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St James's Place Review 2021

Topic: Popular St James’s Place 11 March 2021

  • St James’s Place forced to admit that two thirds of their funds are failing
  • 8 out of 10 SJP funds have consistently underperformed.
  • The SJP Alternative Assets fund has been the worst performing of all 145 funds in its sector over the last 1, 3 & 5 years.
  • Their restrictive model means their clients can only invest in SJP branded funds
  • SJP continues to charge exit penalties of up to 6% for the pension and bond products despite the regulator seeking a ban on exit fees.

St James's Place Wealth Management

St. James’s Place wealth management currently manage more than £129 billion, which makes them the largest wealth management firm in the UK. Yet despite their size and continued investment in growth, their investment products have been identified as serial under-performers with their controversial charging model identified as one of the most expensive in the industry. 

Despite repeated callouts over their high and confusing charging model SJP have made it clear they have no intention of changing them. They have also been vocal in defending the performance of their funds and the value they offer even though we have regularly reported that many have persistently languished at the bottom of their sectors for performance. 

Last year, in the wake of new legislation introduced by the Financial Conduct Authority SJP were forced to admit that some two-thirds of their funds were failing to deliver value. In our latest St. James Place review we identify that some 84% of their funds have continually performed worse than at least half their peers and look deeper into SJP’s business model that has helped them become an investment giant but why it is now outdated and in need of change.

 

SJP’s Unique Business Model

Like all wealth management firms, SJP aims to generate fees by managing the money of investment clients. Most of these fees come from initial and ongoing advice fees. But what makes SJP’s proposition different is their business model creates several revenue streams. 

 

 

SJP Fund The Growth of Their Partner Advisers In The Form of Loans

The firm’s advice arm is made up of thousands of smaller advice firms, appointed representatives in regulatory terms. These firms are referred to by SJP as members of the SJP Partnership. These advisers are core to SJP’s business as they sell SJP’s products to their clients.

To grow adviser numbers, SJP has had to find a way of getting partner firms to recruit more advisers. To help fuel adviser recruitment and thus increase client numbers and all important funds under management, SJP have provided loans to their partner advisers. 

A member of the partnership may use the loan to hire more advisers, promote the practice within the local area, or expand its wider support team to help attract more clients.

In all cases, SJP should benefit because more clients will come on board and pay their fees.

 

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Does SJP’s High Loan Debt Pose A Problem?

There is no doubt SJP loaning money to partner advisers has rewarded them 10 fold in fees earned from new clients making it a relatively low risk proposition. But in recent years, there have been worries that should new business levels drop off it could pose a significant risk to SJP, with analysts at Goldman Sachs raising concerns as to their levels of outstanding loan debt, which stood at £476 million at the end of 2019.

The Covid19 pandemic has only exacerbated this concern, and at the start of 2021, SJP were forced to cut 10% of their UK staff with over 200 redundancies - although this does not include any of their partner advisers who are self employed. 

The real concern for SJP is that their model is heavily reliant on a complex fee structure that is practically impossible for them to change without a complete overhaul of their current partner adviser format, which is unlikely as this is critical to their business. 

As other firms adapt to the growing demand from investors for better quality, better performing and better value portfolios, which as our analysis shows, SJP do not provide, there are long-term concerns that the firm will see a significant drop off in new clients and an increase in existing clients moving elsewhere. Should this continue, then SJP’s ability to ‘buy’ clients by purchasing existing IFA firms will diminish as too will the effectiveness of the loans they give to partner advisers as these loans yield less and less new clientele, which could ultimately leave SJP with a hefty debt.

 

What Does This Mean For Their Investors?

It is from the fees paid by the clients that cover the repayments of SJP’s adviser loans, making it an attractive proposition for the adviser and one that has benefitted SJP with increased client numbers and therefore greater fee revenue. But if clients decide to leave St. James’s Place in favour of a more attractive proposition, it could affect the advisers ability to repay the loans. 

