Standard Life has stopped customers with money held in life assurance bonds from cashing in any of their investments, following the debacle over property fund suspensions.
The insurance giant has confirmed customers invested in some of its bonds are temporarily unable to withdraw their funds if part of their investment was held in insured property funds.
Eight commercial property funds have been forced to suspend trading or defer withdrawals, after thousands of investors panicked following the EU referendum and pulled out of the investment vehicles.
While a suspension mechanism is in place to protect existing investors from share prices plummeting further, it has also meant thousands have money temporarily locked into the funds.
But now the issue has spilled over into other investments, with Standard Life bond holders who have shares in the three property funds now being prohibited from cashing in any of their investments within the wrapper, despite only a small proportion being invested in property.
The funds involved are the £4.4bn M&G Property Portfolio Life fund, the £1.8bn Aviva Investors Property Trust Life fund and the £4bn Henderson UK Property Life fund.
Independent financial adviser Simon Every said he has £6m of clients’ assets currently being “held to ransom” by Standard Life.
Mr Every, who is director of advice firm Hill Grafford, received a letter from his platform FundsNetwork – which facilitates the investment funds inside a life wrapper – stating that trading in the entire bond had been stopped.
The letter, seen by FTAdviser, read: “As a result of the suspensions, all dealing in the funds was stopped and we can no longer accept any instructions to deal into or out of the funds.”
Any withdrawal requests made before or during the fund suspension would be “held in a queue” until the fund reopens, according to the letter, which added FundNetwork could not guarantee a price for any instruction in the meantime.
FundsNetwork also apologised for not being able to give advance notice of the action, which coincided with the restrictions on the funds earlier in July.
Standard Life has shot itself in the foot Simon EveryMr Every said he has one client with £200,000 held in the life wrapper, of which just £1,000 is invested in property funds.
He described the situation as “horrendous” and called on Standard Life to reorganise the bond in order to give investors access to their money.
The IFA said Standard Life has “shot itself in the foot”, as many advisers in a similar situation will now decide not to use the insurer’s life wrappers to avoid this situation happening again.
Mr Every also said it will create a complaints problem for Standard Life and could have a knock-on effect for advisers, who have to explain to their clients why they cannot access their money.
“This risks putting advisers out of business,” he said, adding no timeline had been given as to when the issue is likely to be resolved.
A spokeswoman for Standard Life said the decision had been made to stop all ad-hoc withdrawals because of the way part surrenders are processed on its system.
“We are liaising with the small number of customers and advisers currently impacted by this issue and we are working on a solution to allow us to meet these requests,” she stated.
The provider was also unable to give FTAdviser an indication as to when the issue would be resolved, but that it was working to resolve the issue “as quickly as possible”.
The new chief executive of the Financial Conduct Authority Andrew Bailey has already hinted that the redemption rules for open-ended property funds could be changed.
katherine.denham@ft.com
