Banks on to a winner

You could forgive the people at Canada Life for being bemused. Five years ago, about 50,000 of us flocked to take out with profits policies with the company on the back of strongly denied rumours that it was about to demutualise. In today's money, the carpetbagger's windfall came in at no more than €1,905 (£1,175), with many having to settle for a figure closer to €635 (£392).

By comparison, just 7,500 Canada Life customers have so far bothered to avail themselves of a Special Savings Incentive Account (SSIA), a slick, well-publicised product (see panel, page 22) with twice the free money, a maximum €3,809 (£2,350), up for grabs. And that return is not the stuff of rumour. Rather, it is underpinned by no less than the Irish Government, which is apparently still happy to shell out money to anyone prepared to save up to €254 (£157) a month for five years.

Not that Canada Life is unhappy with its SSIA sales figures to date, with €22m (£13.6m) under management between May and December. The company expects that performance to be repeated and surpassed by the end-of-April deadline, according to spokesman Paul Mitchell. It just seems a little ironic that only a fraction of the carpetbaggers who worked off rumour will bother to take out Canada Life's version of one of the most favourable investment products ever offered in Ireland.

Anyone savvy with Ireland's investment scene can easily point to the root of the discrepancy. It's called bancassurance. Two companies pre-eminent in this are Ireland's two main banks, AIB Group and Bank of Ireland.

In the same week that Canada Life gave us an update on its SSIA figures, AIB Group's bancassurer, Ark Life, announced about 28,000 people had taken up its SSIA offering during the same period that 7,500 opted for Canada Life. "And we are expecting not just that again, but twice as many before the deadline," says Ark spokesman Brian Woods.

Similarly, the head of marketing at Bank of Ireland's Lifetime assurance brand, Quentin Teggin, says he expects the final tally of investors to be many times what Canada Life is capable of attracting. Indeed, some idea of the SSIA bonanza the two big bancassurers can expect in the run-up to the end-of-April deadline was evident in December. Then, Christmas shoppers formed queues at one south Dublin bank branch because of the rumour, this time unfounded, that Minister for Finance Charlie McCreevy was to end the SSIA scheme early because of the downturn in the country's economic fortunes.

According to Teggin, maximising SSIA business is now a key corporate priority. "The research we are seeing suggests there is a large number of people out there who intend to buy," he says. "In fact, the number of people who are intending to buy SSIAs exceeds the number who have already bought them."

One remarkable contrast between Canada Life and Lifetime is the sort of investment appetite each is finding among its client base. In Canada Life's experience, a high percentage of its SSIA investors have opted for its high risk Focus 15 fund.

"It's our most volatile fund and it's gone extremely well, but there is a good strong upside to it," says Teggin.

By comparison, Teggin says the bulk of Lifetime sales have gone towards more carefully managed funds and he questions whether five years is really long enough to allow the stock market see a return on more volatile investments.

Bank of Ireland Group sales figures make interesting reading. A massive 70% of the SSIA spend has gone into safe haven deposits known as Special Savings Accounts sold through the bank branch network. That leaves 30% channelled into equity-oriented SSIAs via Lifetime and the recently acquired New Ireland Assurance. Of that 30%, four-fifths of sales found their way to Lifetime, again via the branch network, which means New Ireland achieved the remaining 20% through its broker network and direct sales team.

"Brokers started with an initial bang, having lined up quite a lot of clients," says Teggin. "They came out of the starting blocks very well and did quite a lot of business very quickly. But it has gone down, while the bancassurance channel has been more sustained. Broker sales have followed an expected pattern, which starts well, is followed by a trough and comes back again towards the deadline."

Though there is undoubtedly still much to play for until the end of April, it seems the level of business transacted through brokers has been only `fair to disappointing'. There are a number of reasons, according to the brokers Insurance Times contacted; all confirmed only limited success selling the SSIA product, but none were prepared to be quoted.

They feel it has almost been gifted to the banks whose big brand presence on the high street of every sizable town in Ireland ensures a captive customer base. But that has not been the only stumbling block. The introduction of the new broker regulatory framework on 1 November ensures a much greater duty of care towards customers and has taken some getting used to. It has, for the time being, ensured that brokers stick to their core long-term savings and pensions business.

"The banks get a lot of the SSIA business because they have an open market for any customer that comes in," said one Dublin-based restricted intermediary. "I thought I would do better, but younger people are probably choosing to go through their bank."

"Last year was quiet and after 11 September things died out towards the end of the year. I've sold a few, not a lot. But there'll be a surge coming up to April."

He says investors taking unit-linked policies will probably come out better because, with investment appetite depressed, this is a good time to buy into the potential upside of the stock market.

