Sandy Crombie: Memo to Sir Alex - how to stay mum when the referee moves the goalposts

The chief of Standard Life tells Jason Nissé how the insurer bit its lip and fell in with an equity sell-off and the loss of mutual status
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"Many journalists have tried to get me to blame the FSA," says Crombie, but he declines to take the bait.

The first volte-face was the decision to give up its independent status. Crombie carefully corrects the conventional wisdom that Standard Life has been a mutual for all its 180 years. "We only became a mutual in 1925," he smiles. "Mind you, every employee here was hired well after that." But he admits the decision to go for a public listing marks a "massive U-turn" for it has brought a change of culture at Standard Life, especially as it fought successfully to retain its mutuality only three years ago.

"A lot of people had fought in the campaign - worn the T-shirts, manned the telephones," says Crombie. He was one of them - having been a Standard Lifer of nearly 40 years' standing, joining the group straight from school. But faced with extreme pressure from the FSA over the low level of capital it had to back its selling of life and pensions products, Standard Life decided last year to ditch mutuality and is on target for a float next spring.

"Many people still have attachments to the principle of mutuality but few fail to see the reason for change," Crombie argues. They have also had to change many of their working practices to become a bit more hard-nosed and commercial. "Profit was not a prominent statistic at Standard Life," he notes, ruefully.

The other U-turn was slashing the amount of shares held in Standard Life's investment portfolios. Two years ago, three-fifths of all client money was invested in equities - backing a policy promoted when Crombie was heading the group's investment arm and aggressively championed by his successor, Keith Skeoch. Then, almost overnight, Standard Life sold billions of pounds of shares, buying bonds instead. Now, only 35 per cent of the money invested by the group is in equities.

Clearly, this is not what Standard Life would have done in a perfect world. And it has been widely pointed out that the FTSE 100 has risen by a fifth since the big sell-off, so customers have lost billions because of the change.

Crombie does not want to wade into this argument, talking diplomatically about "hindsight" and "all insurers having to respect the regulations". But it is clear he feels that what Standard Life had been doing was right for its customers. "Our approach has always been to hold the maximum equities we can, within the requirement of keeping funds solvent," he says. "We have always held it through the bad times rather than move in or out."

The equity sell-off was also forced on the group by the FSA, which felt it did not have enough capital to support the amount of "risky" assets it was holding. It has always been Standard Life's view that over the 20- to 30-year investment horizon for pension funds, a well balanced equity portfolio is no more risky than a bond one. But it lost the argument.

In his desire not to criticise the regulator, Crombie argues that the ultimate reason for the change was a directive from the European Commission, which aimed to protect investors against risk. "It is difficult to argue against the principle of these regulations," he says. "You could argue about the detail and the implementation."

He admits that Standard Life's position was "extreme" - it held a higher proportion of shares than its main rivals. "We didn't have enough capital to hold that much equity. And, as a mutual, we cannot conjure up the amount of capital we needed."

So out went the equities along with Standard Life's mutual status. Also out went Iain Lumsden, the old chief executive who was blamed for the run-in with the FSA. The finance director, John Hylands, ended up stepping aside too, being replaced by Alison Reed from Marks & Spencer.

The good news, according to half- year figures released last week, is that Standard Life is in good shape as it heads toward flotation. The stronger profit motive has led to a 4 per cent increase in business overall, and a 10 per cent rise in the UK life and pensions sector. Even stern critics, such as life assurance analyst Ned Cazalet, are now singing Standard Life's praises.

For once, regulatory changes are helping the group. "Depolarisation" may be an ugly word to describe the changes in selling life and pension products, but it sounds pretty to Crombie. It means that big financial retailers, such as Barclays, have cut their ties with in-house or friendly insurers and now sell products from a panel of companies. And Standard Life is on almost everybody's panel as it is a well respected brand that goes down well with customers.

At the same time, independent financial advisers (IFAs) have largely been big fans of Standard Life and, as they gain importance, so the group's products are pushed more and more.

Another reform pleasing Crombie is the loosening of the rules on self-invested personal pensions (Sipps) - a change that comes into force next April but is already promoting a boom in this sector. Standard Life has what many IFAs describe as a "highly attractive and well administered" Sipp product line, and it has been selling well. "When I sit down and look at the cheques coming in for Sipps, it makes me smile," says Crombie. Although there is some cannibalisation of Standard Life products to go into Sipps, "the vast bulk of the money coming into this product is in the form of cheques from other insurers."

What Crombie has to do now is sell the demutualisation to Standard Life's members - customers who have invested in its with-profits funds. This is between 2.2 million and 2.4 million people, depending on the exact criteria used, which has yet to be finally decided.

The sales pitch has not got off to a great start, as the initial brochure promoting the plans went out with the notice of Standard Life's annual general meeting. "Our research shows that many members did not notice it," Crombie admits. "We didn't realise that many members discard their AGM papers."

Still, with average windfalls of up to £4,000 possibly heading their way, it is expected that the members will back the demutualisation plans. They had better. Standard Life won't want another U-turn.


Born: 8 February 1949.

Education: fellow of the Faculty of Actuaries (1973).

Career (1966): joins Standard Life.

1966-72: student in pensions, actuarial and valuation departments.

1972-83: systems department.

1983-85: senior assistant actuary.

1985-88: assistant general manager, systems.

1988-1994: general manager, operations.

1994-96: general manager, investment and development.

1996-98: chief investment manager.

1998-2004: chief executive, Standard Life Investments.

2004 to now: group chief executive.