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Windfalls of change

Scottish Widows is thanking IFAs for what it views as a very successful merger with Lloyds TSB. The Edinburgh life office claims “IFA intervention” prompted policyholders to vote in favour of demutualisation.

Scottish Widows head of IFA sales and development Robert Wyllie says: “We encouraged people to speak to their IFAs and clearly the pos-itive result shows people followed this advice.”

Policyholders have finally started to reap the fruits of demutualisation, with the first windfall payments going out at the beginning of the week. The merger has created a windfall fund in the region of £5.4bn, providing IFAs with a potential harvest of their own, according to Widows.

Wyllie describes the opportunity for IFAs as unparalleled. Five thousand IFA firms have 1.4 million Widows policyholders on their books, who will receive an average windfall of £6,000. Widows conducted market research early this year which indicated 47 per cent of members would be “fairly likely” to reinvest some or all of their windfall payment.

Wyllie says: “We are literally releasing billions of pounds into the UK economy so there will be a lot of money to be made for IFAs.”

Widows is keen to allay any IFA fears that the merger with Lloyds TSB will affect its strong bonds with the IFA market. He says the rationale behind the merger, announced in June 1999, was to bolster Lloyds TSB&#39s exposure to the IFA market.

The merger came at a time when Widows was starting to consider its future as a mutual. Its fate was sealed at a special general meeting on December 22, 1999, when members voted in favour of demutualisation with a 96.9 per cent majority. The SGM was followed by the appointment of Iain Reid as chief operating officer. Reid was heavily involved in discussions leading up to the merger and his appointment was seen as a key strategy in the merger process.

Once the Court of Session sanctioned the merger, the transfer of Widows&#39 business to Lloyds TSB went ahead and Scottish Widows plc began trading on March 3 this year.

But the assimilation of Widows into Lloyds TSB has by no means been plain sailing. The decision to relocate Hill Samuel Asset Management to Scottish Widows Investment Management&#39s headquarters in Edinburgh saw several key figures at HSAM jump ship.

Combining two existing businesses was never going to be easy. Wyllie says: “We did not expect to retain everybody. Obviously, we knew not everyone would want to move but it is very sad to lose good staff.”

There have also been a few hiccups with the windfalls themselves. In June, it was announced that distribution would be delayed. Wyllie explains that when initially calculating the value of the fund in June 1999, Widows had to go back to the 1998 year-end results. By the time the merger took place, the value of the fund had increased by £0.4bn. Recalculations meant the windfall date was pushed back by several weeks.

Using out-of-date figures could have meant that the windfall fund value set in June 1999 dropped. However, members&#39 windfalls were protected by a fixed minimum payment clause in the original agreement. Fortunately, the recalculations led to an average 8 per cent increase, which pacified policyholders angered by the delay.

Despite the problems encountered on the way, Widows says it is happy with the way things have turned out. The company says its only concern has been to assure IFAs that the new improved Scottish Widows still has IFA-based distribution at its core. If windfall cash happens to be reinvested in Widows&#39 products, all the better for the company.

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