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St James’s Place overhauls fee structure after regulatory pressure

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St James’s Place has announced the largest overhaul of its fees in its 31-year history, as the UK’s biggest wealth manager bows to pressure from regulators to ensure it complies with new rules protecting consumers.

The FTSE 100 group has long faced scrutiny over what critics say are opaque and expensive charges for financial advice and stiff penalties for early withdrawals.

In a series of changes announced on Tuesday, SJP said it would create a new charging structure for the majority of new investment bonds and pensions sold to clients. These will operate without early withdrawal penalties, depriving the wealth manager of a chunk of fees. About £47bn — or roughly 30 per cent — of SJP’s assets under management were subject to exit penalties as of June this year.

Based in Gloucestershire, SJP said it also planned to improve disclosure on its fees by “unbundling” them into component parts in a move that would separate charges for initial and ongoing advice, investment management and product administration.

SJP currently discloses fees primarily on an all-inclusive basis, making it difficult for its 900,000 clients to know what they are paying for. The changes will come into effect in the second half of 2025, the company said.

“We’re making our charging structure more transparent, we’re making it more comparable, we’re making it simpler,” said Andrew Croft, SJP’s outgoing chief executive.

SJP has become a powerhouse over the past 30 years as its partnership of 4,800 financial advisers offer clients everything from retirement planning to wealth management. But SJP shares have plunged 40 per cent this year amid fears that the Financial Conduct Authority’s new Consumer Duty rules will damage its business.

Shares in SJP tumbled 21 per cent on Friday after the Financial Times revealed the group faced pressure from regulators to embark on a more radical overhaul of its fees having made modest changes in July. After Tuesday’s announcement, the shares were up 1 per cent.

“We believe that with these bold changes St James’s Place materially improves transparency, and should put an end to concerns around its fee structure,” analysts at JPMorgan noted, adding that peers such as Quilter and Hargreaves Lansdown may face pressure to follow suit.

SJP has a complex fee structure involving upfront fees and ongoing annual charges. Some of those recurring charges do not apply during the first six years, but certain clients have to pay early-withdrawal penalties if they pull money during this period.

Ditching initial fees and lowering recurring charges on funds after seven years will hit the group’s income, SJP said. However, removing the gestation period for new business — a feature of its current structure in which annual management fees are not levied for the first six years — will bolster its income.

Analysts at Jefferies said the changes would result in a “material reduction” in SJP’s profitability.

Craig Gentle, SJP’s chief financial officer, told analysts that implementing the overhaul would cost between £140mn and £160mn over 2023-25.

“The cash result will be lower in the short term as we transition to the new structure but is likely to be higher in the medium to long term as we begin to generate income from the outset across all of our product wrappers,” said Gentle.

The Consumer Duty rules, which were introduced by the FCA in July, are designed to force companies to show they are acting in customers’ best interests.

“This is very much Consumer Duty in action,” said Mark Polson, principal of The Lang Cat, a financial services consultancy. “At first glance it looks like good news for clients — until you read that it won’t come into effect until 2025, and won’t come in for existing clients at all,” he added.

St James’s Place said that existing clients whose investments were currently subject to early withdrawal penalties would benefit from the new fee structure once they reached the end of the period in which those penalties were payable.

Addressing the effect of the changes on its network of financial advisers, Croft said that “broadly speaking the overall level of partner income we would expect to be the same, but it will change shape”.

Croft, who will be replaced as chief executive by Mark FitzPatrick in December, added that it was “difficult to talk about each individual partner . . . because there’s no such thing as an average inside the partnership, it’s a very broad church”. 

“There is regulatory pressure to be more simple, be more comparable,” said Croft. “There is also growing consumer demand for that,” he added, notably from younger clients.

This article has been amended to clarify when existing clients subject to early withdrawal penalties will benefit from the new charging structure.

https://www.ft.com/content/fb7ea8fa-3f5d-4e3d-b8b0-5412b16faf2b St James’s Place overhauls fee structure after regulatory pressure

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