IFAs have reacted angrily to Standard Life's announcement it has stripped 5% off the value of its Sterling Pension Fund, accusing the group of taking money under false pretences.
They are also worried clients may blame them for the losses especially as the fund has not behaved as they would have predicted.
Chris Geeson, managing director of Geeson Financial Services, who has invested £3-4m of clients' money in the fund, called the move "diabolical" and said this was the sort of move that could put small IFA firms out of business.
"Although I only have a dozen clients invested in the fund, they are a dozen who have a lot of money and overnight Standard Life has decided to wipe 5% off the value," he says, adding that one client had lost almost £60,000.
"What happens if my clients decide to go elsewhere after this because I advised them to go into this fund?" he asks.
"This is the sort of thing that folds small companies, especially in the current economic climate. With all the other issues going on in the current market at the moment, this is the last thing advisers need."
Standard Life has blamed the revaluation on market volatility and a re-evaluation of available market data.
However, despite the group insisting the fund will recover over time, Geeson says: "My view is that people don't go into cash for the long term, they go into cash as a holding position while they wait for the markets to sort themselves out."
The fund has only returned 0.7% in the year ending 31 December, 2008 compared to other cash funds such as Norwich Union's Pensions Deposit fund which has returned 5.2% and Friends Provident's Cash NGP up 4.7%.
"When you compare these to the Norwich Union and Friends Provident cash funds, you have to ask, if Standard Life's fund has underperformed the market by 2.5 - 3% over the last 12 months what have they been doing with the money?" Geeson says.
David Brunning, director at Brunning Newman Houghton, says he is very disappointed by the revaluation: "Standard Life was not explicit in any of their marketing material in my opinion as to the underlying nature of the funds," he says.
"They have always promoted it as their cash fund so it hasn't behaved as we expected and clients are going to be very surprised and disappointed."
He says no new clients have been placed into the fund but admits this was luck rather than judgement. "At a time when clients have been retreating from equities to cash and certainly putting new contributions into cash this is very unfortunate," he adds.
Geeson says Standard Life should replace any lost funds, especially for individuals invested for a short term in the fund.
"There is a moral obligation here, they have taken money under false pretences and put money in the fund knowing full well what they were about to do," he says.
Paul Keeble, senior media affairs manager at Standard Life, says: "Customers who transacted in the fund between the 23 December and 13 January will have their policies remediated. But this is not compensation, it will put customers back into the position they would have been in. We are currently working on what this process may look like and will write to advisers as soon as we can to let them know the next steps."
Commenting on the structure of the fund, Keeble says: "The Pension Sterling Fund holds a mixture of floating rate notes, and the majority of these are asset backed securities.
"The reason for this investment mix is to aim to provide better returns than a bank or building society account over time. As is typical with this type of fund, the Pension Sterling Fund does not come with a guarantee that the unit price will not fall, as the value of the assets will go up and down in line with market movements.
"Despite the current difficult market conditions, we continue to believe the Pension Sterling Fund is a good investment choice for many customers. Overall, the assets held within the Fund are considered to be of high quality and, based on current expectations, to represent sound investments."
To comment, contact Charlotte Banks on 0207 484 9943 or email: [email protected]IFAonline
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