Popularity of annuities and onshore open architecture bonds grows in annual market review – Defaqto

by | Mar 9, 2023

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Defaqto’s newly released annual Investment Bond Service Review for 2023 has revealed that adviser recommendations for onshore open architecture bonds, annuities and other more sophisticated investment products has increased again. 

The annual survey conducted by the financial information, ratings and fintech business, measures how satisfied financial advisers are with their preferred providers and identifies where expectations are being met.

Popular products 

This year’s report has reinforced two emergent industry trends in relation to investment bonds. Firstly, that open architecture products are generally favoured over restricted and that onshore is preferential to international. Combining these two factors, onshore open architecture bonds are now the product of choice. 

 
 

This change has slowly transitioned over the last five years. In 2018, international bonds were most popular but support for these has fallen again, by 5% in this year’s review, whilst the popularity of onshore open architecture bonds this year has increased by 3%, widening the gap between the two.

More than 85% of advisers are now writing open architecture onshore bonds and two-thirds (66%) are writing open architecture international bonds. 

Restricted architecture onshore products are up slightly on last year at 53% compared to 50% last year and restricted architecture international bonds remain the least popular option with a low take-up of less than 20%.

 
 

When asked about other investment products – pensions, investment ISAs and unit trust/OEICs remain most popular for advisers’ investment clients. However, all three products have less support than previous years. 

By contrast, annuities and some of the more sophisticated investment products experienced an up-turn in interest.

Ben Heffer, Insight Consultant (Wealth and Protection) at Defaqto, said: “The growth we see in annuities is likely in response to improvements in rates, a more cautious attitude to risk post-pandemic and the cost-of-living crisis. However, it would be premature to think that advisers were significantly changing their financial planning habits. We assume that pensions and ISAs will remain the first choice for clients’ investments for years to come alongside any bond recommendations that advisers might make.”

 
 

Popular providers

Popular providers have been determined by the number of advisers surveyed that had placed business with them in the 12-month period covered by the review. 

In terms of onshore providers, Prudential dominates the market with 39% of advisers recommending its bonds to clients. This is in line with previous years. 

Aviva, Canada Life, Quilter and LV= appear to have lost some traction and now have support from 20% or less of advisers.

The only providers to have increased their level of support this time are HSBC Life and Foresters Friendly Society.

Healthy Investment and abrdn (for Wrap) are new to the chart this year and the support for Standard Life Assurance, which was once in excess of 20%, now seems to be split between Standard Life and the rebranded abrdn Wrap product.

Looking at international product popularity, Ben Heffer at Defaqto, explained: “The withdrawal from the offshore market of Quilter has benefitted other main providers. We have now seen Canada Life International and Prudential International top the table. 

“In 2021, just under one in five (18%) recommended Quilter but since their exit, Canada Life International has seen an increase in support of 12% from advisers whilst Prudential had a significant surge of 21%. Other brands, including Standard Life International also appear to have benefitted.”

In the rankings, Isle of Man Assurance, RL 360 and Lombard International Assurance SA also received significantly increased support.

Ben Heffer at Defaqto, added: “The increase in popularity for Lombard International Assurance is interesting given its location and the less favourable compensation arrangements afforded to UK investors in Luxembourg.”

Preferred providers

In total, 19 providers received sufficient adviser nominations as preferred providers to be awarded a Defaqto service rating. Ten of these were onshore and nine offshore. 

The top 10 preferred onshore bond providers, in order, were:

  1. Prudential (UK)
  2. Quilter 
  3. Canada Life (UK)
  4. Aviva
  5. Transact
  6. HSBC Life (UK)
  7. abrdn (for Wrap) 
  8. LV 
  9. Healthy Investment (UK)
  10. Foresters Friendly Society (UK)

Whilst Prudential and Quilter kept their places at the top, both had decreased support compared to last year. Canada Life was the only existing preferred provider to improve its position. Healthy Investment and Foresters Friendly Society received enough nominations for the first time to be awarded a Defaqto service rating. 

The top three preferred providers for international products meanwhile are unchanged since last year with Canada Life International (IoM), Prudential International (Ire) and Utmost (IoM) taking the top three spots respectively. 

Read the full Investment Bond Service Review 2023 here

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