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Blog: SJP is not for turning

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:

From SJP’s 2017 H1 results

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.

We have written about this extensively before: the apparent cross-subsidy persists and there is a lack of sufficient explanation as to why it is permissible under RDR rules.

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.

Is advice still a ‘loss-leader’ despite FCA rules?

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



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There are 19 comments at the moment, we would love to hear your opinion too.

  1. Robert Milligan 1st August 2017 at 10:50 am

    Cross- Subsidy / Contingent Charging, both are In total conflict with the RDR, both are in Conflict of the FSA/FCA Rules, So please, how on earth is it allowed, To the Point, as Far as I am concerned they should be Employed, as they are completely paid by One Regulated Firm, have negotiated enhanced “VQB” and are basically still paid commission.

    • Indeed I have said as much is a previous post about them actually being employees.

      It would be interesting to know how much SJP spends on clever clogs advice from sharp lawyers to in effect circumvent the spirit of the rules of both the regulator and HMRC.

      What ever else they are good at ‘smoke and mirrors’ seems to be their best suite.

  2. Robert Milligan 1st August 2017 at 11:30 am

    If the Advice Process is supported by redistributing profit from the charged AMC’s then that is blatant Contingent Charging, It also implies the process is financially flawed

  3. The reason why certain aspects of SJP’s business model continue to operate in the way that they do is that the FCA turns a blind eye.

    Perhaps it’s in that direction that MM should be concentrating its investigatory endeavours.

    • Spot on Julian!
      Surely you should all be putting pressure on the FCA to actually clamp down on any breaches you have spotted. If I was a competitor who was convinced there was a breach of the rules and I was getting nowhere with the FCA directly, then I would be putting pressure on the Government through my MP.
      If the model works for SJP (which their figures suggest it does) and their clients are happy (for which I am one), then why would they justify themselves to the media and their competition?

      • I guess it’s to tackle such issues that we (well, many of us) fund our representative bodies. APFA (RIP) didn’t have the bottle to step up to the plate and challenge the FCA head on, so we can only hope that Libertatem will do better.

  4. “This deferral of cash generation means the business always has six years’ worth of funds in the ‘gestation’ period.”

    From a presentation I went to at SJP which put me off totally and was admittedly some years ago I got the idea that after 6 years the idea would be to set up a new “more suitable” investment, which would then lock you in for a further 6 years, as well of course as costing you 5%.

  5. Why is it that ever single time SJP is mentioned, the usual suspects appear and post inaccurate and misleading information. Julian, please go and speak to someone at SJP before you continuing with your usual line of commenting on every post. And before you ask, no I do not work for SJP! It might be prudent to try and grow your own business before slating others.

    • Okay. So what, if you have any, are your answers to the various questions posed by Mr Cash in his article? Or are they just figments of an over-active imagination?

      • It is very simple Julian. I have come up against SJP on a few cases and they are no more expensive than me and a number of other IFA’s. Having read a number of your comments, I haven’t read every single one as there are not enough hours in the day, however you seem to have a very one sided view on a subject that I am sorry to say, you do not appear to be well educated on. SJP seem to charge between 1.8% and 2.4% each year, they charge less ongoing than almost every IFA I know. What is the issue? It would appear to me that professional jealousy and envy comes through in every comment you make.

        People like Mr Cash are interested in one thing, clicks on his blog. The vast majority of us are sick of seeing the same comments and articles rehashed and posted under a new title. The business is doing well and seems to have better client outcomes that the majority. Move on and focus on improving the industry not just bashing the biggest player.

        • What is the issue? Did you not read the article, or has your mind blanked the bits you didn’t fancy?

        • So ardent and sustained is your dismissal of all and any anti-SJP comments that I’m beginning to suspect that you are, in fact, an SJP agent in (not very good) disguise.

          • Not at all Julian, as you will see if you have read my comments above. As I have said and will repeat again for you, I am just sick of seeing the same articles “rewritten” so money marketing and the likes can get more comments and clicks.

            It’s quite frankly pretty pathetic. I don’t agree with everything they do, far far from it! Unlike you however, and I am only going on the 200+ comments I have seen from you, mostly incorrect, I am open minded enough to not believe everything I read. I would rather read articles about the industry and what’s happening across it!

  6. Justin, do you run a business or have you ran a business ?

    Look at the FSCS levy !

    And to note, they do not have to answer to you me or any-one else for that matter, other than their shareholders and the FCA (to a degree)

  7. Nicholas Pleasure 1st August 2017 at 1:44 pm

    An IFA firm I had dealings with a few years ago had a totally non-compliant website and were doing other non-compliant stuff. Interestingly none of this non-compliance affected customers or the advice they received, which was still pretty good.

    The FSA/FCA never seemed to notice what was going on.

    My guess is that any of us could run an SJP type of model and, providing the customers were happy then the FCA wouldn’t really care.

    I’m coming to the conclusion that its the compliance consultants that are causing us all the additional work, gold and platinum plating the FCAs rules whereas the FCA don’t seem especially bothered providing the clients are well cared for.

    If you get lots of complaints or are recommending toxic junk then the FCA might eventually find you and use those rules to shut you down.

    • I don’t think the FCA does find and shut down firms that have sold and are still selling toxic junk. It seems just to stand by and let them carry on year after year until the tidal waves of complaints start crashing over them.

      They’re usually completely unable to defend themselves against these complaints and they have no PII cover in respect of the resulting liabilities, so they swiftly go under and their liabilities fall on the rest of us by way of the FSCS. The FCA appears to play no part in this process, least of all in terms of preventing UCIS mis-selling in the first place.

      If this isn’t an accurate summation of the situation, doubtless somebody will correct me.

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