Exclusive: SJP chief reveals all on charges, FCA and the future of advice

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St James’s Place chief executive David Bellamy has sought to silence the company’s critics following a wave of negative publicity as he steps down after over 10 years at the helm.

In a rare and exclusive interview, Bellamy speaks frankly about SJP’s charging structure, the mechanics of the exit charge, and the firm’s relationship with the FCA.

He reflects on the changes he has seen within financial services over the 25 years SJP has been operating, and sets out his thinking on why the future looks bright for the advice market, as well as what lies ahead for the SJP business.

A brief history lesson

SJP began life in 1992 as a very different organisation to the one advisers know today. As J Rothschild Assurance, it was a life company selling products such as critical illness, income protection and personal retirement plans. In the years that followed it built up a direct salesforce, before changing its name to SJP and moving into the wealth management sector.

Since that move in 2000, funds under management have gone from £4.5bn to £75bn, overseen by a total of 69 fund managers. The number of advisers has gone from 1,000 sole traders from life company backgrounds to 3,415 advisers across 2,378 partner firms, who in turn employ a further 6,000 staff between them. It has a total of 550,000 clients across 300,000 households, and clients typically have individual assets of between £50,000 and £5m.

Over the last few years SJP has broadened its proposition further. It acquired ex-pat advice firm the Henley Group in 2014, which expanded the firm’s reach to Shanghai, Singapore and Hong Kong. This was followed by a £34m deal to buy stockbroker and discretionary fund manager Rowan Dartington, and last year’s acquisition of technical support services firm Technical Connection.

But as SJP’s profile has grown, so has the scrutiny of its business model, both among other advice firms and the national press.

‘We do not have exit charges’

In recent weeks SJP has attracted criticism from the Sunday Times, notably around the firm’s charging structure and specifically on the level of exit charges applied. SJP operates an exit charge of up to 6 per cent, which reduces by 1 per cent a year over the first six years. Money Marketing has previously reported how this charge sits outside of the FCA cap on early exit charges, which takes effect on 31 March and is set at 1 per cent.

Bellamy is keen to differentiate the SJP charging structure from the exit charges applied to legacy pension products and based on a client’s stated retirement age. He also objects to the terminology.

“We do not have exit charges. We took them out of our contracts two years ago, and while it cost us a lot of money we decided it was inappropriate and not right for today. We have a charging structure that effectively gives people the option to come in and invest in a pension or a bond, and they understand the charging structure is such that it funds the advice. It’s almost like a deferred advice charge. It’s structured on the basis of if you stay with us for six years, you will simply have paid your 1.5 per cent annual management charge.”

Bellamy says the company is not expecting clients to withdraw their investments within the first six years, and points out the average investment term for bonds is 14 years.

“It’s not an exit penalty, we call it very specifically an early withdrawal charge because it’s a means of funding the advice charge. This is something we think works for clients. Our shareholders effectively bear the brunt of that charging structure because if you look through our accounts, there is a period in which funds invested with us do not generate a return for shareholders for six years. That’s largely because the annual management charge is being used to fund the advice charges. I accept that it’s complicated, but it’s also innovative.”

One common criticism levelled at SJP is clients are overpaying for advice, and do so unknowingly. In response, Bellamy cites the firm’s annual client questionnaire which found that 82 of respondents rated value for money as good or excellent, and 97 per cent who say they would recommend SJP to others. SJP has also recently published its charges online in response to claims the firm was not transparent on its fees.

“Attracting £11.3bn in new assets last year is evidence of us doing something right. Our clients don’t complain about our charges.

“When people come to us and say either your charges aren’t clear, or they’re expensive, I don’t believe that’s the case. We offer value, otherwise clients wouldn’t stay with us. There is no point in this business doing what it does if it cannot attract clients, serve them well and keep them. That is what makes us a sustainable business.”

Bellamy says the attacks over SJP’s charges are at odds with other adviser charging practices in the market, particularly the increase in advice charges post-RDR.

“It is a bit rich. Our fee structures have been consistent throughout this period, and yet the adviser community has moved from 50 basis points for ongoing advice to 75 to 100bps. Some of the ways they’ve done that is by moving people from active funds to passive funds. That’s not good behaviour, but it’s pretty common. It is ironic that those people look into this organisation and cry foul.”

Away from charges, SJP has also come under fire for its incentive structure for partners with reports suggesting advisers are treated to lavish foreign trips and high-end jewellery.

Bellamy says advisers receive a “badge of office” for making partner, which is a pair of cufflinks with SJP’s logo. He adds incentive schemes are disclosed to clients and the FCA is aware of the incentives in place.

“It is disingenuous to say it’s all fancy dinners with Bill Clinton because we don’t do that. We do have big speakers. As people are aware, this year we had George Osborne. I won’t apologise for the fact we had an ex-chancellor of the exchequer come and talk to 6,500 people in a financial services business about Brexit, about the economy and about his view on what the future looked like. That seemed to me something that was quite educational. Unfortunately you don’t get thanked for getting someone with that kind of pedigree, you just get kicked around the place because he cost £40,000.”

He says the barrage of negative press has been hard to take given the language used.

