Having a go at St James’s Place has become something of a sport among consumer journalists over recent months.
Trade journalists too, are far from immune from embarking in a spot of SJP-bashing should the opportunity arise.
In the adviser space, this is because it is written into adviser folklore that most, if not all, advice firms love to hate SJP. Advice firms have tended to revel when the latest wave of negative publicity comes around. They are keen for a light to be shone on what are generally regarded to be murky charging practices, despite SJP’s assurances to the contrary.
There is a reason why when outgoing chief executive David Bellamy told Money Marketing “there are no smoke and mirrors” with the company’s charging structure, the resulting article was among the most read that year.
But where criticism is levelled, this should be done in both a fair and an accurate way. This is why I take issue with some of the points made in the recent Which? article accusing SJP of poor practice.
Before everybody accuses me of defending the indefensible, let me first state my case. I would agree with the concerns raised that four out of 12 SJP advisers failed to address the issue of what advice was likely to cost, and that there seems to be no standard approach to charges disclosure across the business. Equally, failing to disclose that the company offers restricted advice, and the nature of that restriction, does not subscribe to the FCA’s overarching principle of being clear, fair and not misleading.
But for an organisation like Which? to haul SJP over the coals while making sweeping statements about advice alongside glaring errors about the RDR reforms makes a mockery of the journey many advisers have been on.
Error 1: Restricted advisers are paid commission
The Which? article states: “We were particularly interested in two issues- what SJP’s advisers said about charges, and how clear they were about the fact they aren’t independent financial advisers, which means they’ll only recommend products where they get paid a commission – even if cheaper, more suitable options are freely available.”
Any article that conflates upfront advice charges with commission is misleading in the context of the RDR’s commission ban. Commission is paid by the provider, and advice charges are paid by the client. That is the central tenet of the RDR. While no one likes the up to 5 per cent initial charge levied by SJP, using terms like commission muddies the waters.
When I broached this with Which?, they said their undercover researchers were told by SJP that advisers receive 3 per cent of initial fund charges, which “seems like commission in all but name”. Which? has since decided to change the “commission” wording to “fee”.
Error 2: Restricted advisers don’t give suitable advice
This is how Which? describes the difference between independent and restricted advice:
Setting aside the inaccuracy that it is only restricted advisers that base their charges on the amount invested, it is also incorrect to suggest restricted advisers have no obligation to deliver suitable advice.
Some advisers will be restricted because, after sufficient due diligence, they have made a conscious decision to discount esoteric or alternative investments from their selection. This is clearly not the same as flogging their own products.
In response, Which? says: “Regarding suitability, we don’t say that SJP advisers don’t need to provide suitable advice. We say they aren’t obliged to consider all the options on the market. So we’re saying that investors can’t assume they’re getting the most suitable recommendations. Our article also makes clear that we’re concerned specifically about SJP’s restricted advisers because of their tied nature, rather than about advisers who are restricted because they choose to focus on particular subjects or product areas.”
Error 3: Only IFAs put their clients’ interests first
Which? also states:
It is true that independence is something to be celebrated. For firms that have managed to maintain their IFA status, that is an achievement that is up there with the best chartered and certified financial planning firms in the country (another thing Which? fails to reference – the drive towards higher professional standards).
But there are firms that through no fault have become restricted thanks to the unnecessary changes to the definition of independent advice foisted upon them by the FCA.
In the wake of the RDR, Money Marketing reported at length on how the FCA had got it wrong on its definition of independence, where firms referring to a specialist could not call themselves independent. The subsequent industry outcry led to an FCA U-turn.
This victory was hard fought, but problems with the restricted definition still apply. Which is why it is frustrating to see the independent/restricted debate reduced to the above caveat. It is also unfair to tar all restricted advisers with the same SJP brush.
Finally, any article about SJP charges should look to set out how the exit charge works. This would probably swing the pendulum against SJP far more than any misleading statements about restricted advice.
As Rory Percival and others have pointed out, where articles like this are inaccurate it takes away from the otherwise valid findings of the investigation.
I am no apologist for SJP. And like any other journalist (or good adviser for that matter), I want to see injustices exposed. But I also think that unbalanced articles that seem to suggest that SJP=restricted and restricted=bad advice, without explaining there are many good advice firms out there (offering both independent and restricted advice), do a disservice to the advice profession at a time when the need for advice is greater than ever.
Natalie Holt is editor of Money Marketing. Follow her on Twitter here.