You may have seen some reporting on St James’s Place’s charges over the weekend courtesy of The Sunday Times. First up, kudos for continuing to push such an influential but guarded firm on such an important topic.
Specifically, the claim was made that on a £1m pot invested over 20 years, clients would see almost half their profits disappear in charges, which are “far higher than its best-known-rivals”.
The comparison is made with Hargreaves – while it is technically speaking, an advice proposition, I do have sympathy with SJP’s argument that it may well be-lighter touch, designed for those graduating from Hargreaves’ ever-popular do-it-yourself route, and not wanting full-fat financial planning.
But the larger point is that the way the maths is done doesn’t add up for me, and there seem to be a number of contradictions about what bit of which proposition is counted, and how.
Here is how The Sunday Times article, citing research from Candid Financial Advice, quotes Hargreaves’ charges, when comparing the most popular advised portfolios with each service (medium-risk for Hargreaves, the managed funds portfolio for SJP).
Several questions arise here, and more generally with the way the article is presented:
- Under Mifid II, wouldn’t all ongoing advice services have to conduct an annual review? Hargreaves’ optional extra fee implies you can opt out of the annual review, which doesn’t seem to sit well with the Mifid II requirements to ensure ongoing suitability. What does ongoing advice look like without an annual review anyway? What are you charging 1 per cent for? I ran this by former FCA man Rory Percival. His verdict? “It’s a good question and a lot of money for something we are having difficulty thinking of.” I’d rather not assume, but I would assume the 1 per cent quoted for Hargreaves is actually initial, and the 0.365 per cent is for all ongoing advice, which it would be okay to opt out of?
- The whole point of the research is to show SJP is more expensive than Hargreaves’ (comparable) advice service. But let’s add those charges up. For Hargreaves, at a minimum, you’ve got the platform at 0.25 per cent, the advice at 1 per cent, and the portfolio at 0.52 per cent. That’s 1.77 all in. SJP includes platform, fund, and advice costs at 1.68 per cent, 0.9 percentage points less on an annual basis. The Sunday Times article makes no mention of tiering in the Hargreaves portfolio costs that could counteract this, nor that opting out of the ongoing advice service means, on that face of it, SJP clients are getting something Hargreaves clients are not for a similar cost.
- There are no further words on the calculation, except that SJP applies a 5 per cent initial entry charge on funds. But over a 20 year time span as quoted in the article, surely these would become less and less significant as a one off cost at the start of investing. Say the Hargreaves client had less than £250,000 and decided to take ongoing advice. They would be paying 0.45 per cent, plus 1 per cent plus 0.365 per cent, plus 0.52 per cent, or 2.3 per cent in all. On an annual basis that’s now 0.62 percentage points more than SJP. We also don’t know the initial cost of advice at each offering (the fugues currently quoted for both appear to be for ongoing, unless my assumption above is correct), but there are permutations of this equation where SJP clients pay less in overall charges at the end of the day, surely? (Feel free to correct me on my maths here, of course).
- The only way this doesn’t hold is if the investor continually tops up their pots, at which point the entry/exit fees at SJP restart – they taper down by 1 per cent a year to zero otherwise. It would be a reasonable caveat to include, but this hasn’t been mentioned in the reporting. An SJP adviser informs me that if the client pays an initial charge of 5 per cent then there is no early withdraw charge. Where the early withdrawal charge (6 per cent ,5 per cent ,4 per cent, etc) applies there is no initial charge. It’s one or the other, not both. But I had to find this out from an adviser themselves, not publicly available information from SJP itself or from pre-existing reporting. Hence continued confusion.
- These are all notwithstanding performance effects of course, so the returns post-charges could theoretically be far higher for an SJP advised client than the Hargreaves advised one. The level of 6 per cent, constant, is what has been assumed in the Sunday Times article. I know assumptions have to be made, but that’s a lot of leeway when looking at the importance of downside protection, on say, sequencing risk and pound-cost ravaging.
For the purposes of consumer-facing journalism, the way the information is presented as stands currently serves its purpose. But if the smell test is actually getting senior staff at SJP to sit up and take notice of what remains a very valid challenge over its fees, it’s too easy too brush off analysis like this if every intricacy isn’t covered.
Let’s hope SJP doesn’t read the latest criticism as just another from media types who simply don’t understand its model. The point still stands that it is more expensive – we just need to make sure we are 100 per cent accurate on how.