* First big IPO offer to small investors since 2006
* Low risk profile, dividend prospects appeal - academic
* Direct Line "not for us" - retail investor group
By Matt Scuffham and Myles Neligan
LONDON, Oct 1 (Reuters) - Stockbrokers involved in the planned stock market listing of British insurer Direct Line reported good interest from private investors in London's first big retail share offering for six years, although some potential investors are unconvinced.
"The appetite has been really strong and we've seen a surge in enquiries since the initial announcement was made," Tim Archer, head of operations at Redmayne Bentley, one of 19 brokers selling the shares to retail investors, said.
"Enthusiasm by private clients has so far outstripped all of the year's previous new issues that we've dealt with," Archer said on Monday.
The flotation of Direct Line, Britain's biggest motor insurer whose household-name brands also include Churchill and Privilege, is the biggest share sale open to small investors since insurer Standard Life demutualised in 2006.
Direct Line's owner, 82 percent state-owned Royal Bank of Scotland , was ordered to sell the insurer by European regulators as a condition for accepting government aid during the 2008 crisis.
Some analysts reckon Direct Line's strong dividend-paying ability makes its stock attractive to retail shareholders looking for safe investments that still offer better returns than bank savings accounts.
However, a number of investors were unconvinced, citing an upcoming anti-trust probe into the car insurance market. Others were worried the shares are being offered to retail buyers only because RBS anticipates demand from institutions may fall short.
"I've discussed this with other members of the board and it's not for us," said Stan Grierson, a director of UK Individual Shareholders Society, a private investor group.
"I think a private investor would need to be very careful and would need to understand the insurance industry...Direct Line is coming out of a bank with a difficult record."
The regulator's probe of the sector has already led to indications the flotation will be valued at the lower end of expectations.
Shares will be offered at between 160 and 195 pence per share, giving the business a market value of 2.66 billion pounds ($4.31 billion) at the mid-point of the range, RBS said on Friday. Analysts had initially expected Direct Line to fetch between 2.5 and 3.5 billion pounds.
British retail investors have had relatively few opportunities to participate in large-scale initial public offerings since a wave of privatisations during the 1980s.
Although companies can obtain a better price from private investors, who have less bargaining power than professional fund managers, this can be offset by the inconvenience and expense of dealing with thousands of retail shareholders.
Meziane Lasfer, professor of finance at Cass Business School in London, said the offer had a lot of appeal to private investors.
"Direct Line appears to be a very low-risk company, it has a big market share, it is very likely to be able to pay dividends, it has a good brand name - all those characteristics make it really attractive to small investors," Lasfer said.
Reaction on Britain's popular private investor internet bulletin boards was cautious, however.
"The golden rule is..........never buy anything the city is willing to sell to retail investors," says one contributor to the ADVFN website.
Another user noted that Direct Line's shares could be weighed by further planned stock sales, as RBS seeks to cut its stake in the insurer to zero by 2014.
Private investors' share of the British stock market fell to 12 percent last year from more than 50 percent in the early 1960s, according to data from the Office For National Statistics and Capita Registrars, reflecting the steady rise of large professional equity investment houses.
Since 2000, the drop has also been driven by worries over stock market volatility following the dotcom collapse and the 2008 banking crisis.
RBS plans to sell between 25 percent and 33 percent of Direct Line, with two further sales planned in 2013 and 2014.
The proportions sold to institutional and retail investors will be decided based upon demand.
Retail investors wanting to invest in the IPO must apply for a minimum 1,000 pounds worth of shares and must submit their application no later than 1600 GMT on Oct. 9.
The retail sale is being co-ordinated by Barclays .
Hargreaves Lansdown, another broker involved in the sale, also reported "significant demand" from retail investors.
(Reporting by Matt Scuffham and Myles Neligan; Editing by Anthony Barker and Alexander Smith)
Keywords: DIRECT LINE IPO/