The financial services industry is gearing up for the biggest opportunity in decades, which lies in the wall of money soon to be unleashed by the pensions revolution.
In April, millions of over-55s will be able to access their retirement savings in full for the first time. It is expected that significant sums of money sitting in defined contribution pension schemes will transfer to platforms at retirement.
This is one of the reasons why the new kids on the direct to consumer block are life companies, which are joining the fray to tap into this new influx of cash. They also have a duty of care to the “orphan” clients they will have on their books when the so-called “sunset clause” expires next year. For actively advised clients, the clause banning platform rebates on legacy business is not as much of an issue. The orphans are those that have inactive relationships with their adviser and will suddenly find themselves out on their own.
As the April 2016 deadline approaches, interest in D2C propositions is gathering pace. We examine this in our report UK D2C Guide Direct Platforms and Investors; Steady As She Goes, published this month.
Life companies – as well as fund managers – are well placed to distribute directly. Indeed, 36 per cent of active investors say they will take this route for their next investment – more than via a financial adviser or platform. Some 29 per cent cite security as a top reason to choose the channel, while 17 per cent give that answer with respect to buying via a platform.
But the life companies that have entered the D2C market look very different to the incumbent D2C platforms. It is clear they are not looking to target sophisticated investors, as there is not a huge array of investments or data and content.
Others will follow and develop similarly simple propositions to retain clients who do not wish to annuitise but without sufficient assets to pay for advice.
New propositions from life companies – as well as other players in the market – will have solutions at their core.
So, how might these life companies measure up? They tend to have strong consumer brands, which is the overwhelming top factor for consumers choosing where to invest. For instance, 66 per cent of respondents in our survey of Telegraph readers selected “a well-known and trustworthy company name” in the top three most important factors.
While a proportion of these customers will seek advice, it will be out of reach for many. Therefore simple, engaging content, guidance tools, strong usability of websites and branding will be key. A number of start-ups are clearly aiming to attract the less engaged investors and we expect to see life companies, as well as pension providers and fund managers, following suit and bringing their strong brands to bear.
For example, Aviva UK Life chief executive David Barral was quoted recently in Money Marketing saying: “Why would consumers choose us? Because it is the most simple, most engaging online experience and, with a brand like ours, if we can give them that guidance, we know they will bite our hands off for us to help them.”
Aviva’s entry into the market is imminent and if its execution is right this may not turn out to be too exaggerated a claim. Judging by the excellent MyAviva app, which brings together general insurance, life and investments, it will commit resources to doing it well.
Aegon’s Retiready is also aimed at the wider market. It is visually engaging and easy to navigate on a laptop or a tablet, with a tight investment choice of four BlackRock volatility funds.
Meanwhile, Axa Self Investor’s link with the Elevate platform and Architas to supply multi-manager solutions are clear strengths.
At Standard Life, stocks and shares Isas are currently front and centre on the website, complete with a John Lewis vouchers promotion, which suggests the targeting is a little above the mass market.
So what is next? Life companies have all the kit they need to do D2C: their big consumer brands (which are woefully lacking in the market to date) are perfectly suited to supplying investment solutions to the mass market, along with asset management divisions and existing platforms. They also have a mass of off-platform clients built up over the years via the workplace.
L&G stated in its 2014 interim management report it expected to have a D2C solution available around the end of last year. So far nothing has materialised – but watch this space.
Royal London is another group talking about D2C and it feels it has some useful experience with non-advised guidance that it can bring to bear through its Royal London Financial Planner portal, previously known as MoneyVista.
There will undoubtedly be more.
The new pensions freedoms will go some way to removing the separation between pensions and all the other forms of long-term savings and investing. Life companies need to fight to hold onto this territory against companies they may not have considered competitors in the past.
Jeremy Fawcett is head of direct at The Platforum