MP65192

MAPS : Financial Services Marketing to ABC's: September 2004

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This report covers: financial services marketing, AB's,

Companies covered include: financial services marketing,Abbey National, Alliance and Leicester,Aviva, Barclays,Equitable Life, HBOS, HSBC Holdings, Legal and General Group, Lloyds TSB, Northern Rock, The Post Office, National Savings, Prudential, Royal Sun Alliance, Royal Bank of Scotland, Standard Life, Towry Law, Zurich Financial Services,

EXECUTIVE SUMMARY

Executive Summary

This report sets out to review trends in financial services aimed at affluent customers in the UK. The available data suggests that around 2.7 million men and around 950,000 women in the UK are classed as 'higher managerial and professional', broadly equivalent to socio-economic group A. The 'lower managerial and professionals', broadly socio-economic group B, are more numerous and more equally split between men and women, at around 3.7 million each.

This report examines the financial squeeze on people with middling incomes, the people who are losing their final-salary pensions, who are struggling to send children into higher education, and who risk losing almost all their assets if they need to go into long-term care. Employers and managers are increasing their disposable incomes at a faster rate than people in the professions. Key Note suggests that the increased social importance of income level means that the official socio-economic groupings based on the levels of professional knowledge and skill are, in practice, irrelevant. Despite rising incomes, even high-earners are reluctant to save. Only half of Great Britain's households admit to having savings of £1,500 or more. In 2002, an estimated 1% of adults held a quarter of all personal wealth, rising to 36% of wealth when dwellings are excluded.

Opportunities for selling more financial services to upper-income groups lie particularly in: flexible bank accounts, which can be used for savings and loans; flexible mortgages; fixed-interest investments; equity-release plans, and loans and revolving credit. Barriers to overcome include: the loss of confidence in financial services and in corporate capitalism generally; customers' reluctance to save and invest for the long-term; widespread ignorance about how to assess a company's prospects; Inland Revenue rules that force investors in private pensions to buy annuities with their funds; and the reluctance of women, in particular, to make financial decisions. Women are financial losers throughout life, even in professional and managerial occupations.

China is the great new hope for financial services. Economic and financial vicissitudes in western economies are causing alarm among banks and insurers, which cheer themselves up by imagining the huge potential profits that lie in the Orient, although there is also strong interest in Germany. This report looks at the globalisation of private banking, and at the new rich — entrepreneurs and directors of large companies — and questions whether directors can continue to increase their incomes at current rates, because of shareholders' anger at high rewards for directors even when companies are performing badly.

The application of computer science and statistics to customers has a depersonalising effect on companies and their clienteles. Software that categorises people into 'types' helps to distance individual customers from the companies that are supposed to serve them. Call centres also have this distancing effect. Technology can speed up communications with customers, but it also creates a barrier between an organisation and its public. Companies in customer relationship management (CRM) (for example, Experian) are now advising clients not to forget that without customers they have no business.

The consumer survey exclusive to this report found that people have worrying levels of debt and ambivalent views on saving, but a majority want to leave financial assets to their heirs. They are critical of directors who receive bonuses when their companies make losses, and show reservations about the quality of financial advice available to them. They like being able to call in to a local branch, and lack full confidence in Internet banking. More people are happy, rather than unhappy, with the standard of service provided by the financial-services companies with which they deal, but the extent of dissatisfaction is far greater than marginal.

Key Note estimates that in the first six-and-a-half months of 2002, households' financial wealth fell by 7.9%. The brunt of this fall was borne by ABs, because they own most of the wealth that is in individuals' hands. The rapid increase in property values since 2000 has, so far, compensated for falling stock prices, as far as individuals' perceptions of their own wealth are concerned. House prices should be moderated by the Government's announcement that 200,000 'affordable' homes will be built, mainly in south-east England; by early 2004, when the new homes should begin to be completed in substantial numbers, property prices overall could ease back. A lid on property prices would mean that, unless credit is controlled, individuals' soar-away borrowing would result in a decline in real net wealth in 2004 and 2005.

In future, managers and professionals will want deeper knowledge about companies' solvency and directors' probity than they have sought in the past. Solvency and probity could be the buzz marketing concepts of the next 5 years.

TABLE OF CONTENTS

Text © 2004 Key Note

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Last updated by Amanda Porteous November 2004