SJP have been under pressure for years to remove their exit penalties and alter their charges but given the bleak long-term outlook for their business model such changes are highly unlikely to happen. 

 

St. James’s Place Funds

SJP provides investors with an in-house range of products and portfolios that hold only SJP funds. The main limitation of the SJP model is that their advisers must only recommend SJP products and funds meaning their investors are only exposed to SJP funds irrespective of how good, bad or indifferent they are. As a restricted advice firm they have no onus to provide clients with comparative performance from all other fund managers, unlike 'whole of market' or Independent advice firms.

To provide a diverse range of funds and portfolios that cater to all risk categories St. James’s Place offers access to 154 funds that have at least 1 years performance history. These are made up of 39 unit trust funds, 39 pension funds, 39 life funds, and 37 offshore funds through SJP International (SJPI).

All of these funds are SJP owned and branded but none are actually managed by SJP themselves. Instead, SJP outsources the management of their funds to other fund management firms. These fund managers are selected by SJP’s investment committee and they are each mandated to build and run the fund in accordance with SJP’s objectives - such as the desired risk exposure and asset allocation.

In recent years SJP has publicly withdrawn fund manager mandates from Neil Woodford, AXA Framlington, Janus Henderson, Schroders and BlackRock as concerns grew over their performance and direction.

SJP’s switching of fund managers is not unique and although they believe their exclusive relationships with these fund management brands increases the quality and level of expertise the end result has persistently underwhelmed, with some of their funds continually languishing at the bottom of their sectors.

Indeed, as identified in our performance analysis of their funds, 8 out of 10 of their funds have consistently underperformed.

 

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St. James’s Place Fund Performance Summary

The below fund rating table identifies the number and percentage of SJP funds that were rated between 1 and 5-stars for their performance in comparison to all other competing funds within the same sectors over the past 1, 3 & 5 years.

*Each SJP fund was analysed alongside all other main unit funds within their sectors

Click Here to Find out How Yodelar Rate Funds

 

St James's Place Portfolio Performance

SJP claims performance comparisons should not be made on their single funds but on their range of portfolios which their clients usually buy. 

These portfolios are weighted based on their particular investment objectives and associated levels of risk.

As they are a restricted wealth management firm, St. James’s Place portfolios only consist of SJP funds, but as we identified in our fund performance analysis a large proportion of these funds have a history of poor performance, which reflects in their portfolios end performance. 

The following tables demonstrate the recent 6 month, 1, 3 & 5-year returns of all nine SJP unit trust portfolios. 

 

To provide a comparison, the below table features the returns of Yodelar Investment portfolios during the same periods. Yodelar portfolios are composed of a mixture of active and passive funds that have been selected from an unbiased analysis of more than 70,000 funds and 100 different fund manager brands. 

Each fund within Yodelar portfolios have consistently ranked among the top performers in their respective sectors.

 

 

All SJP portfolios have achieved significantly lower returns than similar and lower risk Yodelar portfolios.

We also compared the average portfolio growth of each risk rated SJP portfolio over the 4 periods analysed to similar risk rated Yodelar portfolios.

 

 

St James's Place Charges and Fees

St James's Place charging model is unique and often criticised for its complexity. Last year, their then recently appointed non-executive director, Helen Morrissey said

"I would like to satisfy myself that fund charges are transparent and fair, but I do not believe they are transparent because otherwise, I would be able to explain them to you very quickly."

Among the most contentious aspects of their fee model are the St James's Place exit penalties which they apply to their range of pension and bond products. Investors in these products who wish to exit and move their money to another provider are required to pay SJP up to 6% of their investment value to do so. SJP has been accused of using this penalty to secure control of clients' investments for several years as a means to increase their ongoing revenue.

This penalty reduces by 1% for each year the investor remains with SJP until after 6 years, at which point, exit penalties would no longer apply. However, there is a caveat, if you make changes to your SJP pension or bond portfolio by adding more funds for example, then this will automatically reset the exit penalty.

