Introduction
Since 2001, the Unit-Linked market has been boosted by the demise of With-Profits and innovations increasing the range of funds on offer to investors. This report examines the development of the market, looks at competitor movements and finally asks whether Unit-Linked bonds can continue their domination of the UK life-based investment market.
Scope
- Covers the whole Unit-Linked investment bond market which has been the dominant force in the UK life market over recent years.
- Data is collected from ABI statistics, primary and secondary sources, Synthesys life database and interviews with leading distributors and providers.
- The report uses Datamonitor' s life and pensions forecasting model to forecast new business growth for Unit-Linked products between 2007-2011.
Report Highlights
In 2006 Unit-Linked bond new business sales of GBP2.2bn accounted for 70% of all total single premium life new business, up from just 28% in 2002.
The top ten providers were collectively responsible for a massive 96.5% of unit-linked new business in 2005.
Forecasts predict Unit-Linked new business to grow at a compound annual rate of 8%, which will see levels of new business in the Unit-Linked market grow from GBP2.2bn in 2006, to GBP3.2bn in 2011.
Reasons to Purchase
- Market context: Observe how the Unit-Linked market has progressed over the last five years and identify the top providers for these bond products.
- Market data: Understand the Unit-Linked market, the distribution trends and the key drivers of Unit-Linked new business.
- Market forecast: Identify the future of the market for Unit-Linked products and gain valuable insight into how to react to these latest developments.
Table of Contents
- CHAPTER 1 EXECUTIVE SUMMARY
- Market Focus
- Sector Issues
- Competitor Issues
- Distribution Dynamics
- CHAPTER 2 INTRODUCTION
- What is this report about?
- Who is the target reader?
- How to use this report
- CHAPTER 3 MARKET FOCUS
- Introduction
- Key findings
- Growth in the unit-linked market has historically driven the single
premium bond market
- Unit-linked bond new business dwarfs that of With-Profits
- The unit-linked market is forecast to contine growing at a rapid pace
- Growth has been driven by the favourable structure of unit-linked
offerings
- The unit-linked product explained
- The unit-linked bond market is growing on the back of its status as
the leading life investment bond, as well as the freefall in with-profits
sales
- With-profits are currently underweight in equities, leading to low return compared to unit-linked bonds
- Clients appreciate the flexibility, choice and transparency of a unit-linked offering
- Unit-linked investors can react to market changes rapidly in order to maximise potential returns
- Product flexibility has caused some industry experts to believe that
commission-based advisors have an incentive to oversell bonds
- But other experts believe the commission structure to be the most efficient and cost-effective method of advisor remuneration
- Regulation in the investment bond market has not been specific to
unit-linked products
- The substitution effect of A-Day regulation has caused some investors to consider unit-linked product offerings
- Treating Customers Fairly has been a key regulatory issue, helping to
increase investor understanding of unit-linked products and preventing the
possibility of mis-selling
- Online platforms keep clients informed and offer another means of client-advisor communication
- Wrap platforms should be part of the development process to address TCF
- Some experts believe that TCF will filter out the poorly-structured and poorly-performing providers, while others believe FSA intervention may be necessary
- Unit-linked products have several appealing structural features
- Distribution bonds are unit-linked bonds' most viable alternative
- Unit-linked is the dominant investment bond product, with distribution bonds leading the rest of the pack
- Unit-linked investors may also be interested in non-life related investment products such as unit trusts, investment trusts or OEICs, which have lower charges but are less tax-efficient
- UK clients should also look at offshore alternatives
- Data
- CHAPTER 4 SECTOR ISSUES
- Introduction
- Key findings
- Product structure has been a key issue in the unit-linked market, as
well as certain regulatory developments
- Clients appreciate the flexibility, choice and transparency of a unit-linked offering
- A-Day pensions regulation has increased the amount of money channelled into unit-linked products
- Despite certain strengths, Treating Customers Fairly has forced
providers to adapt their strategy and some have been more prepared than
others
- Some providers have been slow in addressing the TCF initiative
- Some providers have been more meticulous, though this has come at a price
- Unit-linked providers need to be fully aware of TCF and its implications, especially because of the upcoming initiative deadlines and the threat of FSA action
- Non-life related investment products are not seen as a direct
alternative to unit-linked products
- The decision between unit-linked and non-life related investments depends on investor attitude to taxation
- Innovation is a key strategic issue in the unit-linked space
