As at 30th November 2003, UK households and housing associations owed £929.96bn - equivalent to just over £37,000 per household. The amount outstanding soared by 13.3% in the year to 31st October 2003. The credit market depends heavily on the 'feel-good' factor arising from property price inflation, so any reverse in the property market would rein back credit. Key Note estimates the core mass affluent market with consistently high incomes and stable or increasing wealth, over and above owner-occupied property, at around 800,000 households.
The removal of customer-facing staff to cut costs jeopardises customer loyalty. Automated decision-making depends on data that often contain mistakes. While companies are relying on technology to replace staff, customers suffer from poor service and do not feel valued. Consumers' increasing remoteness from the decision-makers in financial-services companies also detracts from loyalty and trust.
Poor customer service from banks and insurers was a major issue emerging from the consumer research conducted exclusively for this report. Only a small minority of those interviewed felt that banks' service standards had improved over the past 2 years and an even smaller percentage believed insurers' service standards had risen. The survey also suggested that individuals have conflicting expectations:
The most heavily advertised brands among the financial categories popular with ABs include Direct Line, National Westminster (NatWest), MasterCard, Capital One and Halifax. More money goes on advertising credit cards than life and protection insurances, individual savings accounts (ISAs), unit and other trusts and investments combined. Debt management is a thriving sector attracting new entrants.
The proposed Pension Protection Fund (PPF) is unlikely to rescue the defined-benefit pension on which the previous generation of managers and professionals depended for a secure retirement. For the current generation, especially the middle earners with teenage children, economic policies such as higher university tuition fees hit them disproportionately hard. Widespread social acceptance of individualism suggests that the gap between the most affluent households and the rest will continue to expand: the wealthiest ABs will have increasingly less in common with managers and professionals on low salaries; for example, many in the not-for-profit sector.
The A households, around 6% of the total, own approximately 59% of financial wealth. The total shares of both A and B households could ease back slightly by 2007, if C2s continue to benefit from a shortage of tradespeople and consequent rise in their incomes, giving them the resources to save and invest. The losers will not be the wealthiest As but the lower to mid-range managers and professionals, among whom competition for jobs will intensify as the supply of graduates rises.
Independent financial advisers (IFAs) are expected to have a growing role in financial advice to wealthier ABs. Managers and professionals on lower incomes, who will often need impartial advice, may struggle to afford it.
Mergers and acquisitions are likely to be common in financial services over the next 5 years, leading to less choice for customers.
The 18 to 34 age group faces a tough financial future. Saddled with debts, facing the expense of bringing up their own children and seeing their prospects of inheritance fade as their grandparents and parents use up their financial resources to fund retirement, this generation still refuses to plan for the future, preferring to live for the day.
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