Financial DIY the emerging trend? Roger Colletta Agenda Introduction to JGFR & ComPeer Background to research Key findings Financial engagement the challenge The unadvised the opportunity Broadband and the rise of the Financial DIY Conclusions 1
Introduction to JGFR and ComPeer JGFR Financial research consultancy. Works closely with a range of partner organisations on regular & ad hoc research based projects Produces monthly UK Consumer Confidence Monitor and quarterly UK Financial Activity Bulletin. Partners ComPeer in Mass affluent and Financial DIY reports ComPeer Benchmarking service initiated by London Stock Exchange in 1992 and independent company since 1993 Dedicated research and benchmarking company with 16 years of experience In-depth knowledge of wealth management, private banking and stockbroking sectors Research Background to Financial DIY Report Research based report with market research carried out by GfK NOP Previous reports produced in 2003 and 2007 2008 report - two waves of questions were asked, the first in early September 2008 and dthe second, to capture the mood of consumers following the bank bailouts, in mid October. 2
Key Findings (1) 25.3m people do not have a financial advisor an increase in 10m in the last 5 years Despite Y on Y increase of 7% in use of financial advisors from 21.7m (2007) to 23.3m (2008) out of an eligible population of 48.6m Of those with a financial advisor, only 70% take professional advice either through a wealth professional, IFA or main financial services provider Levels of financial advisor usage are coinciding with the highest levels of financial pro-activity among consumers in two years More people are financially active as they seek to preserve capital and safeguard their savings and investments and re-finance borrowings. In September 2008, some 1.7 m more adults intended to save and or invest compared to 12 months earlier Respondents unsurprisingly less trusting of financial institutions, especially high street banks, with 39% of adults concerned about the safety of their cash. Key Findings (2) Around a quarter of people are critical of various aspects of financial advisors, particularly higher earners and borrowers 29% of adults believe their knowledge is as good as financial i advisors uniformly spread across age and socio-economic groups 28% of adults believe advice is just disguised sales of investment products A&Bs (39%) and 40-49 year olds (34%). 26% of adults believe financial advisors add insufficient value to justify their fees (A&Bs 38%) IFAs generally losing share as main financial advisor but growth in the fee based advisory model Overall use of IFAs fell in 2008 7% fewer respondents regard a commission based IFA as their main financial i advisor compared to 12 months earlier 6% of adults cite a fee based IFA as their main financial advisor, up 33% on the previous year. A growing proportion of people (67%) taking professional advice now seem to have accepted a fee based model. 3
Key Findings (3) Broadband access is a key enabler of Financial DIY The growth in broadband internet adoption (59% adults) has been the key driver in increasing financial DIY. Online personal finance is now a firmly established distribution channel 44% of adults view the internet as an essential source of financial information and advice. Significant increase in financial DIY amongst high net worth segment who are relying on their own investment skills and deal directly with online stockbrokers Some 1.4m clients of professional financial advisors may turn to financial DIY given their belief that online has reduced their need for an advisor many of whom are among the most financially active. Their behaviour will depend on their reaction to recent events. Fallout from the events ents surrounding deposits with overseas domiciled banks last Autumn seems to have resulted in a large number of people (13m) becoming less confident about online financial services. Such attitudes are more prevalent in A&Bs and 50-65 year olds. Structure of the Financial Advice Market in 2008 4
Financial Engagement Getting People Engaged 5
Barriers to Engagement Trust and confidence in providers to perform The current slump in share prices may have impacted investor confidence in equity based investments Complex lifestyles Lack of time and / or interest in money prevents engagement with the industry. A preference for spending rather than saving Lifestyle related and a consequence of the consumer economy Lack of understanding of compound interest A factor behind people falling into, mainly unsecured, debt Concerns about mis-selling and bad advice Major mis-selling cases have made people wary of engaging with the industry A preference for property Property better understood and perceived to have performed better than other forms of investment. 45% of adults have net property equity > 50k compared to only 17% of adults with savings and investments > 50k Why people are turning their back on financial advice Changes to the flexibility of retail advisory models in June 2005 were supposed to have led more people to engage in long term savings, investment and protection products. Instead, new trends emerged with more investors deciding that: their financial needs were relatively simple they were prepared to undertake their own research and deal direct with product providers (despite investing in funds via intermediaries being cheaper due to split or reimbursed commission) lack of faith in advisors who many felt did not provide value for money property assets preferable to financial assets. Property investment not subject to advice only the borrowing vehicle and mortgage are regulated advisory products. 6
Property still popular pension investment Are the unadvised worth targeting? 53% of adults aged 40-49 unadvised in 2008 (31% in 2003) 42% of A&Bs unadvised in 2008 (26% in 2003) and 44% of C1s (27% in 2003) 43% of adults earning 50k+ unadvised in 2008 (28% in 2003) 47% of the unadvised owned their home outright (31% in 2003) 7
Product intentions among the unadvised Demand for financial advice among the HNW and Ultra HNW segments 8
The use of advice by HNW and Ultra HNW for new investments The advised IFAs as main financial services advisor 13% of adults aged 40-49 advised by IFA in 2008 (18% in 2003) 20% of A&Bs advised by IFA in 2008 (27% in 2003) 19% of adults earning 50k+ advised by IFA in 2008 (27% in 2003) 15% of those advised by IFAs owned their home outright (23% in 2003) 9
Market share of type of advisor among the advised Rising broadband access key to growth in online financial advice 10
The internet as an essential source of financial information and advice Product purchase intentions among online personal finance users 11
Scale of online opportunity Future Trends in Financial DIY? Consumers are now confident about researching financial services online Convenience is now a key motivator of choice particularly among time pressed people Commoditisation of the bank-customer relationship has contributed to the changes in consumer behaviour Web based multi-channel distribution platforms will be a key direct sales channel to informed financial consumers Pensions, structured products and mortgages will be key products on online platforms to attract Generation X (born 1965-79) and Generation Y (born 1980-1994) Direct to consumer platforms will emerge to target mass affluent and HNW sectors 12
Conclusions Substantial differences in financial engagement across the population and the degree to which the most financially active take advice The availability of broadband as well as the growth and ease of access to information online has led to major changes in consumer behaviour Financial DIY will continue to play a key role in personal finance Industry challenge to service the unadvised and advised sectors Contact details Roger Colletta Tel: 020 7648 4838 Email: roger.colletta@compeer.co.uk 13