“We were concerned about the first Sunday Times article because it talked about rip-offs. That suggests cheats and swindlers, and I have to say that got us a bit uptight. That was very personal. Talk to our clients about the value they get from this organisation and the relationship they have with us, and you will find the predominance of clients who are very happy. Why would people recommend us if they weren’t happy? We count former fund managers and economists among our clients. Do you really think they don’t understand the charging structure?”

Bellamy says clients see SJP as a business that is focused on returns and performance, and he is aware of clients disputing the picture being painted by the Sunday Times.

As for other advisers’ negative perception of SJP, Bellamy believes this comes down to a lack of understanding about how the business model works.

“There’s a bit of envy out there, and there’s a bit of ignorance to be honest as well. People don’t understand what we do. We’re delivering to clients industrial scale funds with retail characteristics. The result is we get wholesale rates and play that into the retail market. Most of the fund managers we deal with are cheaper than they would be on any other platform in the country. And all of that benefit is passed straight through to clients.

“We are described as restricted, vertically integrated, tied, and probably lots of other derogatory comments as well. We’re trying to do the best possible job we can for our clients, and it works, and we have a lot of satisfied clients. I don’t think there’s anything restricted about that.”

A special relationship?

There is a theory swirling in industry circles that given SJP’s size and scale, the company has a different kind of relationship with the FCA than other advice firms. Specifically, the story goes that because SJP pays so much into the regulatory system (£17.2m in Financial Services Compensation Scheme levies in 2016, and a further £20.1m in 2015) that somehow SJP has cut some sort of “deal” whereby the regulator looks the other way on issues such as charges.

Bellamy finds the idea absurd.

“If people think about this rationally, look at what’s happened to the banks over the last six to seven years. Billions have been taken out of the banks, and put back into society through fines and compensation for payment protection insurance. If anybody was putting into the system, the banks were, both by way of tax and regulatory fees.

“We’re relatively tiny by comparison. The notion that regulators would be at all influenced by these things is bizarre. We have a decent relationship with the regulator because they want the same things we do. They want clients to be looked after, and to be treated fairly and honestly, and be given a good service. That’s what we aspire to do.

“They will have no issue with different charging structures providing it satisfies the rules. And our charging structure satisfies the rules. They know that, and we know that. There is no deal.”

What the future holds

Earlier this week, Bellamy announced he would be stepping down as chief executive at the end of this year. By that time he will have spent 26 years as part of the SJP executive team, and 11 years at the helm. Subject to regulatory approval, he will be succeeded by chief financial officer Andrew Croft who in turn will be replaced by chief risk officer Craig Gentle.

Bellamy will stay on at SJP in an advisory capacity from next year, and will take on the role of non-executive chairman of the company’s international division.

He says SJP has started to grow the Henley Group business in Asia, and is also eyeing an expansion into the Middle East.

He says from both a personal and professional standpoint, the timing is right for him to step down.

“There are some milestones that have been hit. I am 65 next year, we are in our 25th year, and I’ve clocked over 10 years as chief executive. On the business front, we have a really strong team. Andy’s been on the board 12 years, and has 24 years with the business. I’ve done what I set out to do, and now feels like a good time.

“I claim a lot of personal pride in the business that is SJP. We started out with the three founders in the early 1990s, and being the guy that’s had the baton for the last 11 years, I feel good about where we are as a business. It isn’t every day you join a small team of people and 25 years later find yourself in a respected FTSE100 company and doing great things for stakeholders. The legacy for me is that complete picture, and being part of the team that made that happen.”

Bellamy says he is positive about the outlook for SJP, and the focus will be on investing in Asia, Rowan Dartington, its academy for new advisers, and investing in its back-office system which uses the Bluedoor technology through IFDS.

He adds: “The future for SJP may involve a bigger footprint internationally, and certainly involves a broader footprint in the wealth management market.”

David Bellamy on how the advice market will evolve

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Reflecting on 25 years in the financial services industry, outgoing SJP chief executive David Bellamy says the biggest shift in that time has been the move from defined benefit to defined contribution pension schemes and the emphasis on personal responsibility for saving for retirement.

He says following pension freedoms and initiatives such as the Financial Advice Market Review, there is an acceptance that an advice gap exists. He believes this is only going to get wider.

He says: “If you look at the stats from organisations like Datamonitor there will be more people with wealth, and more of them that have to take care of themselves. The scale of the market is going to get bigger, and that is going to accentuate the advice gap.

“Adviser numbers came down post-RDR and have since stabilised, and may even be going up a bit. I happen to think there will be a bigger advice community in the next five to 10 years than there is today.”

SJP attracts second careerists through its SJP Academy, and those going through training and taking exams to become an adviser have an average age of 38.

Around 100 people are expected to graduate this year, with a further 210 in training.

Bellamy says: “Other firms will do the same, and banks will come back into the advice market as well. I don’t worry about that because there is an advice gap.”

He believes the trend for providers taking stakes in distribution is because those firms recognise the importance of advice.

“This stampede towards DIY, I don’t know if it was truly about buying into the digital age, or whether this was for firms to reduce costs and disintermediate the market.

“Our clients are very capable people. They know their way around money, they just choose not to deal with it. They look at the world today and see it’s getting complicated and they want someone to do it for them.”