Financial advisers are expecting more clients to surrender their Standard Life with-profits policies as its latest bonus rate announcement reveals the fund returned just 2.2% in the last six months.
A statement issued yesterday by the now-listed insurance firm blames the recent stockmarket volatility and higher prices in the bonds sector for an average gross return, before tax, on its with-profits fund of just 2.2 %.
However, Colin Jackson, director at Baronworth Investment Services, says he still has clients holding SL with-profits plans, but he expects an increased number of clients to cash in their investments as there is now even less reason for clients to hold onto their Standard Life with-profits policies following the demutualisation sharefall.
More specifically, he says the low returns just announced are not attractive against the risks to a client’s assets once tax and inflation is taken into account.
“Until a few years ago, we were big players in the with-profits bonds market, but not anymore as we have just seen bonus rates continue to drop,” says Jackson.
“People are happy to hold Prudential with-profits policies because they have seen a better return on investment, but when it comes to Standard Life, we told them to stay until after the demutualisation and then withdraw their assets if the MBVR is low enough.
“Clients are coming to us all the time to ask whether they should stay, given the rubbish returns they are receiving, and if people were not locked into the policies by a high [market value reduction] they would simply pull their money out because we can earn them a better return elsewhere,” adds Baronworth.
Standard Life says global stockmarkets achieved “sold returns” in the first quarter of this year, on the back of stronger corporate spending, merger activity and economic news which appeared to boost investor confidence.
Since then, however, the market corrections in May and June, prompted in part by “over-extended commodity valuations” presented negative returns on equities and prompted a “flight to safety” and increase in the price of bonds – which in turn costs Standard Life more to return an investment – as investors sought shelter from market risk, stresses the firm.
According to investment statistics presented up to 31st December 2005, the bulk of SL’s with-profits fund is still held in bonds as 45.4% is in fixed interest.
So most with-profits investment have at least seen a positive return, SL points out an initial £10,000 with-profits bond investment taken out on August 1st, 2000 – just a few months after the tech-stocks bubble burst and global stockmarkets plummeted – is still in the red, as the cash-in value today is just £9,764, giving the bond an annualised loss of 0.4% over the term of the policy.
The firm does also stress, however, the value of Homeplan mortgage endowment policies has generally increased over the last six months and it is not applying an MVR to these plans.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Julie Henderson on 020 7968 4571 or email [email protected].IFAonline
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