Most people tend to buy financial products from the first company they make contact with, according to a recent survey.
The aim of the research, commissioned by a cross-section of major players in the financial services industry in advance of the expected changes to polarisation, was to discover how the internet, telephone, workplace and postal services affect the way in which people approach the purchase of a financial product.
The survey was conducted by Luma Business Development Consultancy and Compass Research. Its qualitative work, consisting of group discussions and in-depth interviews with 100 individuals, was backed up with quantitative research by Mori Financial Services.
However, IFAs should not be disheartened by the results. If they are the first point of contact, the research shows they are likely to make the sale. It is up to IFAs to ensure they are first in the queue, says Luma director of research Sue Diamond.
Diamond says: “The more complex the product, the more those questioned felt the need for true advice, with facts and figures, as opposed to functional advice for functional products. These more complex products were seen as pensions, investment and also life cover. For all these, they wanted face-to-face contact before purchase.”
When it comes to pensions, people show the greatest desire for hand-holding. This is the product where consumers are most likely to seek out the services of an IFA.
But the research points to a yawning gulf between anticipated and actual behaviour when it comes to shopping around. The most dramatic finding is that 50 per cent of people interact with only one company from which they go on to purchase products. Yet they had originally anticipated making contact with between three and five providers before making the purchase.
This is especially evident in the case of pensions, where 75 per cent of purchases are made following interaction with a single company.
Diamond says: “In reality, a combination of time constraints and lack of knowledge means that the purchase of a pension tends in the end to be a rash decision. People might have done a little bit of research but will most likely act on recommendation. However, the person they sit down with is likely to be the person they buy with.”
According to Diamond, the interviews uncovered a general dislike of commission. Most people prefer to pay up front as they feel it ensures complete objectivity, particularly in the case of the more complicated products.
People who have recently come into money are particularly likely to want to pay for independent financial advice. The research also uncovered a perception among younger consumers that they may be losing out if they cannot afford the services of an IFA.
On the other hand, according to Diamond, the youngest group of consumers – those under 25 – are scared stiff by the prospect of seeing an IFA, if they are aware of what one is.
Face-to-face interaction is appreciated at the first point of contact but is resented at later stages in the selling process. People cannot see why their physical presence is needed when all that is required is the signing of forms which could be handled more conveniently by post.
In these circumstances, not only is face-to-face perceived as inconvenient but it is felt that the second meeting is used as an opportunity to try and sell more products.
The research identified three types of consumers – the “activated addict”, the “passive persuadable” and the “deactivated dawdler”.
The activated addict is typically more upmarket, financially experienced, confident and younger. This is the consumer most likely to use new channels such as the internet and show little, if any, brand loyalty in the constant search for the best deal.
Passive persuadables are slightly older and, while they are financially aware, are less likely to switch regularly. Most strongly influenced by recommendation from people they know, they can be persuaded to switch providers once convinced of the benefits of doing so.
The final group, the deactivated dawdlers, show very little interest in their financial affairs. They will stick with the major brands, are largely made up of the very young and the much older consumers and tend to come from less affluent backgrounds.
The research found that people can switch between the different types according to the kind of product they are buying. The simpler the product, the more likely the consumer is to shop around.
But no consumer type has been identified who will automatically seek out the services of an IFA.
Diamond says the most likely type of consumer to see an IFA is the passive persuadable. But active addicts might go reluctantly to an IFA to buy a more complex product if they think it necessary to secure the best deal.
As far as IFAs are concerned, the deactivated dawdlers are a dead loss.
The youngest consumers, while familiar and comfortable with the internet in other spheres, require considerable hand-holding and are most likely to end up at the high-street bank, says Diamond. Once they become more confident after a few purchases of financial products, they are then most likely to go remote.