Overview 1
Catalyst 1
Summary 1
EXECUTIVE SUMMARY 2
The total single premium life market grew slightly over the last five years 2
Providers should highlight the attractiveness of investment bonds in retirement planning 2
Wrap platforms are an important technology for the distribution of investment bonds 2
Table of Contents 3
Table of figures 4
Table of tables 5
THE FUTURE OF THE UK INVESTMENT BONDS MARKET 6
Introduction to the investment bond product 6
An investment bond is a life assurance policy primarily structured as in investment 6
A unit-linked bond is a single premium contract that offers flexibility and transparency with the possibility of better returns 6
The 'money market bond' category is a new classification from the ABI 7
Distribution bonds generate income based on the underlying assets of the distribution fund 7
With-profit bonds offer low volatility to investors 8
The 'guaranteed bond' category is a classification introduced by the ABI in 2008 8
The guaranteed equity bond is a unit-linked bond with some guarantee of capital return 8
Guaranteed income bonds and guaranteed growth bonds both secure the holder's capital 9
The market for investment bonds grew by 4% over the last five years 9
Sales of unit-linked bonds fell heavily as economic factors continue to weigh heavily against writing new business 9
The growth of distribution bonds faltered in 2008 10
The popularity of guaranteed bonds saw a reversal of fortunes 11
The with-profit bonds market performed well in 2008 12
The newly categorized money market bonds recorded healthy sales 12
The single premium life market will contract initially before seeing growth 13
Provider ability to supply guaranteed bonds will cause sales of guaranteed bonds to decline in 2009 13
Sales of unit-linked bonds will decline as consumers demand liquidity and elements of protection against market volatility 14
The market for money market bonds will contract over the next five years 15
Future sales of with-profit bonds will rise while sales of distribution bonds fall in tandem 15
Providers should put efforts into making consumers aware of the nature of risk and its link to return 15
Consumers are risk averse and shunning equity-based investments 15
Consumers lack confidence in equity-based products and are seeking safe haven in cash accounts 16
Investment bonds also need to attract to the cautious and less affluent consumer 16
Regulatory issues are impacting upon the distribution of investment bonds 17
The TCF initiative aims to create a more efficient and effective market 17
TCF will help investors be better informed about the risks associated with investment bonds 18
High commissions and poor quality of advice on the part of advisors are concerns in the investment bond market 18
Quality of advice accompanying investment decisions has come into question as investment bonds perform poorly 18
There is a misconception in the market that bonds are a no- or low-risk investment 18
However, poor quality service does exist in the bond market 19
The RDR aims to increase consumer access to financial products and services through offering a dual system of financial sales and advice 19
THE FUTURE OF PRODUCT INNOVATION IN INVESTMENT BONDS 21
Providers should highlight investment bonds as an alternative retirement strategy to revive sales 21
Investment bonds offer flexible retirement planning strategies for those approaching retirement 21
The ability to withdraw money in the lifetime of the investment makes investment bonds attractive to the changing retirement planning landscape 21
Investment bonds also offer the customer the advantage of income tax deferral 22
Providers should highlight the complementary nature of investment bonds to ordinary pension plans 22
Investment bonds are suitable for different investment strategies 22
A bond is also an efficient investment for inheritance tax planning 22
Investment bond providers should target those approaching retirement who want to secure their retirement ambitions 23
The rapidly ageing and increasingly affluent UK population is a potential key market 24
Providers have produced innovations to suit the risk-averse nature of today's investors 26
Providers have made attempts to satisfy the demand for guarantees and capital protection by risk wary customers 26
However, providers have found it difficult to protect itself against the risk of guarantees becoming too onerous 26
Technological innovations have centered around wrap platforms 27
There are eight key areas where a wrap platform will help overcome challenges 27
The tax complexity of bonds and income drawing options are making an online service attractive to IFAs 27
Wrap platforms are an efficient means for administering the whole client portfolio 27
Wrap platforms may have reached a proliferation peak 28
Datamonitor developed a definition for a 'pure wrap' that has become a market standard 28
Providers have put efforts towards supporting IFAs to make correct and decisive decision-making for their clients 29
AIG writes the highest in new business premiums in the investment bond market 29
AIG comes top of competitor rankings in the investment bond market despite recent negative press 29
AIG has been at the forefront of product innovation 30
THE FUTURE OF INVESTMENT BOND DISTRIBUTION 32
Distribution of investment bonds remains focused on the IFA channel 32
IFAs are the dominant distribution channel for investment bonds 32
Advisors are increasingly distributing non-unit linked bond products and shying away from unit-linked bonds 34
Unit-linked bond distribution is moving away from IFAs 34
Non unit-linked bond distribution through IFAs has grown rapidly sharply 35
The use of wrap technology by advisors will be a prominent driver of the UK investment bond market 37
The right wrap proposition will improve an IFA's client service and profitability 37
The emergence of IFA-developed wraps is blurring the boundary between manufacturer and distributor 37
Advisors are not keen to embrace technological advances 38
Value-focused concerns keep advisors skeptical regarding wrap propositions 38
The magnitude of picking the right wrap proposition delays uptake 38
IFAs face a challenge to improve their take-up of wrap platforms 38
APPENDIX 41
Definitions 41
Asset manager / Asset management company 41
Bank 41
Bid offer spread 41
Collective Investment Scheme 41
Exchange-Traded Fund 41
Fund of funds 41
Fund supermarket 41
Hedge fund 42
MiFID 42
Non-retail market 42
Retail market 42
Structured products 42
UCITS 42
Telesales 42
Other 43
Further reading 43
Ask the analyst 43
Datamonitor consulting 43
Disclaimer 43
List of Tables
Table 1: Single premium life market, new business premiums 2004-2008, £m APE 11
Table 2: Forecast single premium life market, new business premiums 2009-2013, £m APE 14
Table 3: The top 20 investment bond competitors, new business premiums 2008, £m APE 31
Table 4: Single premium life market, new business premiums segmented by distribution channel, £m APE 33
Table 5: Unit linked bond distribution 2004-2008, £ million APE 35
Table 6: Non-unit-linked bond distribution 2004-2008, £ million APE 36
Table 7: How interested would you be in any of these online services from a product provider? 40
List of Figures
Figure 1: The total single premium life market grew by 4% between 2004 and 2008 but saw a sharp decline in 2008 10
Figure 2: The market for investment bonds will suffer further declining sales in 2009 13
Figure 3: The accumulators are a significant part of the population in the UK 24
Figure 4: Pressure on the working age population is increasing as more people begin to retire 25
Figure 5: AIG was the top investment bond provider in 2008 30
Figure 6: IFAs are the main distribution channel for investment bonds 33
Figure 7: IFAs' share of unit-linked bond distribution continues to fall in 2008 35
Figure 8: Non-unit-linked bonds are distributed more by IFAs 36
Figure 9: IFAs do not show an interest in support services using new technology 39