- Innovation is an important area for providers, given an increasing
move towards product commoditization
- Innovation has centred on the fringes of the product offering, rather than any major changes to the product structure itself
- But innovation costs money and advisors can sometimes be reluctant to recommend new products
- But equally increasing the fund range can spread risk
- Wraps are likely to have a positive effect on the sales of unit-linked bonds
- Innovation is an important area for providers, given an increasing
move towards product commoditization
- Providers are having to be proactive in addressing market issues
- In general, TCF is forcing providers to make sure clients understand
the unit-linked product, through revision of product literature,
highlighting charges and alteration to the product marketing approach
- Market research should also give providers good quality information to use as a basis for future product strategy
- Providers need to focus on IFA service and changes to the stream of commission
- In general, TCF is forcing providers to make sure clients understand
the unit-linked product, through revision of product literature,
highlighting charges and alteration to the product marketing approach
- Open architecture and online functionality are vital areas of best
practice for unit-linked providers
- Sesame has taken TCF one step further by launching an online TCF tool
- CHAPTER 5 COMPETITOR ISSUES
- Introduction
- Key findings
- The top ten providers dominate the unit-linked market
- HBOS is the biggest provider of unit-linked products in the UK market
- The top five unit-linked providers have maintained their stronghold on the market over the last five years
- Product development has focused on offshore opportunities
- Cofunds & Fundsnetwork have both moved to incorporate offshore Luxembourg-based funds in their offerings
- Skandia & Hartford are two examples of key unit-linked providers
- Skandia is one of the UK' s leading providers of savings, investments, pensions & protection products
- Hartford is a new entrant in the UK unit-linked space
- Scottish Life have devised an innovative unit-linked offering
- Scottish Life - Life of Riley Fund combines fund performance with protection
- Fund supermarkets are key participants in the unit-linked market
- Cofunds claims it is the UK' s largest independent investment platform
- Fundsnetwork is Fidelity' s fund supermarket offering
- Fundsdirect claims to have been the UK' s first fund supermarket
- Data
- CHAPTER 6 DISTRIBUTION DYNAMICS
- Introduction
- Key findings
- IFAs are the most popular means of distributing unit-linked products
- IFAs will continue to dominate the distribution landscape in 2005 and beyond
- Unit-linked bonds are often used for strategic purposes
- Unit-linked bonds are looked upon favourably by IFAs, who value the
versatility of the product
- Another important feature is the ability to switch funds
- Many investors specifically value the use of unit-linked bonds for Inheritance-tax planning purposes
- The market' s move towards fee-based advice will place increasing importance on the peripheral features of a product offering
- Unit-linked bonds are looked upon favourably by IFAs, who value the
versatility of the product
- Data
- CHAPTER 7 APPENDIX
- Definitions
- Annual Management Charge
- SynThesys Life Business Line Definitions
- Single premium policy
- Regular premium
- New business
- Life based investment products
- Life Product Definitions
- Single Premium Life
- Annual Premium Life
- ABI definitions of distribution channels
- Future readings
- Life and Pensions SPP
- Interactive Databases
- Reports and Briefs
- Financial Advice Market SPP
- Life and Pensions SPP
- SPP writing team
- List of Tables
- Table 1: Single premium life market new business, segmented by type of investment, £m APE, 2002-2006
- Table 2: Single premium life market new business, segmented by type of investment, £m APE, 2007-2011
- Table 3: New business levels of the top ten unit-linked providers, £m APE, 2001-2005
- Table 4: Market share of top ten unit-linked providers, 2000 & 2005
- Table 5: Unit-Linked new business, segmented by distribution channel, £m APE, 2002 - 2006
- Table 6: Unit-Linked new business, segmented by distribution channel, £m APE, 2007 - 2011
- Table 7: Percentage share of unit-linked new business, segmented by distribution channel, 2007-2011
- List of Figures
- Figure 1: Unit-linked bonds continue to dominate the life investment market
- Figure 2: Unit-linked bonds are no longer merely a with-profits replacement
- Figure 3: Unit-Linked bonds dominate percentage of new business in 2006
- Figure 4: Forecast: Unit-linked bonds will continue to dominate the UK life investment market
- Figure 5: HBOS head the list of the top ten unit-linked providers in the UK in 2005
- Figure 6: The top ten unit-linked providers dominated the market in 2005
- Figure 7: The market share of the top five unit-linked providers has remained relatively unchanged in 2005
- Figure 8: IFAs have historically been the primary channel for distribution of unit-linked products
- Figure 9: IFAs are the dominant channel for distribution of unit-linked products in 2006
- Figure 10: IFAs are likely to continue to dominate the distribution of unit-linked products over the next five years
- Definitions
