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Consumers and Financial Advice - UK - April 2009

The UK financial advice market is highly fragmented, comprising some 15,500 directly authorised firms. However, it is also becoming increasingly consolidated, as difficult market conditions force some firms to merge or join networks and others to exit the market altogether. These trends are set to prevail, as new regulations, relating to professional standards and capital requirements, put pressure on smaller and under-capitalised firms.

The mortgage intermediary market in particular is going through a tough time. The past year has seen a sharp decline in mortgage intermediary sales, due to reduced product availability and lenders shifting focus onto direct business in order to increase margins. The downturn has also hit related sectors, such as mortgage-linked insurance. However, there are silver linings amongst the grey clouds. Many adviser firms are reporting increased demand for advice in the areas of pensions and retirement planning, investments and wealth management. Merger and acquisition activity is also helping some firms to diversify into new areas and strengthen their capital bases.

This report explores these issues in detail. It examines the impact of changing regulation and market conditions on the advice market by drawing on a range of trade, consumer and desk research. The report also presents the findings of Mintel’s independent consumer survey, supported by online focus group research.

Key report issues

  • Retail Distribution Review – what is proposed and how will the new regime impact on the market?

  • How have the main advice sectors performed recently, and which product areas are in and out of favour?

  • How has the financial crisis impacted on the advice market, and has it altered people’s perceptions of the banks and advisers?

  • What is the structure of the market and who are the leading players?

  • What other advice sources do financial advisers compete with?

  • Which subject areas have consumers previously sought expert advice on and which areas are they most likely to seek advice on in the future?

  • What do consumers think about taking, and paying for, professional financial advice?

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Table of contents

  1. Issues in the Market

      • Key issues explored
        • Abbreviations
        • Future Opportunities

          • IFAs can capitalise on consumers’ lack of confidence in the banks
            • It’ll be tough, but the banks can win back trust
              • Unorthodox venues can provide a relaxed and open setting
                • More and more people are turning to online forums to share experiences and advice
                • Market in Brief

                  • Key findings of Mintel’s consumer research
                    • Figure 1: Sources of financial advice used, January 2009
                  • Strong demand for professional advice
                    • Adapting to a harsh business climate
                      • Yet more regulation
                        • A contracting market
                          • General insurance is the largest sector, by number of DA firms
                            • Top performers achieved healthy turnover in 2007/08
                              • Industry adspend cut back
                              • Advice Landscape

                                • Key points
                                  • Historical context: from a polarised to a depolarised marketplace
                                    • Figure 2: The advice landscape pre- and post, June 2005
                                  • Only a handful of banks switched to a multi-tie approach…
                                    • …most kept existing arrangements
                                    • The Impact of the Retail Distribution Review

                                      • Key points
                                        • There’s more change on the way with RDR implementation
                                          • Redefining ‘sales’ versus ‘advice’…
                                            • Figure 3: Proposed regulatory landscape, 2012
                                          • …but does it muddy the water?
                                            • Moving away from commission-based remuneration
                                              • Separating advice from products
                                                • An increase in capital requirements
                                                  • Wider implications
                                                    • Mixed industry reaction
                                                      • Going forward
                                                      • Trade Perspective

                                                          • About the respondents
                                                            • Firms are generally positive about the RDR proposals…
                                                              • …but not all are convinced the changes will create new opportunities
                                                                • Clients are becoming more risk-averse in the current climate
                                                                  • The secret to success is a strong capital base and providing consistently good service
                                                                    • Respondents expect further market consolidation
                                                                      • Advisers have a role to play in winning back consumer trust
                                                                      • Market Environment

                                                                        • Key points
                                                                          • Economic downturn: Implications for the advice market
                                                                            • The crunch effect on investor behaviour
                                                                              • Products in and out of favour
                                                                                • Figure 4: General trends in consumer demand for financial products, 2009
                                                                              • Market turmoil…
                                                                                • Figure 5: FTSE 100 and FTSE All Share – daily index movements, January 2000-January 2009
                                                                              • …could increase demand for advice among some
                                                                                • Income and spending growth slows
                                                                                  • Housing slump hits mortgage advice market
                                                                                    • Figure 6: Number of loans for house purchase, by type of borrower, 2002-08
                                                                                  • Protection advisers shift focus away from mortgage-linked business
                                                                                    • Figure 7: Number of new regular-premium protection product sales, by type, 2004-08
                                                                                • Competitive Context

                                                                                  • Key points
                                                                                    • A variety of consumer advice sources
                                                                                      • Figure 8: Sources of financial information and advice
                                                                                    • Price-comparison sites have altered the general insurance landscape…
                                                                                      • …and moved into the advice arena
                                                                                      • Cost, Access and Trust

