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Who will follow R&SA?

Who&#39s next? That is the question on everyone&#39s lips following Royal & Sun Alliance&#39s closure to new business. Offices without high-profile backers with deep pockets – even the biggest – are sure to attract scrutiny from IFAs in coming months.

In R&SA&#39s defence, it is not in the same shameful camp as the old regime at Equitable Life.

Decades ago, R&SA&#39s Sun Alliance and London fund made mistakes over guaranteed annuities. Like companies such as NPI and Scottish Widows, R&SA tried to do something about it. But unlike them, it made the mistake of trying to sell the life and investment businesses too late. It set up a useful fund management business although it got a disappointing amount of cash for it, and it undertook a reorganisation of the life and pension business which, despite the silly US-style job titles, made a lot of sense.

But a prolonged bear market, massive pressures on the general side and embarrassingly huge liabilities in its own company scheme did the damage in the end. On the plus side, the four with-profits funds have a parent group, albeit one that is cash-strapped too.

But there are still disturbing echoes of Equitable. R&SA is currently in negotiations with the FSA over how to fund the Gar liabilities and non-GAR policyholders may be hit once again while two main funds may be merged in the long term. There is a distinct possibility of competing groups of policyholders emerging, to the delight of the legal profession, unless these issues are handled with extreme care. Transfers may also further restrict the already constrained investment freedom of the funds.

In the coming months, R&SA will be sorely tested by IFAs applying that beneficial but brutal concept – best advice.

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