8 minute read 5 Feb 2020
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How changing customer needs are redrawing the long-term savings industry

By

EY UK

Multidisciplinary professional services organisation

8 minute read 5 Feb 2020
Related topics Financial Services

Recent acquisitions imply, firms who historically operated in parts of the value chain are expanding across traditional industry lines to build integrated businesses.

In a regulatory, macroeconomic and technological environment that is changing the dynamics of how the industry interacts with its customers, EY teams have set out to investigate whether these acquisitions are isolated cases, or part of a bigger shift within the UK retirement industry.

To understand how firms are responding, EY teams reviewed the M&A activity of 1,100 UK financial services organisations from the start of 2010 until the end of 2018. The analysis concluded that firms are strategically altering or expanding their business by removing themselves from non-core business and placing strategic focus on new propositions that span a wider range of customer needs. L&P firms, asset managers, wealth managers and advisors are converging and diversifying their propositions to get closer to the customer and support them with both long- and short-term solutions.

The M&A analysis shows that over the past decade there has been a much greater diversity of transactions across all sectors, as well as consolidation.

Getting closer to the customer is key and that means assessing the consequence of offering an advice component and serving their entire balance sheet as opposed to not altering your business. Firms that have sought to expand and provide an advice element are seeking to capture much more of the value chain. If these models continue to grow, traditional firms will need to choose between being wholesales to those who control the customer or securing access to customers themselves.

The future of L&P firms lies in bringing together a variety of products to meet customer needs through processes that will be enabled by technology. 

M&A trends

  • A period of change

    Products such as endowments and bonds carried tax incentives that made them attractive to customers and distributors, but costly to set up and run for a company not already in the L&P space. This tended to make it more economic for asset managers who were not already part of an insurance group to provide investment solutions into other providers’ products rather than set up their own.

    However, over time, legislation and regulation have enabled the key tax benefits to be delivered through low capital on an investment platform and reduced the incentives for advisors to sell more traditional L&P products (such as bonds) to customers who had already not fully utilized their other wrappers.

    For more information, click here.

  • The future of the industry

    Traditional players are changing their business models, removing themselves from non-core business and placing strategic focus on new propositions that span a wider range of customer needs. EY teams have developed five hypotheses for how the market might continue to develop.

    For more information, click here.

Summary

The flattening of regulatory distinctions between different products and services, coupled with customers’ need to manage the money unlocked by these changes, is breaking down traditional divides between the advice, L&P and asset management spheres. Customers will gravitate to those that are best able to support them, with solutions at each crucial step of their financial-life journey. For this reason, tough and strategic decisions are required to build propositions that adequately address customers holistic needs.

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By

EY UK

Multidisciplinary professional services organisation

Related topics Financial Services