St James’s Place – How Do They Get Away With It?

As reported by Investor’s Champion, an associate of one of our preferred discretionary fund managers investing in AIM shares, Fundamental Asset Management, the total fee and commission income, on an annualised basis, hit 2.3% of funds under management at St James’s Place (SJP) in the six months to June 2019.

In the current climate of low interest rates and challenging conditions for other asset classes, that is incredibly high.

However, with a 13% increase in funds under management over the same period, do investors just not care how much they are paying, or do they not really know?

For those wishing to be ‘DIY investors’, there are a growing number of low-cost investment platforms available, puzzling why large numbers of the population are happy to continue to pay excessive fees to the likes of SJP, for what amounts to broadly basic investment advice.

Those preferring the support of a genuinely independent financial planner or adviser (for ‘partners’ of St James’s Place are tied agents, despite the impression they may wish to give) can choose from many excellent independent firms who bring plenty of added value, supporting the use of low-cost, or fundamentally different, investment products with a focus on investment performance. Why then, are so many people using St James’s Place?

St James’s Place’s £109bn of funds under management, spread across 700,000 clients, implies the average investment pot per client is approximately £156,000. It is questionable whether portfolios of this size necessitate high cost advisory support. The implication is that clients are happy to accept high costs and mediocre performance for the luxury of a personal adviser and perhaps the occasional good lunch. Or perhaps they are simply not aware of the alternatives.

It is somewhat telling that these financial results are hard to decipher, with management seemingly reluctant to disclose the gross fees received from managing client assets – perhaps they are embarrassed? The focus is instead on funds under management and net annual management fees, which represent the margin that SJP retains from the funds under management after paying investment advisory fees and partner remuneration.

Digging deeper into the latest interim results reveals total fee and commission income for the previous six months of £1.25bn, on an annualised basis this totals £2.5bn, equivalent to approximately 2.3% of funds under management. That looks very steep compared to the investment platforms, of which even the most expensive (Hargreaves Lansdown) only charges 0.45% a year.

SJP’s reluctance to disclose fees extends to its own investment products, with no mention of costs on the fact sheets for its SJP funds. Thankfully, the Key Investor Information Documents (KIID), a regulatory requirement, tell us more. For the SJP AllShare Income fund, which aims to achieve an above average level of income by predominantly investing in the shares of UK companies, the KIID reveals an entry charge of 5% and ongoing charges of 1.84% per year.  This does not include the additional transaction costs, which are 0.03% according to their website.

These are staggeringly high charges for a fund which invests in high yielding FTSE 100 stocks that any novice investor could select with relative ease.

By comparison, the Vanguard FTSE UK Equity Income Index, which has many holdings in common with the SJP product, has no initial charge and an ongoing charge, including transaction costs, of 0.32%. Vanguard’s simple FTSE 100 tracker, the FTSE UK All Share Index, costs 0.13%.

The management of the SJP fund is outsourced to George Luckraft of AXA Investment Managers. Mr Luckraft is also the lead manager of the AXA Framlington Monthly Income fund, with near identical holdings to the SJP product, but with the total expense ratio plus transaction costs being 0.93%, this is around half the fee levied by the equivalent SJP product. Even after adding on the most commonly charged platform fee from our preferred Wrap platform, Elevate, the total cost would be less than 1.2% per year.

Our View

I tend not to get involved in bashing the opposition, focussing instead on providing a trusted and timely service to our valued clients, but SJP is a company which riles the independent community through its obfuscation over its tied status and its ability to seemingly get away with not exactly  following the same set of rules we have to follow.

Perhaps we are just jealous that customers of SJP seem to like the slick marketing and are willing to pay handsomely for it?!

Having regularly occupied the pages of the Sunday Times earlier this year with heavy criticism over its charges, and in a world dominated by online comparison sites and price sensitive customers, it will be interesting to see how much longer clients will be prepared to pay the outsized fees levied by SJP?