Another Dublin-based broker said the new regulations that came into effect on

1 November also had an impact, to the extent that a broker may find himself advising a client to invest in another savings product altogether, even if the customer had initially been quite determined to take an SSIA.

"Brokers must do a fact find," he says. "Do they have enough life cover? Have they a pension or savings... and what's their debt? You have to work out one against another to find where they are weakest. It's like a financial check and clearly if you have a man with a wife and four kids with no life and no pension, then that has to take priority."

In execution-only cases, the client has to sign a declaration that they have visited the broker with the sole purpose of buying a SSIA and no other reason.

The broker says life offices must devise ways of helping brokers attain a greater share of the SSIA cake. "We are not allowed to go out and canvass. You can't say to the person you know on your avenue: `I've something here to show you.' You have to wait for a client to ring you up. Our freedom is gone."

Irish Brokers' Association (IBA) manager of broker services and development Stuart Reid says brokers are not even on the same field, never mind a level playing field, as the two main banks. And this makes it extremely difficult to market any of their products.

Brokers, he says, are allowed to mailshot only under strict conditions. The mailshot cannot be individually addressed or personalised and it must also include a declaration of status as a restricted broker or authorised adviser. Brokers may only contact clients about new opportunities if they have had dealings with them in the previous 12 months.

At Canada Life, Mitchell says two-thirds of SSIA sales have been though Canada Life's direct sales teams and one-third through the broker channel. "We've probably been more successful on the direct than on brokers. Brokers could do a lot better if they had a stronger focus," he says.

Twelve months, he says, is a long time to make up your mind about such a relatively straightforward financial product and that means that as far as prospective investors are concerned, they can afford to put off a decision. SSIAs are products that need to be sold, especially in that lag period.

"There will be a fire sale in the last six weeks, but at the moment it needs to be sold."

Mitchell also remarks on the dominance of the bancassurers. "The two principal banks are so large, there is probably a need for the life assurance industry to co-operate on a common marketing platform for SSIAs."

In the meantime, he says Canada Life and others aim to support their broker network on the client communications and marketing front. "We envisage supporting our brokers to bring in SSIA business," he says. "We can do that with their permission and co-operation. We can write to clients to offer them an SSIA, but I emphasise we need their permission."

The IBA's Reid is sceptical. "We have never encouraged giving consent to an insurer who is obviously in the direct market themselves," he says. "It's something some of the insurers have suggested and they have got a clear response from the IBA and its members."

He does not see involvement with insurers in the SSIA market in advance of the April deadline. But if brokers can be actively involved at the highest level in the creation of the message and in how the information is coming back and manipulated and used then it could happen, he says.

Meanwhile, the Irish Association of Pensions Funds is strongly urging SSIA investors to use their SSIA windfalls as the bedrock on which to build pension provision, especially with the advent of PRSAs (a broadly similar concept to the UK's stakeholder pension arrangement) from next April. Irish Insurance Federation (IIF) life assurance manager Jennifer Hoban says much will depend on the country's economic fortunes at the time.

Just as, last year, SSIAs were designed to take money out of Ireland's then overheating economy, so in five years time, there may be a similar need to keep people saving. But that's a game of wait and see. Certainly, if the economy is growing at a reasonable rate, there will be little appetite for the SSIA euro millions to come hurtling back out on to the high street in a massive show of consumer excess.

Of more immediate note, says Hoban, is the fact that Ireland's life offices are offering shorter-term savings propositions direct to the investors. "It's a general rule of thumb that shorter-term savings are not always something that you would associate with a life office."

That cannot be a bad thing.

What is a Special Savings Incentive Account (SSIAs)?
It was introduced by the government to take the consumer-spending heat out of the economy, at a time when it was suffering from a bad dose of inflation. The SSIA scheme began on 1 May 2001, to encourage people to save rather than spend and it will last until 31 April 2002. The key attraction underpinning the scheme is that for every ¤5 (£3) saved each month, the government contributes a further ¤1.3 (74p) tax-free and, naturally enough, it is marketed as a means of getting free cash.

Investors may open an account with financial institutions such as banks through to life offices and even credit unions. And there is a full risk spectrum, from deposits through to volatile equities, so participants can be as conservative or as speculative in their investment choices as they wish.

There are some rules. Savers must agree to save up to a maximum of ¤254 (£157) each month for five years, at the end of which the only tax liability is 23% of the investment growth. Those who do not honour their savings commitment will suffer a much greater tax burden, including a 23% take on the premiums invested. The schemes are often called Special Savings Accounts if they involve a simple deposit bank account. Similarly, they are termed Special Savings Investment Accounts (SSIAs) if the money is placed in an investment fund with a bank or life office. There are huge concerns that the government has merely put off rather than solved the inflation question, as come the end of the investment period, people will be free to spend their money again.