by business editor Trevor Sturgess

Investors have been warned that a shake-up in the life insurance industry following the takeover of Friends Provident will reduce choice and could hit the quality of fund management and service levels.

The warning came after investment firm Resolution paid £1.86billion for the 177-year-old business.

Experts expect the move by Resolution’s entrepreneurial Clive Cowdery to trigger a shake-up in what has been called a "slow-moving" industry.

His next targets are thought to be Scottish Widows and Clerical Medical - both part of the ailing Lloyds Banking Group which was bailed out by the taxpayer and may be willing to sell.

Mike Sargeant, managing director of Pharon Independent Financial Advisers at Harbledown, near Canterbury, said he was worried about the quality of fund management.

"The problem could be whether they are going to get the quality of fund management they require," he said. "Bright, young fund managers are less likely to go to a company that’s on the decline and that’s possibly a concern. Whether Friends Provident will be able to attract the quality of staff they need to look after the money they are looking after is a concern I would have."

He added: "What you've got here is Clive Cowdery going out to consolidate these older, smaller companies to aggregate the funds under management so that he can then take the fees they generate.

"He's hoovering up companies and reducing the number that are out there. It might make things simpler for people like us but it will reduce the amount of choice available to policyholders."

Ian Willis, associate director with Sevenoaks-based Belmont International, said industry consolidation could lead to competition issues.

"If you knock too many over, the choice for the consumer and the competition as to what’s being offered out there, as well as innovation, may slow down or die," he said.