Retail Distribution Review

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Retail Distribution Review

• Martin Shaw
• General Secretary, AFS

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What is the Retail Distribution Review?

• FSA created a series of working groups, from
  industry and other stakeholders, to consider how
  retail environment might evolve
• Paper in the summer produced some early ideas,
  and FSA invited responses on the workability of
  those ideas
• Second only to TCF as a core regulatory theme
  now, with potentially significant implications

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What is the Retail Distribution Review? (2)

• FSA identified problems which together indicate
  market for retail investment advice does not
  work efficiently
• Complex products
• Over-reliance on adviser driven sales
• Continued risk of bias
• Cost of advice
• Professionalism of advice

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What is the Retail Distribution Review? (3)

• Different forms of advice seen as potential
  solution, ie
• Professional financial planning and advisory
  services
• versus
• Primary advice

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AFS Survey on the Retail Distribution Review

• Survey issued by AFS in association with Mazars
  and Thring Townsend Lee Pembertons
• Two objectives
• a) Views on potential future of market for and
  role of Friendly Societies
• b) Analysis of customer demographics using
  post-codes
• 26 surveys received and analysed to date

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Where are we now?
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Strong Potential for Primary Advice Channel

• Friendly Societies already target the suggested
  income groups for primary advice and lower
  earners
• HNW and mass affluent income groups being
  targeted by the larger societies
• Over 40 think primary advice will become a
  significant new channel, but some unsure

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Ensuring Primary Advice results in firm plans for
delivery

• Need to work with FSA to create effective
  environment for Primary Advice to thrive
• Large majority of respondents think Friendly
  Societies are well positioned to offer primary
  advice
• But less than 25 yet to see this as a
  significant new channel for them

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Other Findings

• UnsurprisinglyIFAs and direct sales forces
  perceived to be at greatest threat from RDR
  proposals
• AndLarge household names and banks/building
  societies likely to be winners
• Also Strong role seen for niche insurers. 12
  societies think niche insurers will be winners
• But only 7 Societies think that Friendly
  Societies will be winners against 7 thinking they
  will be losers
• Minority of Friendly Societies see reform causing
  consolidation and 27 see it resulting in some
  ceasing to write new business
• Almost everyone commented on the need to increase
  the TESP limit

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What about the customer?

• Friendly societies views on whether RDR offers
  potential for better outcomes to customers are
  mixed. Need to do more to convince ourselves
  that proposals will help overcome problems of
  access/ suitability/ bias etc.

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Who buys our products? TESPs

• Table showing representation of approx 15,000
  recent TESP sales against UK population in each
  Acorn group
• More affluent groups1 maximising tax allowances
  using TESPs (36 of sales)
• High penetration of secure families2 (21.5 of
  sales), a key target for primary advice
• Real success in penetrating less affluent groups3
  (21.3 of sales). Market here constrained by
  lower levels and reliabity of disposable income
• 1 Wealthy achievers (category 1)
• 2 Comprises younger white-collar couples with
  mortgages middle income, home owning areas
  working families with mortgages mature families
  in suburban semis established home owning
  workers and home owning Asian family areas
• 3 Moderate means (category 4) and hard pressed
  (category 5)

Source CACI analysis of Friendly Society post
code data.
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Who buys our products? CTF

• Table showing representation of approx 55,000 CTF
  sales against UK population in each Acorn group
• Penetrating customer groups across population
• Reaching both affluent and less affluent groups
• Strong demonstration of success in promoting
  government proposed reform

Source CACI analysis of Friendly Society post
code data.
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Understanding distribution of TESP sales
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Understanding distribution of CTF sales
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What the survey tells us and Next Steps

• Opportunities exist. Societies to plan next moves
  to enhance their role
• Feed back to AFS any issues to influence FSA
• Sponsors to complete analysis and distribute
• Meet some Societies to review key findings
• Meet FSA to present survey conclusions as part of
  AFS response

Need to Understand How to Repeat the Sector's
Success with Child Trust Fund
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Implications for Friendly Societies

• The Retail Distribution Review is likely to have
  significant impact on the market in the future
• Already ideally placed to find ways to utilise
  distribution models to provide primary advice to
  the target consumers
• Need to clarify how and what will be necessary to
  implement primary advice
• Enthusiastic engagement essential in the
  consultation process
• Opportunity to use mutuality status to benefit
  target consumers, repeating success of CTF rather
  than cede ground to banks etc

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Questions

• Has your Board/ Committee of Management
  considered the implications of the RDR yet?
• What are you doing about it yourselves?
• What are the opportunities that exist for
  societies that gear themselves up to offer
  primary advice?
• Which friendly society products and distribution
  channels offer most scope for Primary Advice?
• What problems you see in the implementation of
  primary advice and how might we overcome them?
• What more would you like from AFS to alert you to
  issues from RDR and help identify possible
  responses?