Depolarisation will see IFAs winning over banks, which will struggle to increase their market share in pensions and savings products.
This is the news from analysts Datamonitor which believes that although banks are expecting to gain from depolarisation, product complexity and the banks' inherent inability to understand consumers' insurance needs will limit their infiltration of the market.
Datamonitor financial analyst Miikka Metsanvirta says after depolarisation IFAs will still dominate investment, savings and pensions products although banks will most likely make some headway into products that can be easily cross-sold such as term insurance, critical-illness cover and simple pensions such as stakeholder.
He says banks will require significant training and investment to get to the level of knowledge necessary to take customers away from experienced IFAs.
Aifa director of public affairs Tracey Mullins agrees that IFAs will cope well with depolarisation and the remuneration menu. She says the bancassurance channel is a salesforce which cannot compete with the skill of the IFA sector.
Mullins considers that IFAs who are worried about the forthcoming relaxation of polarisation need to remember that banks and other big high-street players will also have to operate within the menu.
She says: “IFAs will fare much better under the menu, which will also apply to the tied sector. A salesforce cannot compete with what IFAs provide.”
Metsanvirta believes that banks will only reach around 25 per cent of life distribution and less than 10 per cent the pension market while the IFA sector will account for almost 80 per cent of pensions and 60 per cent of single-premium life business by 2007.
The banks believe their big customer bases, highstreet branch networks and regular customer contact will suddenly give them the upper hand in life and pensions after depolarisation.
But Metsanvirta believes that banks will need to overcome a number of challenges if they are to increase their present 20 per cent market share of UK life distribution or the small 7 per cent annual pension distribution and 4 per cent of the single-premium pension market.
He says banks will gain some market share from direct salesforces and the tied agents but the perceived expertise and advice offered by IFAs will ensure they retain their market dominance.
Aegon, which has bought a number of IFAs which it intends to keep independent, believes that banks simply cannot offer the types of services that IFAs can.
UK distribution channel spokesman Adrian Cammidge says: “Banks have been the perennial underachievers ever since the first bancassurance products were launched in 1962. For more than 40 years, they have tried to provide the services of IFAs to no great success.”
He says consumers do not trust banks in the same way they trust IFAs. “High-net-worth and group customers are after a bespoke, tailored service from an adviser they can trust long term. Bank advisers do not have the depth of know-ledge nor the continuity to service these types of customers,” he says.
Cammidge points out that bank advisers often move between branches,meaning that customers would not have continuity of advice.
He also believes that accountants and lawyers are unlikely to make referrals to banks as they do to IFAs. “An accountant or a lawyer would rather send their own clients to someone he trusts and knows rather than a bank adviser that could be here one day and gone the next,” says Cammidge.
Metsanvirta says: “Banks must turn poorly trained staff who have little understanding of insurance products into a genuine salesforce.
“As yet, their staff are not able to provide the best advice to the customer from a panel of products, not just the bank's own products.”
HBOS head of customer management Tom Woolgrove agrees that banks face a challenge if they are to increase their profile in pensions and complex savings and investment products.
He says he broadly agrees with the sentiment of the Datamonitor report but points out there was a report released by the analysts in August 2003 which “stated exactly the opposite”.
Woolgrove says: “For a number of banks, this will be a great challenge and they will find it very difficult to rise to it. A number of them have not made a very good name for themselves in this marketplace.”
But Woolgrove believes HBOS is a case of the exception proving the rule saying the group is the fastest-growing life and pensions office in the sector and will continue to grow over the next year.
He agrees that banks will need to “gear up” on investment in customer service and product knowledge if they are to increase their goodwill with financial services customers.
Naturally the banks differ with Datamonitor's conclusions, as the research does not outline a particularly rosy future for their capital-intensive distribution methods. The banks believe they will be able to rely on their large customer bases and constant contact to bring in pensions and investment clients.
In one respect, this may be a good thing for IFAs. Cammidge says it would be nice to see the banks improving their service propositions when it came to basic pensions and investment because this would inevitably lead to greater levels of saving and awareness of financial products.
He says: “Eventually, this would lead to more business for IFAs because even if banks achieved a level of service good enough to hold less affluent clients, they still would not be able to achieve the sophistication necessary to keep high-net-worth clients. They are just not positioned for it.”