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Should you sell your Standard Life shares?
Standard Life shares have soared 45% in the past 12 months. Following the recent third quarter results I look at the insurer's prospects.
by Gavin Lumsden on Nov 09, 2012 at 12:19
Standard Life (SL.L) shares are held by around 1.4 million people which is why I like to keep track of how they are doing.
This is the latest video in The Lolly Investor Programme series, our guide to new investors.
Hello and welcome to The Lolly investor programme.
This week I'm taking another look at Standard Life, the Edinburgh-based pensions and investments provider.
This is the third time this year I've made a video on the company!
I spoke about Standard Life after its annual results in March and again in early September after its half-year numbers.
Why am I so obsessed with this company? I don't own its shares.
But around 1.4 million people do following its flotation on the London Stock Exchange six years ago.
That makes Standard Life a useful company to follow in terms of describing what it means to be a shareholder, which is part of what we do at The Lolly.
Besides, Standard Life is interesting and has just released results for the third quarter of this year, which shed more light on why this is so.
Standard Life shares have shot up 45% in the past year, the highest in its sector, as stock markets have recovered from the turmoil caused last year by the eurozone debt crisis.
The FTSE 100 is up just 6%.
One factor in the strong performance in Standard Life shares has been the business changes it has made in preparation for two big events in financial services.
The first of these events has already begun to happen. It is the auto-enrolment of workers into company pension schemes, who are not already saving into one.
This is not like the press-ganging that saw poor wretches swept off the streets and forced into the navy in the 18th century!
Auto-enrolment is a soft form of compulsion because people can opt out of any pension scheme they're put into over the next five years.
Of course, pensions minister Steve Webb and companies like Standard Life hope that apathy will rule and people will stay where they are put. This would help solve the country’s savings crisis and ensure a steady supply of customers for Standard Life and its rivals Aviva and Legal & General.
The second change is the reforms from the so-called retail distribution review, which I spoke about recently.
At the end of this year pension and investment companies will no longer be able to pay commission to financial advisers who recommend their products. This is a huge challenge for financial companies because they rely on independent financial advisers (or IFAs) to distribute their wares.
The commission system has misled the public into thinking they can get financial advice for free. In future, however, you will have to pay a financial adviser rather than the insurance company.
This isn’t as bad a deal as it may sound as the abolition of commission comes with other changes aimed at making financial advisers give better advice and serve their customers in a more professional way.
The significance of this for Standard Life is that it is better placed to serve the financial advisers that survive this radical overhaul.
It has spent a lot on technology and built online platforms on which it offers a wide range of investment funds to advisers, companies and the public.
In some ways the results for the three months to the end of September showed a cooling off after the impressive profits surge at the half-year stage.
What we got last week from the company was an ‘interim management statement’, which contained no news on profits or a dividend for shareholders. We’ll have to wait for the full-year results next March to get those.
What it did have was details on sales and the amount of money held by Standard Life on behalf of its many policyholders.
Sales were muted, down quite a lot on last year as a result of investor caution and the disruption caused by auto-enrolment and RDR.
That was in contrast with the amount of money held by investors in its products and on its platforms. The stock market rally over the summer meant this rose to nearly £212 billion from £204 billion at the end of June.
I reckon that this picture could reverse next year.
It’s quite possible that stock markets could go through a rocky period in the next few months, particularly if the US fails to resolve its financial problems and tips back into recession. This could hit financial stocks like Standard Life hard.
It would also slow down the rate at which investors’ money accumulates on Standard Life’s platforms except that I believe that the company’s sales will recover next year as advisers and companies get used to the changes I’ve described.
Moreover, like other big insurers, Standard Life has a huge customer base which it has barely begun to deal with directly. When it starts to do that, inflows of new money could really pick up.
In short, although it is right to take some profits after such a strong run in the shares, I think the momentum is still very much with Standard Life over the next few years.
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