                                                                                        • Key points
                                                                                          • Time to take stock
                                                                                            • CAT barriers
                                                                                              • Confidence had been hit
                                                                                                • Figure 9: Agreement with statements about financial advisers, by gender, December 2008
                                                                                              • Consumers perceive commission bias, whether true or not
                                                                                              • Strengths and Weaknesses

                                                                                                  • Figure 10: Financial advice market – summary of strengths, weaknesses, opportunities and threats, 2009
                                                                                              • Size and Structure of the Intermediary Market

                                                                                                • Key points
                                                                                                  • Current regulatory structure of the advice market
                                                                                                    • Figure 11: Overview of the UK advice market, 2009
                                                                                                  • Contraction in the number of DA intermediary firms set to continue
                                                                                                    • Figure 12: Total number of directly authoritised retail intermediary firms, 2006-08
                                                                                                  • Mortgage sector hit hard by the property slump
                                                                                                    • Figure 13: Number of directly authoritised retail intermediary firms, by sector (primary category), 2006-08
                                                                                                  • Strong growth in the number of general insurance ARs
                                                                                                    • Figure 14: Number of general insurance ARs and DA intermediary firms, by type, 2006-08
                                                                                                  • More IFAs make the switch to AR status too
                                                                                                    • Figure 15: Number of financial advice ARs and DA intermediary firms, by type, 2006-08
                                                                                                  • The number of primary-category mortgage firms fell by 14% in 2008
                                                                                                    • Figure 16: Number of mortgage ARs and DA intermediary firms, by type, 2006-08
                                                                                                • Main Advice Sectors

                                                                                                  • Key points
                                                                                                    • Intermediaries work across the full range of financial sectors
                                                                                                      • Figure 17: Summary of the sectors written by retail intermediaries, 2009
                                                                                                    • The top reason people seek advice is mortgage-related
                                                                                                      • Figure 18: Intermediaries’ share of new mortgage business, by type of loan, 2006-08
                                                                                                    • Intermediaries generate the lion’s share of protection business
                                                                                                      • Figure 19: New individual protection business, by distribution channel, 2005-08
                                                                                                    • Sub-sector performance
                                                                                                      • IFAs dominate the sale of individual pensions…
                                                                                                        • Figure 20: New individual pensions business, by distribution channel, 2005-08
                                                                                                      • …but in the retirement income market, IFAs’ share continues to erode
                                                                                                        • Figure 21: Distribution of new retirement income products business, by channel, 2005-08
                                                                                                      • Intermediaries sell the majority of new insurance-linked investments…
                                                                                                        • Figure 22: New insurance-related investment business, by distribution channel, 2005-08
                                                                                                      • …and collective investments
                                                                                                        • Figure 23: Gross retail sales of UK-domiciled unit trusts and OEICs, by distribution channel, 2005-08
                                                                                                      • Implication and opportunity
                                                                                                        • General insurance intermediaries fight back
                                                                                                          • Figure 24: General insurance business (personal lines only), by distribution channel, 2003-07
                                                                                                        • Sector outlook
                                                                                                        • Adviser Firm Rankings

                                                                                                          • Key points
                                                                                                            • Sesame and Openwork are the largest IFA firms by turnover
                                                                                                              • Figure 25: Top 15 financial advisers in the UK, based on relevant turnover, 2007/08
                                                                                                            • About the top three
                                                                                                            • Brand Communication and Promotion

                                                                                                              • Key points
                                                                                                                • Mortgage intermediary adspend dramatically cut in 2008
                                                                                                                  • Figure 26: Advertising expenditure by financial intermediaries, by sector, 2006-08
                                                                                                                • Press advertising accounts for three quarters of industry expenditure
                                                                                                                  • Figure 27: Proportional distribution of intermediary advertising expenditure, by media type, 2008
                                                                                                                • Top IFA firms are conspicuous by their absence
                                                                                                                  • Figure 28: Advertising expenditure by financial intermediaries, by top 25 advisers, 2006-08
                                                                                                              • The Consumer – Wealth Distribution

                                                                                                                • Key points
                                                                                                                  • About Mintel’s consumer research
                                                                                                                    • Online focus group
                                                                                                                      • Over a third of UK adults have little or no savings
                                                                                                                          • Figure 29: Value of savings and other investible assets, January 2009
                                                                                                                        • Wealth increases with age
                                                                                                                          • Figure 30: Value of savings and other investible assets, by gender, age and socio-economic group, January 2009
                                                                                                                      • The Consumer – Advice Sources Used

