SJP high charges uncovered by IFAC

It is no secret that over the years much has been written and asked about how St James Place (SJP) operate in the retail investment space.

Recently an IFA adviser that was “confronted” by an SJP adviser, and this led IFAC to think again about how SJP manage to make so much money each year from their investment clients and their business model.

See article written in July 2018 

The simple answer is that even on badly performing funds (which is most of the SJP range according to many independent reviewers) they charge exceptionally high fees.  Who pays for their success? The individual clients every time.

So let’s look at this in a little more detail and in particular performance and the cost of that performance to you the client…….and you’ll forgive me here for my opinions taking a back seat to other commentators, ones that have published their findings and opinions (before SJP get all bent out of shape!)

The SJP network of partners (everyone seems to be a Director now!) would tell us that they deliver top quality value and great investment returns, in fact their website make this quite clear:

“We understand the critical responsibility we are given when clients entrust us with their money. That’s why we decided to take a radical and effective approach to investment management.

It’s an approach that underpins and complements the quality advice and service provided by your St. James’s Place Partner. It allows them the freedom to focus on what they are best at – helping clients plan their finances - supported by the knowledge that the selection and vital day-to-day monitoring of those managing their clients’ money is being done by experts.

Quite simply, the aim of our investment approach is to give our clients peace of mind, allowing them to get on with their lives without having to worry about how their money is invested or who with.

We believe that it gives our clients the best chance of achieving superior investment results over the medium to long term.”

https://www.sjp.co.uk/investment-management-approach

So it still comes as a surprise to most to learn the real results of these “superior investment results” was extremely disappointing for clients (and hugely profitable for SJP advisers/partners/directors)

In a very recent review (12/03/2019) by someone not working for or connected to St James Place, the overall opinion was:

• High charges and poor performance from St. James's Place Wealth Management, the largest restricted advice firm in the UK.
• Less than 2% of St. James's Place funds have maintained top performance over the past 1, 3 & 5-years.
• 79% of their unit trust funds performed worse than half of their same sector peers during the last 5-years.
• More than 70% of client money under their management is held in underperforming funds.
• Initial advice costs between 5-6% of your initial investment, compared to the industry standard of 2.06%.

https://www.yodelar.com/insights/st-jamess-place-review

In 2017 “Which” issued what was described as a damming report on St James Place, after a mystery shopper exercise.

Their report found that SJP advisers misled customers, hyped up investment performance, failed to disclose charges and overall labelled SJP as a poor option for investment customers. Despite a former Chief Executive claiming that SJP costs were “lower than average” a recent survey of 423 advisers from 263 firms found that SJP’s initial costs were more than double the average for unit trusts and almost three times as much for pensions. Has SJP improved since the Which report? It would seem there has been no change…..

Anyone who visits their public website can see for themselves their high initial charges, high ongoing charges and an exit penalty on pensions explained in an unusual way but still an early exit charge (think With Profits MVA)

As far as delivering superior investment returns goes (as SJP publicly claim) the reality is again different to what they maintain.

In this survey of 166 SJP funds, 126 consistently performed worse than at least half of their peers and only 3 out of 166 managed to get into the top quartile over the recent 1,3,5 year periods. 80% of the SJP funds (that have a 5 year history or more) delivered below sector returns, not below benchmark but below their sector.

Their UK Equity pension fund was perhaps the most disappointing according to the report author, returning just 1.64% cumulative growth over the last 5 years (the sector average was 15.73%!)

The £1.2 billion Life Income Distribution Fund returned cumulative growth of just 1.54% against a sector average of 19.31%. while the Gilts and Index Linked Gilt funds were also at the bottom of the sector performance over 5 years.

But what of the much vaunted Model Portfolios? Where advisers use risk rated collections to try to match an investor’s risk appetite?  

The report suggested that all the risk rated portfolios still had “large room” for improvement suggesting that so far at least the SJP approach to delivering superior investment returns was not actually delivering on its claim.

The report concluded that SJP offers poor performing and expensive products and that lower cost and better performing alternatives are readily available elsewhere. In fact the report indicate that 94.6% of the available funds were rated 3 stars or below, with 44% rated with only 1 star.

In another report from Citywire a reviewer looked at just how much SJP earned from its investment business.

Of total fund holdings in 2017 (the last available full data) of £78bn the earnings were approximately £1.2bn:

Of that amount

Fund Managers (Not SJP) received £248m (c.0.3%)

SJP received £927 m (c.1.17%) 

That is 373% of the fund managers earnings!  This is staggering! In a world of RDR and TCF a restricted advisory firm (you only get SJP funds!) takes 1.17% ongoing fees from funds alone. 

This does not include the 5/6% initial charges that SJP take on every £1 invested with them……

One of their funds, the simple State Street Money Market fund earned SJP £13.7 million and State Street (the actual manager) only £1.6 million (SJP earning 856% of State Street’s fee)

These funds have been widely reported as poor performing and delivering sub-standard returns to clients consistently (with very few exceptions it seems).  So where is the value being added we ask?

The vast majority of people outside of SJP struggle to find much in the way of value for investors, with poor performing funds and high charges you would think that SJP would struggle to keep business but somehow they don’t….

Looking at their published accounts SJP Wealth Management, their advice arm, keeps losing money for the business it seems.

In the 2016 financial year it lost £24.8 million and that increased in the 2017 financial year to £35.4 million, what is puzzling is perhaps that the turnover increased, suggesting that the “cost of advice” i.e. how much their “partners” take is extremely high, in fact higher than the revenue the advice arm generated, how can this be accurate I ask? Surely running at a loss regularly is a huge cause for concern?   It is also cross subsidised by the parent, in contravention of RDR.   In any other business it would be cost cutting and redundancy time but not in SJP, in fact they simply up the total they pay to their partners….. 

In 2017 the “cost of sales” increased from £657 million to £801.5 million (of this figure £799.2 million was paid to their advisers, leaving only £2.3 million to pay for other costs.

When the rest of the industry is making their costs leaner and advisers are getting paid less but a more realistic amount (RDR thank you for that) you’d be forgiven for thinking, as I do, that SJP are exceptionally out of date and out of touch with the industry, high charges and poor returns is not something that investors should have to tolerate, paying way over the odds for dismal returning funds while advisers are remunerated handsomely was a thing I thought had been consigned to the 1990’s…..apparently not.

Niel.Gavin@ifac.eu