Sterling exchange

11 February 2010 10:27 am

I should start by offering an apology to readers and praise to Money Marketing and one of its reporters. My apology is for not writing about Standard Life last month, after it was announced the company had been fined £2.45m for failings in the marketing of its pension sterling fund.

I had meant to do so several weeks ago, when news first broke of the fine but other issues got in the way. There is no excuse for not doing so now, especially in the wake of Money Marketing’s Nicole Blackmore’s superb story last week.

For the benefit of anyone who did not see her original piece, Nicole’s exclusive story last week revealed that back in 2008, way before the furore broke, the FSA had already conducted a probe into money market funds. It asked questions about the marketing of the funds, almost certainly including Standard Life’s pension sterling fund.

The FSA told Nicole last week: “The FSA undertook an industry information-gathering exercise in respect of money market funds. Although in this context, the firms’ responses did not constitute routine regulatory returns, we rightly expect that all firms provide us with full and accurate responses in all of their dealings with us. It is obviously a matter of regret if a firm provides us with inaccurate data.”

This last sentence is striking. I am clearly not privy to whether the FSA statement refers to Standard Life or what the “inaccurate data” is actually all about.

What does occur to me is that, given the FSA’s decision to carry out its “information-gathering exercise” back in 2008, it is hard to imagine how on earth the company could have got things so wrong.

On the one hand, the company can rightfully argue the pie chart on marketing literature for the sterling fund only showed 100 per cent of assets held in “cash” between April 2007 and April 2008.

After April 2008, the pie chart changed. When I looked a year ago, the same factsheet had a pie chart which pointed out that 18.8 per cent of funds were invested in cash and more than 44 per cent in asset-backed securities. Both seem pretty clear to me.

The rest of the time, the wording in its fund factsheet specifically stated: “The fund invests not only in bank and building society deposits but also in a variety of other money market instruments. The fund price is not guaranteed by Standard Life and there could be circumstances where the fund price may fall.

“A fall might happen if, for example, there is a default by one of the banks where some of the money is held or where there is an adverse market movement in the value of one or more of the securities held due to, for instance, a credit event or where the anticipated repayment term of an asset is extended.”

Yet what I don’t understand - and many advisers didn’t understand either - is why Standard Life, knowing that IFAs and their clients were facing a highly volatile financial climate, did nothing to prevent misunder- standings on their part about the sterling fund.

The company must have known that IFAs were desperately looking to shelter their clients’ money as world stockmarkets were collapsing.
It should also have twigged to the fact that many of its pension planholders were likely to be shifting big amount of money into its sterling fund, especially those coming up to retirement, for whom the concept of “lifestyling” was vital.

Finally, I find it disappointing that it took weeks before Standard Life bit the bullet and finally agreed to pay £102.7m into the fund to restore the value of the investors’ holdings back to the position they would have been in prior to the fall in the unit price.

The company has acted fairly since then. It has contacted all existing customers identified as having received the poor quality marketing material in order to check whether any additional compensation may be required in their individual cases. Hopefully, it has also addressed the marketing problems that led to the error in the first place.

But what is staggering - and Nicole Blackmore’s excellent piece brings it out even more starkly - is how a company of Standard Life’s undoubted stature could have got things so wrong. One can only hope there aren’t similar problems lurking away with other insurers whose own reputations are much worse than Standard Life.

On a more cheerful note, another subject I never got a chance to comment on at the time but am glad to do now is to welcome Mike Webb back to retail fund management in a new role at Rathbone Brothers Unit Trust Management.

He joins from Hermes Fund Managers, where he was head of business development. I met Mike when he was at Invesco Perpetual and thought he was incredibly sharp. Hopefully, he will get a chance to put that sharpness into effect at Rathbones.

I should declare an interest - I am a Rathbones’ shareholder, so I want him to succeed for personal reasons. Regardless of that, it is good to see someone coming back who genuinely cares about unit trust investors too. It will be interesting to see what he gets up to.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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