                                                                                                                        • Key points
                                                                                                                          • People are most likely to consult family and friends on financial matters
                                                                                                                              • Figure 31: Sources of financial advice used, January 2009
                                                                                                                            • Credit crisis has undermined trust in the banks
                                                                                                                              • Most people have only used one advice source
                                                                                                                                • Figure 32: Number of financial advice sources used, January 2009
                                                                                                                                • Figure 33: Sources of financial advice used, by number of sources used, January 2009
                                                                                                                              • ABs make the greatest use of IFAs
                                                                                                                                • Figure 34: Sources of financial advice used, by gender and socio-economic group, January 2009
                                                                                                                              • Lifestage events increase the need for expert advice
                                                                                                                                • Figure 35: Sources of financial advice used, by age, January 2009
                                                                                                                              • The more people earn, the more advice sources they have used
                                                                                                                                • Figure 36: Sources of financial advice used, by gross annual household income, January 2009
                                                                                                                              • Summary analysis
                                                                                                                                • Figure 37: Key demographic groups and typical advice needs, by source category, January 2009
                                                                                                                              • The affluent prefer to put their faith in an IFA
                                                                                                                                • Figure 38: Sources of financial advice used, by value of investible assets, January 2009
                                                                                                                            • The Consumer – Advice Needs

                                                                                                                              • Key points
                                                                                                                                • Getting a mortgage is a key driver for seeking expert advice
                                                                                                                                    • Figure 39: Financial matters previously sought advice on and interested in seeking advice on in the future, January 2009
                                                                                                                                  • Many pension holders fail to take professional advice
                                                                                                                                    • Significant latent demand for advice
                                                                                                                                      • Advice needs change with age
                                                                                                                                        • Figure 40: Financial matters previously sought advice on, by gender and age, January 2009
                                                                                                                                      • Wealth also dictates advice needs
                                                                                                                                        • Figure 41: Financial matters previously sought advice on, by value of investible assets, January 2009
                                                                                                                                      • IFAs generally cater for more complex advice needs
                                                                                                                                        • Figure 42: Financial matters previously sought advice on, by source of advice used, January 2009
                                                                                                                                      • Around one in ten people aged 35-44 are interested in seeking advice on property investment
                                                                                                                                        • Figure 43: Financial matters interested in seeking advice on in the future, by gender and age group, January 2009
                                                                                                                                    • The Consumer – Attitudes Towards Professional Advice

                                                                                                                                      • Key points
                                                                                                                                        • Most people take charge of their own finances and fail to seek expert help
                                                                                                                                            • Figure 44: Attitudes towards professional financial advice, by gender, January 2009
                                                                                                                                          • 45-54-year-olds are the most financially independent
                                                                                                                                            • Figure 45: Attitudes towards professional financial advice, by age, January 2009
                                                                                                                                          • Half of those in need of debt advice want to get financially fit
                                                                                                                                            • Figure 46: Attitudes towards professional financial advice, by financial matters interested in getting advice on in the future, January 2009
                                                                                                                                          • Segmenting the population according to their attitudes towards advice
                                                                                                                                            • Figure 47: Financial advice clusters, January 2009
                                                                                                                                            • Figure 48: Composition of financial advice clusters, January 2009
                                                                                                                                          • Basic Advice Targets
                                                                                                                                            • Price Sensitive
                                                                                                                                              • Self-searchers
                                                                                                                                                • Apathetic
                                                                                                                                                  • Nearly half all of Basic Advice Targets have little or no savings
                                                                                                                                                    • Figure 49: Value of savings and other investible assets, by advice cluster, January 2009
                                                                                                                                                  • Self-searchers are most likely to draw on a range of advice sources
                                                                                                                                                    • Figure 50: Type and number of advice sources used, by advice cluster, January 2009
                                                                                                                                                  • The Price Sensitive are keenest on investment advice
                                                                                                                                                    • Figure 51: Financial matters interested in seeking advice on in the future, by advice cluster, January 2009
                                                                                                                                                  • Further analysis
                                                                                                                                                  • Appendix – Advice Sources by Demographics

                                                                                                                                                      • Figure 52: Sources of financial advice used, by demographic sub-group – part 1, January 2009
                                                                                                                                                      • Figure 53: Sources of financial advice used, by demographic sub-group – part 2, January 2009
                                                                                                                                                  • Appendix – Advice Clusters by Demographics

                                                                                                                                                      • Figure 54: Demographic profile of advice clusters – part 1, January 2009
                                                                                                                                                      • Figure 55: Demographic profile of advice clusters, by demographic sub-group – part 2, January 2009

                                                                                                                                                  Consumers and Financial Advice - UK - April 2009

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