Independent market analyst Datamonitor's new report, “UK Bancassurance and Tied Advice 2002”, finds that the removal of the distinction between independent and tied financial advice in the UK will increase the competitiveness of high street banks in the regulated product market.
Adopting multi-tied status will strengthen their distribution capabilities and allow partnering with leading product manufacturers in the life, pension and investment markets. Please
Datamonitor's report examines the distribution of life assurance, pension and retail investment products via the direct salesforce, bancassurance and tied advice channels. In particular, it evaluates the impact of proposed changes to the polarisation of regulated financial services by the Financial Services Authority (FSA) and the introduction of multi-tied financial advisers.
In 2001, the bancassurance and tied advice channel represented 30.3%of the life and pensions market, equivalent to £2,149m Annual Premium Equivalent (APE). In the retail investment market, bancassurance and tied advice channel totalled £4,622m, or 16.1% of total gross sales.
Over the past five years, the bancassurance and tied advice channel has seen its overall market share of the life, pensions and retail investment markets decline. In life and pensions, it has fallen from 42.9% in 1997 to 30.3% in 2001, with retail investment market share declining from 27.4% to 16.1% in the same period.
Datamonitor forecasts of the market share of the bancassurance channel for life, pensions and retail investment sales will grow by 16% by 2006.
The growth will be driven by the ability of high street banks to offer an increased range of products due to the removal of financial advice polarisation in the UK. Datamonitor believes that the bancassurance channel will further increase its market share in future with the strategic partnerships formed between leading life and pension companies and high street banks. The success of the recent partnership between Legal & General and Barclays shows the potential of such new arrangements.
The real winners under the FSA proposals are the retail banks. Despite the tough time they are being subjected by the Treasury and Department of Trade and Industry over excessive profiteering at the expense of consumers, it will increase their propensity to offer a range of regulated products from leading providers and capitalise on cross-selling to their large customer bases.
Datamonitor financial services analyst Darren Oliver says: “The proposed depolarisation of the financial advice market offers retail banks the opportunity to penetrate the life, pensions and retail investment market, where they have been historically weak. The strategic partnership between Barclays and Legal & General has shown how product manufacturers can combine with distributors successfully. Multi-tied arrangements will allow these partnerships to develop and offer the consumer more choice.
“Nonetheless, the days of tied advice through direct salesforces and tied agents look to be numbered. It will be difficult for product distribution to be based on the offering of one single company as consumers demand greater product choice. Consumers also value the safety net of talking to an 'expert', meaning they are more likely to consult an adviser who has knowledge of more than one product.”