Should you stay with Standard Life - or is it time to move on?

Are customers who stuck with the Scottish insurer last year still being rewarded for their loyalty?
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The Independent Online

This Tuesday, Scottish insurer Standard Life will celebrate its first anniversary on the stock market. More importantly, thousands of its customers, both past and present, who have held on to the free shares they were awarded last July will finally qualify for another handout – one additional share for every 20 already owned. For those with the biggest policies, this could mean a windfall worth up to £30,000.

To qualify for last year's handout, customers had to keep any policies they had with Standard Life until the company was floated on the stock exchange – after which they were free to take their business elsewhere if they wanted to. And over the past 12 months, many customers have done just that.

Others, however, maintained their loyalty – holding on not just to their free shares, but also to their Standard Life pensions, life insurance or endowments policies as well. Although the company's shares have performed extremely well – increasing by more than 40 per cent – have customers been rewarded for their loyalty as well?

Patrick Connolly of Towry Law, the independent financial advisers, says that most people who are invested in Standard Life's with-profits funds should consider putting their money in a different type of investment. While Standard Life has some strong investment funds, and pension wrapper products, its with-profits funds are effectively now a dead part of the business.

"Our view is that with-profits is not the best option for anyone," he says. "However, that doesn't mean that everyone should sell out. If you're within a few years of maturity on your policy, it often makes sense to stay put. And some policies have guarantees on them too – so it's important to assess the value of those. But a lot of these funds have a very low proportion invested in equities, and you may be able to get a much better return on your money elsewhere."

Tom McPhail of Hargreaves Lansdown, the financial advisers, points out that some Standard Life with-profits investors will have less than a quarter of their money invested in equities, and the majority in corporate bonds and gilts which will generate much lower returns. However, he says that the stakeholder with-profits fund is an exception, with more than 70 per cent of its assets in stocks and shares.

Standard Life mortgage endowment customers have around 38 per cent of their money invested in equities, with more than 43 per cent in bonds, ensuring returns will be much lower than some of the company's competitors. Philippa Gee, of advisers Torquil Clark, says she has seen more and more Standard Life customers receiving red letters – meaning their endowment will not pay off their mortgages – adding that this is unlikely to improve with such a low proportion of the fund invested in stocks and shares.

Connolly says the with-profits universe is much like the Premier League, with a few teams dominating the top of the tables and a few constantly struggling. These days, Standard Life is a mid-table player – an Aston Villa of the with-profits world: great heritage, but mediocre form in recent years. He says that investors in the funds of the more active with-profits providers, such as Prudential, will have fared much better.

McPhail says the other big consideration when deciding whether to sell out of your with-profits policy is to find out whether it has a Market Value Adjuster (MVA). This is a penalty that will be subtracted from your investment if you cash it in before maturity.

Like many other life companies, Standard Life has reduced MVAs on its with-profits policies in recent years. However, some still remain. For example, customers who took out a single premium with-profits pension with Standard Life between the end of 1996 and the end of 2002 face an MVA of up to 26 per cent for cashing in early. In this instance, it may be worth holding on to your policy.

But Connolly says MVAs should not necessarily prevent you from cashing in altogether. If you have a long time left on your policy, it may be better to lose 10 per cent of your investment now, rather than remain invested in a fund with a low equity backing for another 15 years.

To find an independent adviser in your area, visit www.unbiased.co.uk or call 0800 085 3250

To sell or not to sell?

If you've held on to your free Standard Life shares for the past year, you'll qualify for your additional bonus shares as of this Tuesday. But given the shares have already risen more than 40 per cent since the company floated last July, should you sell out as soon as you get your bonus?

Justin Urquhart-Stewart, of Seven Investment Management, says the management have done a good job of turning the company around over the last few years, but that the business is now approaching crunch time. "The management has completely restructured the business, so it is looking a lot better," he says. "But they now need to work out if they have the scaleability to take it to the next stage. Compared to their international competitors, they're not that large."

Urquhart-Stewart says that investors who hold Standard Life as part of a portfolio of shares should consider taking some profits after its recent strong run. However, he says investors should not sell out completely, as the shares could still do well, especially if the rumours of an imminent bid turn into reality.

For investors who only hold Standard Life shares, he suggests now is probably the time to sell out altogether. "As a private investor, you shouldn't really be investing in single shares, and you certainly don't want all money in Standard Life shares," he says. "You'd be much better off selling up and putting your money into a mutual fund, where a professional can pick the stocks for you."

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