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Providers may have to unload strategic assets

Providers could be forced to sell off strategic investments held in with-profits funds if they cannot demonstrate to the FSA that retaining them is in policyholders’ interests.

The FSA policy statement on protecting with-profits policyholders, published last week, says strategic investments, which could include a group subsidiary or a large illiquid asset such as a firm’s head office, should have “no adverse effect” on policyholders.

Providers will be forced to evaluate whether any strategic investments are compliant with the rules by October 1 this year.

The FSA says: “There are a number of aspects to this proposal but the fundamental point remains that whether an individual is a with-profits policyholder in a fund owned by a mutual or a proprietary firm, the decision to buy or to retain strategic investments within the fund should be made with due regard to the effect on with-profits policyholders and whether this is fair to them.”

The regulator says one consumer group that responded to the consultation was “shocked” that it was common practice for with-profits funds to invest in strategic assets.

An FSA spokesman says: “If there are any issues with strategic investments then a provider will have to have a plan to address those by October.

“Having a strategic investment could be in the interests of the fund and it is up to providers to demonstrate that is the case.”

Head of communications at Royal London Alasdair Buchanan says: “The implication here is that a fund with strategic investments that are not in policyholders’ interests will be forced to sell them, which is perfectly reasonable.”

Hargreaves Lansdown pension investment manager Laith Khalaf says: “This issue boils down to the fundamental ambiguity of a with-profits fund. Is it an investment product or is it an interest in the with-profits provider, like a shareholding? It is a confused model from a bygone era.”

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