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| MP65213 |
| MAPS INDEPENDENT FINANCIAL ADVISORS : APRIL 2003 |
| Overview |
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This report covers: Independent Financial Advisers, training, Regulations, Polarisation, Suitability, Products, Customer risk, pensions mis-selling, failings, technology, composition of household wealth, personal sector financial assets, code of practice, Myners report, distribution, personal lines, motor insurance, household insurance, life insurance, pensions, mortgages, endowment mortgages, commission, investments, unit trusts, corporate bonds, investment trusts, ISAs, hedge funds, defaults, compensation, stakeholder pensions, single premiums, commission rebating, consumer dynamics, tied agents,IFAS,pensions, Hedge Funds, Cororate Bonds,defaults , funds of funds,PEPs and ISAs, investments, with-profits funds and distribution bonds, insurance, motor insurance, personal insurance,
Companies covered include:Bradford and Bingley, Towry Law, Inter-Alliance, Hargreaves Lansdown, HSBC Trust, Misys, Bankhall, Tenet Group, Berkeley Berry Birch,Burns-Anderson,
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Engine| 1. Introduction 8 |
| 2. Strategic Overview 9 |
| MARKET DYNAMICS 9 |
| Market Sectors 9 |
| Current Status of the Market 9 |
| Largest Sector 9 |
| Fastest-Growing Sector 9 |
| Slowest-Growing Sector 9 |
| DISTRIBUTION 10 |
| Top Ten IFAs 10 |
| Table 1: The Top Ten Independent Financial Advisers by Turnover and Size of Salesforce (£m), 2002 10 |
| Women 10 |
| Regional Variations 11 |
| Consolidation of the Industry 11 |
| Product Distribution 12 |
| Table 2: Independent Financial Advisers' Share of New Business Measured by APE by Product Type ( percent), 1998-First Quarter of 2002 12 |
| COMPETITIVE STRUCTURE 13 |
| Number of IFAs 13 |
| Advertising/Client Recruitment 13 |
| Table 3: Main Media Advertising Expenditure on Independent Financial Advice (£000), Years Ending December 2001 and 2002 13 |
| TRAINING 15 |
| Financial Planning Certificate (FPC) 15 |
| How is it Achieved? 15 |
| Details 15 |
| Advanced Financial Planning Certificate (AFPC) 16 |
| How is it Achieved? 16 |
| Details 16 |
| Investment Advice Certificate (IAC) 16 |
| How is it Achieved? 16 |
| Details 16 |
| Certificate for Financial Advisers (CeFA) 16 |
| How is it Achieved? 16 |
| Details 16 |
| REGULATORY BODIES 17 |
| Financial Services Authority 17 |
| Association of British Insurers 17 |
| Chartered Insurance Institute 17 |
| Investment Management Association 17 |
| POLARISATION 18 |
| COMMISSION AND FEES 18 |
| RECENT REGULATORY DEVELOPMENTS 19 |
| Depolarisation — The Defined Payment System (DPS) 19 |
| The 'Menu' Approach 19 |
| Professional Indemnity Insurance 20 |
| Financial Services Practitioner Panel Survey 20 |
| TECHNOLOGY 21 |
| CONSUMER DYNAMICS 21 |
| Trust 21 |
| Household Wealth 22 |
| MARKET FORECASTS 22 |
| 3. Insurance 23 |
| BACKGROUND 23 |
| Structure of the UK Insurance Market 23 |
| Household Expenditure on Insurance 23 |
| Investment Holdings 23 |
| DISTRIBUTION 24 |
| Total Industry Value and Growth 24 |
| Table 4: General Insurance Business by Gross Written Premium and by Source of Business (£m and percent), 1997-2001 24 |
| Personal Lines 25 |
| Table 5: Personal Lines Insurance Business by Gross Written Premium and by Source of Business (£m and percent), 1997-2001 25 |
| Motor Insurance 26 |
| Table 6: Motor Insurance Business by Gross Written Premium and by Source of Business (£m and percent), 1997-2001 27 |
| Household Insurance 28 |
| Table 7: Household Insurance Business by Gross Written Premium and by Source of Business (£m and percent), 1997-2001 28 |
| Other Personal Lines Insurance 29 |
| Table 8: Other Personal Lines Insurance Business by Gross Written Premium and by Source of Business (£m and percent), 1997-2001 30 |
| LONG-TERM INSURANCE (LIFE AND PENSIONS) 31 |
| Table 9: Total Individual Annual Premium Equivalent by Gross Written Premium and by Source of Business (£m and percent), 1998-2002 31 |
| 4. Mortgages 33 |