SJP's charges have been a regular source of contention and a report by The Sunday Times found their fees are even a concern to their advisers with a leaked call from St James’s Place managing director Ian Gascoigne identifying that some advisers want them to scrap their expensive fees, which have helped to pay for extravagant rewards from cufflinks to cruises which SJP had regularly awarded to their top selling advisers.

 

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SJP’s Advice Fees Are Being Challenged

Similar to other advice networks SJP charge their clients an advice fee on top of fees associated with the funds and products they recommend. 

However, the type of advice SJP provides and the type provided by an independent advisory firm is not the same. SJP is a restricted advice network and as such their advisers can only advise their clients on SJP branded products such as their own range of funds and investment portfolios. Therefore, SJP is unable to advise on 99.3% of the pension, life and unit trust market currently available to UK investors. This has led to concerns that SJP Partner Advisers are merely sales agents selling St. James’s Place funds and portfolios, with the majority of these demonstrating a poor performance history. 

Some investors also believe that SJP’s restricted advice model means that their comparatively high advice fees are an unnecessary expense, and their relationship with SJP is transactional as opposed to an advisory one. Yet SJP’s 4.5% upfront advice charge remains one of the highest in the industry, and well above the 2.06% industry average that was established from a survey carried out by VouchedFor of 423 advisers from 263 firms.

 

An Archaic Model That Offers Less and Less Value To Investors

SJP’s model is unique, and one that has helped them become the largest wealth management firm in the UK with some £129 billion of client assets under their management. But this growth has come at a cost, a cost that has been handed over to their clients. For their model to work it requires them to charge their clients high fees in order to help fund the entire process. But in recent years in particular, greater access to performance information and lower cost products has made the SJP proposition significantly less appealing than it once was. Many firms have adapted and altered their proposition either by lowering costs or by taking steps to improve the quality of funds within their investment portfolios. 

In an attempt to adapt, SJP have announced plans to increase its range of tracker funds, which do not have a manager and use computers to follow a market index. 

However, due to SJP’s model, their tracker funds would have very high costs compared to other tracker funds on the market, which makes it difficult to see how this approach can work for SJP. The company has one tracker at the moment, the Index Linked Gilts fund, which charges 1.17% a year, this is significantly more than the 0.20% average charge for similar tracker funds from other providers.

The problem for SJP is that none of these are an option for them. Their entire model would need changed if they are going to be able to pass on lower fees to their clients and as a restricted firm they are always going to be limited to selling their own selection of funds even though there are numerous better performing options elsewhere.  

 

Download the full St. James's Place Report >>

 

SJP Forced To Admit That Two Thirds of Their Funds Are Failing 

In recent years, St. James’s Place have consistently been challenged for their expensive and opaque charging structure and as to the performance and quality of their funds and portfolios.  SJP have continuously claimed that they provide their clients with value for money, and have pointed to their customer satisfaction survey which claims 99% of their clients see value in their service. 

However, in 2019 the Financial Conduct Authority (FCA), introduced new legislation that required fund management firms to clearly define the value of their funds for their clients based on performance and fees. This new legislation forced SJP to admit in their recent annual assessment report that two thirds of the funds they manage are failing. St. James’s Place looked at 39 of its funds and found that 28 failed to achieve their objectives or industry benchmarks or both.

It has been clear for some time that SJP’s funds have been uncompetitive and our latest performance analysis identified that 83% of their funds have consistently ranked among the worst half of their sectors for performance. Indeed, some 79.19% of the £105 billion currently invested in SJP unit trust, Life funds and Pension funds is held in underperforming 1 and 2-star funds.

 

St. James’s Place Advice Fees

Similar to other advice networks SJP charge their clients an advice fee on top of fees associated with the funds and products they recommend. 

However, the type of advice SJP provides and the type provided by an independent advisory firm is not the same. SJP is a restricted advice network and as such their advisers can only advise their clients on SJP branded products such as their own range of funds and investment portfolios. Therefore, SJP is unable to advise on 99.3% of the pension, life and unit trust market currently available to UK investors. This has led to concerns that SJP Partner Advisers are merely sales agents selling St. James’s Place funds and portfolios, with the majority of these demonstrating a poor performance history. 

