Each month in an exclusive survey with Incisive Research, RealAdviser canvasses a broad panel of advisers on a wide range of different topics. This month we ask our advisers for their views on the thorny issue of the life office sector. Once all-conquering, the life offices have more recently been forced into a period of serious self-analysis by factors such as increased competition and, of course, the collapse of the with-profits market. We asked our advisers how much business they now do through life offices and through which channels as well as how the sector currently fares with regard to product features, customer service, administration, charges, performance and transparency. In addition, we sought our panel's views as to how they expected life offices to develop in the face of issues such as the evolution of the adviser channel and increased competition, and what developments they felt were important for the sector's future. Their response was sometimes positive, sometimes less so but always forthright.Recent years have seen the UK life industry on the receiving end of a barrage of punches that would make any boxing fan proud. Rather like Mike Tyson in the 1980s or Muhammad Ali in the 1960s, life offices used to appear all but invincible when you piled together their size, strength, variety and innovation.
But, like Tyson's chin and James Buster Douglas's right hook, or Muhammad Ali and his differences of opinion with the US government, the failure of with-profits, compounded by issues relating to solvency and charging, has served to do away with the life offices' aura of impregnability - occasionally going so far as to make them targets of hostility in the eyes of the investing public.
Indeed the pugilistic metaphors needn't stop there. As with Tyson and Ali, life offices were forced to endure their own years out in the cold as they faced the virility of public sentiment. But times, as they tend to, have changed and, after a prolonged period of introspection, where self-analysis and reform were the order of the day, life offices could well be putting their problems behind them.
Just as it is not the same financial services industry as even six years ago, nor are these the same life offices. In order to make their respective returns as increased regulation and numerous new entrants have made the market more competitive than ever, life groups have had to re-invigorate their offerings.
While the return of these huge brands to the forefront of the market cannot be denied, the question on most advisers' minds is which groups will follow Ali's example and become synonymous with their trade? And which will struggle like Iron Mike and be remembered more for their controversies than their successes?
This month's RealAdviser Inquiry shows adviser trust in life offices is still up in the air with 29% saying they place between 51% and 75% of their business with a life office. However, results were fairly even across the board, with 20% using them to write more than three quarters of their business and only 3% not using them at all.
"Many life offices are now right on the ball and have begun to get their electronic systems up to scratch," says Eliot Silk, account director of advisory group Caversham Buchanan. "There are some who are stuck on their heels but the majority have begun to take the bull by the horns."
According to Alasdair Buchanan, head of communications at Scottish Life, there has been improvement - albeit some of it may only be skin deep. "To a fair degree the sector has been pretty resilient and the market appears to be doing pretty well, but that doesn't tell the whole story," he adds. "Some would argue that the industry is running just to stand still, with churning giving all the power to advisers and clients - meaning providers lose out."
So is the adviser's perception of life offices really changing? "It has been mixed," Buchanan replies. "There has been lots of negativity surrounding the industry, particularly on the point of service. The market has been pretty good over the past three or four years, one result of which has been the life offices bouncing back. They have also had to cope with lots of changes that have had to be dealt with at short notice - and the result of that has been the birth of many new and innovative products."
On the back of their experiences of life offices, our panel of advisers were also asked to rate each string of their respective bows. Product features came top of the list, albeit only just passing a score of 50%, closely followed by performance and, more interestingly, transparency - once a bane to life groups. At the other end of the scale, advisers still felt that customer service was falling markedly short of acceptability, with 72% deeming it to still be below average.
"Despite the industry attempting to address the issue, it is still a huge problem because service continues to grow in importance," says Caversham Buchanan's Silk. "The emphasis has been heavily focused on the initial hit and putting a product into place, whereas the key issue of ongoing care has been a struggle for all parties involved."
For his part, John Enos, managing director, marketing of The Hartford, believes the relative success of products and features, and the lesser showing with regard to service and administration, is proof that life offices have failed to understand what the market needs. "It shows these groups are still looking for new money by offering good products, rather than ensuring a long-term relationship exists between the client and the provider," he says.
