I rarely look forward to St James’ Place results days.
Not because I’m not fascinated by them. Believe me, I am. Or because they are complicated. Believe me, they are, more so than for any other business I have encountered as a journalist.
It’s because I know I will be left with the same irreconcilable feeling of déjà vu that I always am. It’s because I still can’t make head nor tail of why certain aspects of SJP’s business model continue to operate in the way that they do.
I had that same feeling last week when the firm published an update for the first half of 2017.
I’m sure SJP harbour similar feelings about us in the press. It’s as if we are ramming our heads against different sides of the same wall. When we harp on about exit fees, SJP’s communications people are undoubtedly tearing their hair out that they have checked them with the FCA time and time again and if its good enough for them, it should be good enough for the rest of us.
I did a quick search for references to exit fees – as well as “deferred advice charges”, chief executive David Bellamy’s preferred term- which yielded an unsurprising zero results.
SJP offered, letter for letter, the same paragraph that featured in another set of results back in February to explain its model:
“…since around half of our new business does not generate net income in the first six years, the level of income will increase as a result of new business from six years ago becoming cash generative. This deferral of cash generation means the business always has six years’ worth of funds in the ‘gestation’ period.”
No luck there on furthering our debate then, so I wanted to have a look at another head-numbing issue: the apparent cross-subsidy of SJP’s advice activities through its fund management arm.
Here’s the latest numbers, with SJP’s explanation:
The £27.1m loss for the advice business is higher than for the same period a year previously, and comes despite advice charges increasing from £236.2m to £315.8m in the six months ended this June.
A reminder: these rules mandate that advice cannot act as a loss-leader, and prevents firms from “unreasonably” cross-subsiding the cost of providing advice from other parts of the value chain, for example, through their products.
“The allocation of costs and profit between the adviser’s charge and product cost should be such that any cross-subsidisation is insignificant in the long term,” as the FCA puts it.
A new path forward?
What is more interesting than SJP’s reluctance to address ongoing external concerns is that it is at least paying lip service to a potential reduction in fees at some point in the future, partly due to low yields in the current climate.
Among principal risks to the business, it lists the following:
“Competitor activity in the adviser-based wealth management market may result in a reduction in new business volumes, reduced retention of existing business, pressure on margins for both new and existing business and the potential loss of partners and key employees. The low yield environment places additional pressure on client charges and advice fees.”
But will that actually lead to SJP cutting its fees? Or it changing anything about the way it works for that matter?
I highly doubt it. It’s pretty clear by now that, whatever advisers may think of the model, SJP aren’t changing it any time soon.
Justin Cash is news editor at Money Marketing. Follow him on Twitter @Justin_Cash_1