One of the issues emerging from Standard Life's recent announcement has been speculation about the impact that it will have on other companies and on the market generally.
The reaction of IFAs will undoubtedly be a key factor in determining the first of these issues but how will consumer confidence in the long-term savings industry generally be affected?
Some people have suggested that this is a major concern. I do not believe it needs to be but some key points need to be properly understood and must be well communicated, otherwise there is indeed a risk that people will be unnecessarily worried about the general health and security of the industry.
The consequences of such concerns could well mean that fewer people are prepared to trust the industry with their savings and investments.
So what do we need to do to avoid this happening? First, we need to recognise that recent events are, in reality, a sign of the regulatory system starting to work more effectively – identifying and addressing issues before they get seriously out of hand. The lessons of Equitable Life have been learned.
Second, we must also recognise that, despite what a few people have suggested, what we have been seeing is not an industrywide problem, nor is it directly related to the new approach being taken to life office financial reporting using realistic balance sheets.
The issues which have arisen appear to be specific to Standard Life. They appear to relate to certain practices which Standard has used but which were certainly not common among other companies. Indeed, they may have been unique to Standard Life.
The development of realistic balance sheets may have helped the regulator identify the issues within Standard Life at an early stage but the new reporting methodology certainly was not the cause of the problems.
Nor was mutuality directly relevant to these issues – the valuation of liabilities and the production of the realistic balance sheet are done in the same way by both mutuals and plcs.
There is no point in pretending that many of the issues raised during the past few weeks are other than complicated, some would say arcane. It would certainly be helpful to commentators and to the rest of the industry if some more light was shed on the reasons underlying recent events.
If there was greater clarity, it would make it a lot easier for IFAs to reassure their clients, current and potential, that there is no need for undue concern. Nor is there any reason for people to be unduly concerned about the new realistic balance sheets – quite the contrary.
One of the major benefits we can expect to gain from realistic reporting will be greater transparency. At present, there are very few people who have the skill and detailed understanding needed to peel away the layers of complexity which have increasingly surrounded the assessment of life office financial strength.
Simple measures, such as free asset ratios and mechanical ratings of companies' financial strength, have been shown in a number of cases to be deeply flawed. Not only do IFAs need to identify providers they can trust, they also need to work out whose analysis of financial strength they can trust.
Advisers will also want to satisfy themselves about the stability of a particular company – not least its longterm commitment to the UK market.
The recent past has provided several vivid examples of companies which, when the going got tough, also got going – back to their home countries.
So perhaps the most important messages from the past few weeks are not particularly new but simply a reinforcement of two crucial points:
There is no quick or easy substitute for a reliable, exp-ert, all-round understanding of the complexities of life office strength and stability.
There are few people who can provide such analysis and understanding. Until after the event, of course.
Alasdair Buchanan is group head of communications at Royal London