While service is still a problem for these powerhouses, their biggest Achilles' heel has been, and continues to be, both the failure of and the subsequent necessity to replace their former bread-and-butter offering - with-profits.
According to Buchanan, numerous companies have reacted by adopting completely different strategies, with some choosing simply to drop with-profits, and others keeping these products despite the strong negative sentiment they have now attracted. "With-profits were designed to meet a clear need, and many succeeded in good market conditions," he adds. "But, at the crunch, they simply failed to deliver."
Others have chosen to adopt a third route, designing what are seen as 'next generation' with-profits offerings that are formulated to address any issues of transparency. "It is here where the issue of TCF (Treating Customers Fairly) really comes to the fore," says Buchanan. "It is a question of getting value from these policies and ensuring customer needs remain the primary goal."
Scottish Equitable runs a pair of such 'next generation' funds, which were designed back in 2002 to offer a more transparent version of with-profits. Ken Hogg, head of industry development at Aegon UK in association with Scottish Equitable, argues these funds are a viable solution as they offer everything their predecessors were criticised for not having.
"These funds are structured in a way that is very similar to recommendations made by both Sandler and the Financial Services Authority, so they are easy to understand," he continues. "The funds smooth out the peaks and troughs associated with unit-linked investments. This means investors still get the potential benefit from being invested in equities, but with reduced risk. The funds are ring-fenced from our traditional with-profits funds, meaning all investment profits and losses are retained within the funds and reflected in what is paid out to investors."
The FSA has helped tackle the issue of with-profits by launching its own set of 10 questions, which address the thorny issues of existing policyholder guarantees and bonuses. This should help to nullify the possibility of further problems surrounding with-profits. However, with the FSA breathing down many life offices' necks by introducing new regulations such as TCF in April 2007, a new question arises - how can the current caution towards these businesses be expected to subside?
According to Hogg, rebuilding trust across the industry will take time. "Life offices - and the long-term savings industry as a whole - must work to regain consumer confidence," he adds. "The more firms that fully embrace TCF, the more successful this will be."
For his part, The Hartford's Enos says: "Next year lots of life offices will have to look at themselves very closely as service and administration across the industry leave a lot to be desired. How will they react to the need to show after-sale customer care? It will mean many will have to revolutionise their service."
With so many groups looking to innovate, one of the biggest changes in the market in the past year has been the embracing of the wrap. According to the RealAdviser Inquiry, 59% of advisers now use wrap propositions within life offices for some part of their client business.
Enos believes the wrap argument has been over-exaggerated - pointing to the flipside of that figure, which shows 41% of advisers have chosen not to conduct their client business through life office wraps. "The adoption of wrap through life offices by advisers is not as widespread as people perceive it to be," he argues. "Many of these groups are staking their futures on wraps and a few may already be scratching their heads. You could be cynical and argue that groups are looking to pass the buck on service by outsourcing it to advisers through the use of a wrap solution."
As a fan of technology - particularly with regard to speed and administration - Silk at Caversham Buchanan comes out in favour of the wrap proposition. "It can make life so much easier by allowing things to be solved by the click of a mouse," he says. "The only problem is that there is still a breed of adviser who may be too stuck in their ways to adapt to it."
When it comes to joining the wrap market, one of the biggest challenges is the competition from other organisations, such as Cofunds, FundsNetwork and Transact. It is widely held that, over the past few years, wraps and supermarkets have been the biggest threat to life offices, prompting the latter into a similar response in order to secure inflows to their respective businesses.
So, with all this competition, what do life offices have to do in order to keep their heads above water? As may have been expected, our survey's findings indicate administration and service remain the areas most in need of improvement. Such a view is backed up by - and to a large extent intertwined with - a growing need for improving online facilities to bolster both speed and efficiency.
"What will become increasingly important is how much life offices are aware of the changing needs of their customers - both individual and corporate - and how well they respond to them in terms of product proposition and appropriate service," says Hogg at Aegon UK.
