ONE of the UK’s leading independent financial advisers is recommending that Standard Life policyholders should sell any windfall shares they receive as soon as the Edinburgh-based insurer floats on the London Stock Exchange later this year.
The move comes as a blow to Standard Life as it seeks to persuade customers who receive windfall shares they should hang onto these for as long as possible after its planned float.
Companies which have a large proportion of their stock held by small shareholders tend to be more difficult to take over, where the board is reluctant to do a deal, than those where a few large institutional investors hold a big percentage of the stock.
In a recent mailing to policyholders, the insurer said it would offer with-profits holders a loyalty bonus of one share for every 20 received, as long as they hold the stock for at least 12 months after Standard Life’s proposed float in July.
However, Justin Modray, of London-based IFAs Bestinvest, said: “We don’t usually offer advice on individual shares, but prefer to recommend fund based investing to our clients.
“This enables them to gain exposure to a wide range of companies. The risk of having significant holdings of any individual share is too just high for most. It is wrong for investors to be too exposed to one company.
“Also in our view, the future for life companies is far from certain. In the past, life companies were able to make masses of money out of selling what were fairly mediocre products.
“Standard Life’s only real strength versus the mid-range insurers, whose future is even less certain, is that it is better than most at fund management. But even then it falls some way short of the very best in the sector, which include Artemis, Jupiter and New Star.”
Modray added: “We’re also advising clients to sell their with-profits policies with Standard Life, partly because of the low 45 per cent equity ratio.”
Ned Cazalet, owner of Cazalet Consulting said: “In terms of dynamics of what the 2.4 million eligible people are going to do, the windfall benefits are in this case in the format of shares, which is rather different to what we saw with many other demutualisations. With Scottish Widows people received cash.
“In the case of Standard Life, and given the diverse nature of its customer base, I think that a substantial proportion of its 2.4 million eligible people will take advantage of any dealing system Standard Life sets up and decide take cash.”
“At least one million of the 2.4 million who are eligible came to the life company sector by accident. They just happened to buy an endowment when they were purchasing a house.”
Scott White, a spokesman for Standard Life, said: “We believe Standard Life will be a very attractive proposition going forward. Everything the company has been doing over the last couple of years is to ensure we can distribute as much value as possible to policyholders. The aim is to ensure this will be a vibrant and profitable plc going forwards.”
This article was published in the Herald on 25 April 2006