| THE HOUSING MARKET 33 |
| REGULATION 33 |
| Mortgage Examinations 33 |
| ISSUES IN THE MARKET 34 |
| Sub-Prime Lenders 34 |
| Self-Certification Mortgages 34 |
| ENDOWMENT MORTGAGES 35 |
| Market Share 35 |
| Table 10: Independent Financial Advisers' Market Share of Mortgages in Gross Advances ( percent), 1998-First Quarter of 2002 36 |
| 5. Investments 37 |
| BACKGROUND 37 |
| Distribution 37 |
| Table 11: Gross Retail Sales by Distribution Channel (£m), 1997-2002 37 |
| Table 12: ISA and Overall Sales by Distribution Channel ( percent), 2000-2002 38 |
| PEPs and ISAs 38 |
| Corporate Bonds 39 |
| With-Profits Funds and Distribution Bonds 39 |
| Hedge Funds 40 |
| Funds of Funds 40 |
| Defaults 41 |
| Table 12: Number of Firms Declared in Default, April 1994-1995 to April 2001-2002 41 |
| 6. Pensions 42 |
| INTRODUCTION 42 |
| THE SAVINGS GAP 42 |
| Saver Summit 43 |
| Pensions Calculator 43 |
| Stakeholder Pensions 43 |
| THE PICKERING REPORT 44 |
| IMPLICATIONS FOR IFAs 44 |
| DISTRIBUTION 45 |
| Table 13: Sources of Individual Pensions — New Single Premiums ( percent), 1998-2002 46 |
| Table 14: Sources of Individual Pensions — New Regular Premiums ( percent), 1998-2002 47 |
| 7. An International Perspective 48 |
| INTRODUCTION 48 |
| Eu Regulation 48 |
| INSURANCE 48 |
| MACROECONOMIC INFLUENCES 49 |
| 8. PEST Analysis 50 |
| POLITICAL FACTORS 50 |
| ECONOMIC FACTORS 50 |
| SOCIAL FACTORS 51 |
| TECHNOLOGICAL FACTORS 51 |
| 9. Consumer Dynamics 52 |
| NOP RESEARCH 52 |
| Table 15: Summary of NOP Research ( percent of respondents), 2002 52 |
| Why People Consult Independent Financial Advisers 53 |
| Attitudes Towards Independent Financial Advisers 53 |
| Attitudes Towards Financial Advice 53 |
| Table 16: Attitudes Towards Previous Sources of Financial Advice ( percent of respondents), 2002 54 |
| In the Past I Have Consulted a Tied Agent, With Either a Bank, Building Society or Insurance Company (S1) 56 |
| I Have Used the Services of an Independent Financial Adviser or IFA for Short (S2) 57 |
| Table 17: Attitudes Towards Financial Advice from Financial Services Organisations or Family ( percent of respondents), 2002 58 |
| I Would Consult a Bank, Building Society or Insurance Company If It Offered a Variety of Other Companies' Products as Well as Its Own (S3) 60 |
| I Ask Members of My Family for Financial Advice (S4) 61 |
| Table 18: Attitudes Towards Financial Advice from Friends and Work Colleagues ( percent of respondents), 2002 62 |
| I Ask Friends Who Are Not Work Colleagues for Financial Advice (S5) 64 |
| I Ask Work Colleagues for Financial Advice (S6) 64 |
| Table 19: Attitudes Towards Consulting IFAs About Life Insurance and Mortgages ( percent of respondents), 2002 65 |
| I Would Consult an IFA About Life Insurance (S7) 67 |
| I Would Consult an IFA About a Mortgage (S8) 68 |
| Table 20: Attitudes Towards Consulting IFAs About Unit Trusts and Equity Investment Portfolios ( percent of respondents), 2002 69 |
| I Would Consult an IFA About Unit Trust Investments (S9) 71 |
| I Would Consult an IFA About An Equity Investment Portfolio (S10) 72 |
| Table 21: Attitudes Towards Consulting IFAs About Tax-Efficient Investments and Pensions ( percent of respondents), 2002 73 |
| I Would Consult an IFA About Tax-Efficient Investments (S11) 75 |
| I Would Consult an IFA About Options for My Pension (S12) 76 |
| Table 22: Attitudes Towards Consulting Financial Websites and Continued Use of an IFA ( percent of respondents), 2002 77 |
| During the Next Year I Intend to Seek Advice from a Financial Website (S13) 79 |
| I Have Used an IFA Before, and Would Use an IFA Again (S14) 80 |
| Table 23: Other Opinions About IFAs ( percent of respondents), 2002 81 |
| None of These (S15) 83 |
| Don't Know (S16) 84 |
| 10. Company Profiles 85 |
| INTRODUCTION 85 |
| NATIONALS 85 |
| Bradford & Bingley 85 |
| Towry Law 86 |
| Inter-Alliance Group 86 |
| Hargreaves Lansdown 86 |
| HSBC Trust 87 |
| NETWORKS 87 |
| Misys 87 |
| Bankhall 88 |
| Tenet Group 88 |
| Berkeley Berry Birch 88 |
| Burns-Anderson 89 |
| 11. The Future 90 |
