IFA's should fight for poicyholders against Axa's arcane plans to take over the so-called orphan assets.
Independent financial advisers have been handed the perfect opportunity to do themselves, their clients and their industry an enormous favour. They should join forces today to see to it that Axa, the French-owned insurance conglomerate, is prevented from proceeding with one of the biggest consumer rip-offs of all time.
For those who do not know, Axa, which owns Equity & Law and Sun Life, has hatched a plot under which its with-profits policyholders are to be fleeced of many hundreds of millions of pounds. If it gets away with it, other big proprietary offices will suit. If this happens, virtually every with-profits policyholder in the country will lose thousands of pounds.
The plan revolves around the ownership of what actuaries call “orphan assets”. These are vast sums of “surplus” cash which are held in almost all with-profits funds. It is money that, for one reason
or another, was not claimed by previous generations of policyholders and has accumulated with interest over time. In Axa's case the sum at stake is a staggering £1.7bn.
Traditionally, insurance companies have split ownership of these so-called orphan assets on a 90/10 basis. That is to say that 90 per cent of the unclaimed cash is deemed to belong to policyholders and 10 per cent of it to shareholders. Given that virtually all of the money in question arises from policyholders' premi-ums in the first place, this formula gives shareholders an extremely good deal.
But shareholders are greedy. For the best part of a decade, the big proprietary firms have been looking to secure a significant one-off boost to their share price by laying claim to a much greater proportion of these allegedly “surplus” funds. Until now, however, no one has come up with a plan devious enough to have any chance of success.
Axa's ploy – borrowed from Napoleon – has been to sneak round the back and try to hoodwink its enemy. It knows full well that no court would allow it simply to snatch more than 10 per cent of the £1.7bn at stake so it has decided to try and trick its policyholders into signing over the cash. In return, they are to be given an average of £400 each up front – a sum which the Consumers' Association estimates to represent a mere 31 per cent of the total fund.
I have no objection in principle to Axa or any other life company trying to do a deal with its with-profits policyholders. But a straight deal
is not what is on offer from Axa today. Not only are the terms of the deal derisory (we give you £525m in return for your £1.7bn) but they are also being cynically hidden from policyholders. Indeed, the proposal document published by Axa last week may as well be written in French for all the sense it is likely to make to the firms' UK policyholders.
So why should IFAs help and what might they do to help stop the Axa con?
I think IFAs should help partly because many of your clients will lose money if Axa succeeds but also because your job as IFAs is to promote and protect the wider consumer interest.
The more you are seen to be doing this, the more popular (and successful) you are likely to become.
As for practical action that is simple: First write to every Equity & Law and Sun Life policyholder you have to warn them of the problem. Second, boycott the company and urge every other IFA you know to do the same. Third, write to your MP to complain that the Axa deal is wrong and will exacerbate the endowment mortgage crisis. Fourth, back any court challenge to the deal that is launched in the next few weeks by policyholders. Finally you might also contact the Consumers' Association which is organising opposition to the proposal. The CA can be contacted at firstname.lastname@example.org.