group plc

                                                                                                                                                                        Structured Deposit and Structured Investment Products - UK - February 2012

                                                                                                                                                                        £1,995.00 (Excl.Tax)