What’s going on at St James’s Place?
“Positioning our business for continued success” and reflecting the “evolution of consumer engagement” was the pitch of outgoing St James’s Place chief Andrew Croft, as the firm overhauled its fee structure and laid confirmed plans to rip out a controversial exit fees last week.
But as with many stock exchange announcements, the chief’s upbeat corporatespeak did not perhaps reflect the full picture.
St James’s Place has long been under fire from media and analysts for its complex fees and a charge levied on consumers who left before a set period. Now, the regulator with newly beefed up powers under the Consumer Duty, had taken note.
The firm confirmed last week it would be dropping its early exit charges on all new investment bond and pension clients from the second half of 2025, as well as breaking down its fees into advice charges, fund charges and product charges.
The change is likely to come with a £140-£160m price tag for implementation alone and deliver a hit to the bottom line in the short term.
The fees overhaul also comes after a tricky year for Britain’s biggest wealth manager which has seen its value crater by over 45 per cent this year against a torrid backdrop for the wider money management industry.
St James’s Place has also suffered a series of bruising headlines as it became the latest money manager to freeze withdrawals on a property fund this week, as well as playing a slightly too prominent role in the closely-watched ‘dog funds’ list of the worst performing investment vehicles in the industry.
But what now is the outlook for the funds group? And how will the overhaul impact the business in the long term?
For Jefferies analyst Julian Robertson, it will be a very different tale for shareholders and clients.
“Revenues are going down because fees are going down. We see a hole in revenues, and we see costs going up because it’s going to cost them £150m to implement the changes,” he tells City A.M.
“We’re taking an almost a one-third hit to our cash results forecast in the next couple of years. That’s obviously big but the pain is being taken by shareholders. Clients are benefiting.”
However, he predicts that the changes could have some unexpected consequences. A quirk in the fee structure could allow customers to join and make the most of a six-year waived fee and then benefit from lower fees when the changes are implemented in 2025.
“You pay your initial product fee but then you get six years off. And then at the end, you switch on to a lower fee than you would otherwise have done so,” he says. “Potentially, this actually pulls forward new business on the platform that wants to get in and take advantage of a fee-free period.”
Outside of the fees overhaul, bosses at St James’s Place have a troubling macroeconomic picture to contend with too. Money managers have faced a difficult year of flows as investors pull their money from the market to dodge volatility.
Net inflows to the firm slowed to £3.4bn in the first half of the year, down from £5.5bn in the same time last year.
“Underlying, the business isn’t really doing well — and that’s not just SJP that’s just the UK asset gathering market,” UBS analyst Nasib Ahmed tells City A.M.
“But if you look at the way they’ve performed in the past relative to others within their own space, they have been pretty resilient, much better than others.”
He says that at a time of volatility, St James’s Place’s advice offering allows it to remain slightly stickier for customers than its peers.
“It’s advice based, so clients with SJP have an advisor in the current environment, someone to talk to who would be telling them not to take their money out, because you’re not going to beat inflation at eight per cent by investing in cash at four. You want to be in the market for the upturn as well.”
Ahmed says that as troubling economic times stretch on, St James’s Place is well placed to take advantage as customers look for hands-on advice to guide them through the market.
Just this morning, UBS upgraded the stock to a “buy” recommendation, citing “near-term headwinds” but “long-term value”.
“Some of [the share price] underperformance is justified given regulatory and macro headwinds. SJP’s current valuation, however, screens cheap,” Ahmed wrote.
“Significant long-term growth prospects (up to 24 per cent per annum), do not appear to be reflected in the valuation and the stock is now trading at a 14 per cent discount to peer QLT, where historically it has traded at a 30 per cent premium,” he added.
In the short term, a St James’s Place spokesperson told City A.M. it does not expect its fee overhaul to have a marked effect on its customer growth and retention.
“Our industry is always evolving and for us to stay the market leader over the long term, it is important that we continue to adapt to changes in client expectations and the regulatory landscape,” the spokesperson said.
“This decision has been taken to ensure we have a sustainable model for the future. It is the result of a comprehensive review of our business model, supported by internal teams and external advisers.”