| FUTURE OF FINANCIAL SERVICES INDUSTRY 90 |
| FORCES FOR CHANGE 91 |
| Technology 91 |
| Consumers and the Internet 91 |
| IFAs and the Internet 91 |
| Regulation 92 |
| IFAS — STATISTICAL FORECASTS 92 |
| IFA Share of Market Sectors 92 |
| Table 24: Possible Scenario for IFA Share Using a Polarised Paradigm (£bn and percent), 2003-2007 93 |
| Table 25: Possible Scenario for IFA and Multi-Tied Market Share in a Post-Depolarised Industry (£bn and percent), 2003-2007 93 |
| 12. Further Sources 94 |
| Associations 94 |
| Publications 95 |
| General Sources 95 |
| Bonnier Information Sources 96 |
| Government Sources 97 |
| Independent Financial Advisers 97 |
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| Since January 2002, the market for Independent Financial Advisers (IFAs) has been the focus of considerable debate. |
| With increased competition within the market, the heightened costs of regulation compliance and the emergence of new Web-based technologies, key figures within the financial services industry have argued that IFAs face a bleak future. It is certainly the case that the industry is currently undergoing transformation and that IFAs face insecurity in the short term. |
| However, Key Note expects that while there will be considerable changes in the shape of the market in the next few years, if IFAs focus on keeping ahead of these new developments and take steps to consolidate and nurture their client base, the IFA market will stabilise well before the end of the decade and IFAs will enjoy a promising future across the range of financial services products. |
| The Financial Services Authority (FSA), the government watchdog, has increasingly regulated the market. IFAs have strict qualifications to obtain and update, and stringent compliance codes to which they must adhere. However, the FSA has recently been criticised for damaging the market through over-regulation. This appears to have been acknowledged by the FSA, which is taking steps to address the burden of regulation. |
| Recent regulatory developments strive to make the market more transparent by introducing the 'menu' payment system, whereby all IFAs offer a choice of commission or fees. Many IFAs already work in this way and will not be dramatically affected by the changes. For others, transparency is likely to increase trust and good customer relations. |
| Small IFAs lacking the capital to invest in areas such as compliance and IT may need to form networks if they are to compete with the technology and economies of scale enjoyed by large companies. |
| The IFA networks will increase in size and coverage, allowing member firms to share regulatory and technological costs with the support of large customer databases, covering all types of product and most retailers. |
| In 2002, there were many mergers and acquisitions as more firms have sought to take advantage of large economies of scale in a market in which profits are declining due to increased costs and a reduction in commission. |
| IFAs have achieved a major share in the distribution of many financial products. There is a large savings gap in the UK, and the Government is taking steps to promote individual pension saving. IFAs already enjoy a major presence in this sector, which is likely to grow in the future. IFAs also enjoy a large proportion of mortgage business, and 2001/2002 saw a dramatic increase in remortgaging, as a result of rising house prices and falling interest rates. |
| IFAs dominate unit trust advice on behalf of individuals. IFAs' share of this market may be threatened by investors with the confidence and time to shop around the new Web-based fund supermarkets. |
| Key Note commissioned an exclusive survey of 906 consumers and discovered that most respondents would seek advice from a bank or building society that offered a wide range of products other than its own. The survey also found that a sizeable minority rely on their family for advice and that the largest proportion of individuals would consult an IFA about a mortgage. |
Text © 2003 MAPS
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