Decision day is coming home at Standard Life

As ballot papers hit the doormats, what are the choices for the mutual's 2.4 million voters?

Pity the postmen.

Standard Life's plans to abandon its status as a mutual insurer and float on the London Stock Exchange prompted a mass mailshot - one of the Royal Mail's biggest - to more than four million members and policyholders last week.

With each pack weighing nearly a third of a kilogram, the nation's army of posties would have good reason for groaning.

Standard Life policyholders might also have been forgiven their own groans at the sight of all that paperwork. But they at least have hope of a reward - in the shape of a shares windfall of £500 to £1,000 or more.

The company has sent ballot papers to 2.4 million eligible members to try to gain their support for its demutualisation. (Other policyholders got literature explaining what is happening.)

At present, Standard Life is a mutual company owned by its with-profits policy investors (or member customers). These are the people - holding investment bonds, endowments or pensions - who bear the risks and rewards of the group.

If Standard Life demutualises - and to do so, it needs 75 per cent of policyholders to back it - they will surrender their rights as owners and be offered shares in the company instead.

The City and most industry specialists argue that Standard Life has no option other than to demutualise, since staying as a mutual limits its capacity to raise money for expansion. The Board hopes that most of its members will agree. With momentum behind the proposed float, the question of what to do with their shares in the new public company will likely become a pressing issue for millions.

Standard Life released more details last Tuesday of what it plans to do after going public. Each eligible with-profits policyholder - anyone who invested before 31 March 2004 - will receive a fixed allocation for their loss of membership of 185 shares, expected to be worth between 240p and 290p each. Most will also get a variable allocation of shares - based on how long they've had their policy and its size.

Half of these policyholders could get windfalls of between £500 and £1,000, it is estimated that, while the rest could be on course for more than £1,000 worth of shares - although all depends on the share price when Standard Life floats.

If you are one of the many recipients of the shares, you may be at a loss whether to cash them in immediately or retain them and hope they prove a decent long-term investment.

For its part, Standard Life is trying to encourage former members to hold on to the shares by offering a loyalty bonus of one free share for every 20 held during a 12-month period from the date of flotation.

Other carrots are being dangled: in the event of a "yes" vote, Standard Life will write to all its customers - including those not entitled to windfalls - and offer more shares at a discounted rate.

But investment specialists say the decision facing potential shareholders is not an easy one.

"If Standard Life does perform well as a business in the future, then shareholders should benefit via healthy dividends and a rising share price," says Justin Modray from independent financial adviser (IFA) Bestinvest.

"The company is reasonably diverse, with a prominent presence in the insurance, investment management, pension and banking markets - this helps reduce risk."

But owning shares in an individual company can itself be a high-risk strategy compared with investing in funds that put your money into a basket of shares, he warns.

What you choose to do with any shares you receive will depend largely on your financial health, other investments and how much debt you have, as well as on your age and your financial goals. Some members may also simply want to cash in their shares, Mr Modray adds, if they don't believe in the insurer's prospects.

With more competition in the protection (critical illness, income protection and life cover) industry from supermarkets - as well as new arrivals in the pensions industry - there are concerns over how life companies will fare in the future. "If we experience an economic downturn or falling stock markets, a financial company such as Standard Life could suffer the most," Mr Modray says.

Anna Bowes from IFA Chase de Vere urges people not to make a "knee-jerk reaction" on the basis that the insurer will definitely demutualise: "There is still no guarantee this will happen - it's a case of wait and see." But should the float go ahead, she says: "If you don't have a lot of money, you may be better off selling the shares and putting the money into a more appropriate investment [such as a unit trust fundor savings account]."

The appeal for investors in mutuals such as Standard Life has long been that financial rewards go directly to the customer as the company is working for them and not the shareholders.

"This should avoid a corporate 'fat cat' culture and encourage management to make sensible long-term decisions rather than short-sighted ones simply to appease shareholders," says Mr Modray.

However, in the case of Standard Life, its need to expand as a player in the UK market appears to be outweighing these advantages.