The Future Distribution Landscape TISA. Malcolm Kerr March 21st 2013

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1 The Future Distribution Landscape TISA Malcolm Kerr March 21st 2013

2 RDR is opening up an advice gap for mass market and mass affluent customers, with new D2C propositions being developed to address this Access to financial services Banks setting high minimum charges/ investment levels or exiting advice IFAs moving upmarket or exiting Increased regulatory scrutiny Non-advised propositions emerging Un-served Mass Simple offer Bank nonadvised Mass Affluent Reduced advice Bank wealth managers Online Intermediary guidance platforms Direct ISA/OEIC offerings Well Served High Net Worth Ultra HNW Bancassurance IFAs / Wealth Management Private Bank Less than zero 50K - 250K 500K 1

Non-advised propositions emerging Un-served Mass Simple offer Bank nonadvised Mass Affluent Reduced advice Bank wealth managers Online Intermediary

3 Most customers will need some support, but will not necessarily need or value advice. UK Life findings on financial advice % customers Personal interaction is important to the most customers How important is personal interaction when buying a policy? Essential 28 But customers are confused about how they pay for advice How is your adviser paid? Don't know 27 Nearly half aren t prepared to pay for advice, How would you want to pay for advice? Not prepared to pay 47 Very important 29 Commission 20 Commission 18 Fairly important 19 Free 11 Fee 14 Not very/not important 19 Fee 8 Don't know 10 The sweet spot for advice will be when affluent consumers are approaching or at retirement Source: E&Y Global Insurance Customer Survey (2012) 2

Essential 28 But customers are confused about how they pay for advice How is your adviser paid?

4 Insurers with large in force customer bases will develop D2C offerings, but need to overcome internal barriers Typical barriers Opportunities Existing relationships (varying degrees of warmth) some propensity for customers to consider provider Reasons to contact (servicing and policy events) Access to customer data Increasing orphans as IFAs exit, Reluctance to upset IFAs Products designed for IFAs rather than D2C Cost-driven customer servicing forcing low touch Complexity of legacy systems Inflexibility of outsource contracts Lack of D2C sales capability Most insurers want more control of customer engagement and experience now 3

customer data Increasing orphans as IFAs exit, Reluctance to upset IFAs Products designed for IFAs rather than D2C Cost-driven customer servicing forcing low

5 Strategies will recognise that customers will increasingly research before purchasing, using digital as well as traditional channels Which information sources would you expect to use when choosing a new product? Comparison websites Friends and family Bank or insurer website Financial adviser Bank or insurer direct Financial media Other online sources Customers becoming more willing to do their own research for future purchases Customers use sources those they regard as independent and objective including comparison sites and social media, as well as the traditional friends and family source Advisers less influential than might be expected, although this increases for certain products e.g. retirement income Customer expectations shaped outside FS Source: E&Y Global Insurance Customer Survey (2012) 4

Comparison websites Friends and family Bank or insurer website Financial adviser Bank or insurer direct Financial media Other online sources 39 37 36 33 32 29 59 Customers becoming more willing to do

6 The future landscape Less than 20,000 investment advisors - 50% restricted - focussing on around five million affluent and wealthy consumers: Advisors will own platforms and investment propositions Platforms, investment managers and insurers will own advisors Successful firms will combine advisory and execution only services Evolution towards a professional services model continues numbers continue to drop The mass market will be encouraged to invest in Sergeant Review products 100% on-line Unlikely to succeed beyond savings propositions and term insurance Algorithm based on-line advice solutions will gain traction 18 Page 5 Mar ch 2013 [Presentation title]

Evolution towards a professional services model continues numbers continue to drop The mass market will be encouraged to invest in Sergeant Review products 100%

7 Ernst & Young LLP Assurance Tax Transactions Advisory The UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales with registered number OC and is a member firm of Ernst & Young Global Limited. Ernst & Young LLP, 1 More London Place, London SE1 2AF. Ernst & Young LLP Published in the UK. All rights reserved. Questions? Ref:

Wales with registered number OC300001 and is a member firm of Ernst & Young Global Limited.

The buying and selling of a financial planning business

The buying and selling of a financial planning business Gavin Jordan, Partner, Ernst & Young LLP 10 September 2010 Disclaimer This publication contains information in summary form and is therefore intended