Some investors also believe that SJP’s restricted advice model means that their comparatively high advice fees are an unnecessary expense, and their relationship with SJP is transactional as opposed to an advisory one. Yet SJP’s 4.5% upfront advice charge remains one of the highest in the industry, and well above the 2.06% industry average that was established from a survey carried out by VouchedFor of 423 advisers from 263 firms.

For many investors, their model is overly expensive and according to Milena Mileva, a fund manager with Baillie Gifford, widely viewed as one of the best fund management firms in the UK, the fees charged by SJP were “very very high” across the entire chain, adding they “had to change”.

 

St. James's Place Fund Charges

As well as high advice charges, SJP have also been criticised for the charges associated with their funds.

There are over 3,400 unit trust funds available to UK investors and on average the annual charges for these funds are 0.94%. For SJP’s unit trust range of funds their annual charge (excluding their cash fund) is between 1.00% and 2.50%.

However, SJP advise that these ongoing charges cover all aspects of operating each individual fund during the year, including fees paid for investment management, administration and ongoing advice.

There are currently over 8,600 pension classified funds in the UK and on average these funds have an ongoing annual charge of 0.98%. In contrast, the annual charge of SJP pension funds vary from 1.67% (excluding their cash fund) to 2.76% for their Diversified Assets fund, which is also comes with additional  performance related fees.

 

SJP’s range of Investment Bond (Life) funds have a similar annual charge to their pension funds. They are also well above the average for similarly classified Life funds which on average have an annual charge of 0.84%. 

 

SJP Performance Fees

SJP have added a performance fee to their UK Absolute Return Unit Trust fund. On this fund, a performance fee of 20% of any outperformance becomes payable if the fund outperforms the 3 month Sterling LIBOR benchmark, even though the annual fund charge is 1.86%.

 

SJP Maintenance Charges

Included in St. James's Place pension and bond products there is an ongoing charge of 0.5% which is to fund the ongoing advice and relationship with their partner advisers. 

In addition to this, they also apply an annual maintenance charge, which they say is to fund the management and maintenance of your underlying investments.

 

Risk - FSCS Protection Problem With One Provider

Among the factors to drive investment decisions is protection, which is even more prevalent on the back of the high profile collapse of Neil Woodford’s fund management firm. As a result, the government's Financial Services Compensation Scheme (FSCS) and the protection it provides to investors has become a more important factor in the decision-making process of investors. 

 

What Is The FSCS?

The Financial Services Compensation Scheme (FSCS) is the UK’s statutory compensation scheme for customers of financial products that have failed. For investors, this means it can pay compensation if a firm who is responsible for a fund you are invested in is unable, or likely to be unable, to pay claims against it.

FSCS is free to consumers and, since 2001, has helped more than 4.5 million people and paid out more than £26 billion.

One of the restrictions of the scheme is that it can only compensate up to a maximum of £85,000 per provider. Therefore, any investor invested with SJP is only covered up to a maximum of £85,000 under the FSCS, even if their SJP portfolio value is significantly more than this.

Many investors are unaware that they are only protected up to £85,000 as an SJP client, whereas a good whole of market independent advisers will ensure you diversify across multiple providers to maximise your government protection. 

Suggest Article - Why Your Investments May Not be Fully Protected

 

Summary

The very model that has helped SJP become a fund management giant is the model that is restricting them from adapting to the modern investing environment, and the one that makes them unattractive to informed investors.

Investors now have much more access to information that makes it easier to determine the performance and quality of a fund and fund manager. As a result, investors are more aware that the difference in performance and cost between competing funds can be significant and they now place greater emphasis on the cost and quality of the funds they invest in. 

As identified in our analysis, SJP’s advice fees are among the most expensive in the industry and their funds and portfolios are both high cost and consistently poor performing. How much longer investors will see value in their service remains to be seen but one thing is clear, SJP’s are not for changing their investment model.

 

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