Buchanan, meanwhile, maintains life offices do have all the tools they need to fight back: "There is still an inherent call for the products that life offices provide," he says. "Case and point is the need for protection offerings, where there is a huge gap that people need to fill once they have stopped working and need to look after themselves or their dependants. An important factor will be how the Government treats life offices in terms of future regulations."
Adds Enos: "When we joined this market, we realised it was an arena with fierce competition from all angles. Eventually the cream will rise to the top and, in order for any group to be a part of that, they will need to have the whole package - customer service, a strong risk management solution and, perhaps most importantly of all, lots of capital as this is not a business for small-scale groups."
The UK life industry would finally appear to be getting itself back into shape - at least if one ignores the issue of service - and about time too. The problem life offices face now, however, is that, following a period of stagnation, their improvement has coincided with growing competition from different areas of the market, with the likes of The Hartford, the emerging Cautious Managed sector and wraps and fund supermarkets all wanting their piece of the pie.
Future success for life offices will depend not only on their willingness to reform both their businesses and their reputations under the guidance of the FSA, but also their ability to innovate and offer wary investors both a plausible and low-risk reason to part with their cash.
What improvements do you expect from life offices in response to market changes, the evolution of the ifa channel and competition from banks?
n Competitive products that are easy to understand.
n The provision of more high net worth solutions.
n Greater fund selection.
n More external fund choices.
n More flexible products, fund access and lower charges.
n Clearer charging structures.
n More product innovation.
n Broader offerings - though that is not necessarily a good thing.
Administration and service levels
n Good technical back-up on a personal basis.
n More efficient administration.
n Improved contact facilities.
n More robust service standards.
n Greater recognition the adviser is a major source of introduced
n The ability to deal with advisers and clients as individuals and less
reliance on the internet as a solve-all.
n I would like to see the life companies still having broker consultants
and a personal point of contact.
Source: Incisive Research
n Better technological services and online support.
n More wrap and online facilities.
n Integration with back office systems.
n More investment in back office and IT systems.
n Increased online transactions.
n More automation via websites, with less reliance on office responses
n All will jump on the wrap bandwagon.
n I can't see any as they will all strive to merge and cut costs
irrespective of the effect on consumers.
n I do not expect to see any significant improvements - the nature of
the relationship between advisers and life offices will radically change
over the next couple of years.
n I expect things will continue to deteriorate as the FSA and ABI will
let the companies get away with it.
n Greater transparency and fewer attempts to 'buy' business via high
commission deals - but only because the market will force these on
them, not because they think it is right - which I find extremely
n In truth, not much.
what developments are important for the future of life offices?
Administration and service levels
n Better and more interested staff and managers with ability. n Better trained UK-based staff.
n A focus on customer service and the retention of existing business. n Improved administration standards and service.
n Improved contact facilities.
n Better administration and processing facilities.
n A better relatonship with the adviser community.
n Become more client focused.
n More business development managers.
n Improved communication and information channels.
n Staff training and more of them so we are not told we have to wait
so long to get the information we need to service the clients.
n Better in-house fund performance or open architecture to
n Innovation, multi-product platforms and lower charges. n To develop better and more innovative products.
n Understandable products that achieve good results.
n Transparency in products, more open architecture features and
improved portfolio planning tools.
n Product flexibility.
n Transparency of charges and taxation.
n Competitive charges.
n Greatly improved and consistent fund performance.
n A realisation that, in investment, the policy is just a wrapper.n A top of the range cash holding account advisers can use as a cash
alternative to fence off the banks.
n Open communication and integration with IFA systems. n More online processing and requests for information.
n Online service and documentation.
n Investment platform development.
n Software enhancements.
n Ensuring online systems are regularly updated and expanded. n The ones who want a future need to get together and agree
common data access methods like Unipass and simpler transfer
n Adopting external funds inside wrappers and the eventual ability to
re-wrap investment bonds inside wrap platforms will be the future.
A little friendly advice ...
n Humility. They are no longer the force they were.
n A pragmatic appreciation of their limited value as stewards of the
n Listening ...
Cautious, Balanced & Dynamic Growth
Cowardly, boring or sensible
Latest news and analysis
‘Most significant’ upgrade since launch
Changes happening over coming months