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Blog: A blueprint for a fairer SJP

Another weekend, another Sunday Times dig at SJP.

This time, the paper has got hold of a few internal documents that give us a better idea of what it takes to get your bonuses and overseas conference invites as an SJP adviser, as well as how SJP planners could present charges to their customers.

The case for the defence

In the name of balance, I’ll start by sticking up for SJP on a few accounts here.

Giving financial planners bonuses is hardly unique to SJP and isn’t, in and of itself, necessarily nefarious.

When recruitment consultancy BWD and Money Marketing polled some 500 advisers last year, of the £93,000 in average remuneration reported, £27,500 of it came in bonuses – up 7 per cent from the previous year.

You could tie these bonuses to client satisfaction scores, retention, perceived value or whatnot to ensure they don’t drive sales bias.

I’m also a little confused as to the following claim in the Sunday Times report:

I suppose it depends how you define “many”, but percentage fees still dominate the advice market. In May 2017, FCA stats showed that 4,362 advice firms charged on a percentage basis for ongoing services, compared with 1,215 on a fixed fee. By June 2018, those numbers stood at 4,283 and 1,144 respectively – far less movement away from ad valorem than many predicted.

Finally, that SJP offers loans to advisers looking to expand their business is a valuable thing, and we can’t be shocked that SJP asks them to keep up the repayment or risk forfeiting some interest.

That, however, is as far as I can go in terms of defence this time round, because, in its response to the Sunday Times article, SJP yet again fails to face up to a number of fundamental flaws in its business model.

The case for reform

The idea of incentives to move up the partner grades still rancours with me. If you don’t want to look like a relic of sales-driven bank advice, maybe don’t fly your advisers to Monte Carlo if they meet targets that are, at least in part, sales-driven.

Advisers outside of SJP hated, and still hate, the big bad banks for their lavishness. Perks like jewelry and dinners with celebrities are the last thing a professionalised advice sector needs when its in the process of rebuilding its image with the public.

If you’re in a permanent fight about how transparent and fair value your fees are, you might not want to illustrate it in ways that are potentially misleading as well.

The Sunday Times has a nice pull out on what goes round to SJP advisers:

This is obviously a rubbish way of presenting true costs. There’s no cumulative effect, no pounds and pence figure, and no proper reduction in yield analysis. It’s as if Mifid II never happened.

SJP responds that this is given to advisers just as an “aide memoire”, and obviously advisers will have fuller discussions with clients about costs in person or over the phone. But I don’t think that’s a good enough excuse; it’s still a tool that could be put in front of clients. You can’t say that you’re only doing it to avoid information overload – there are equally simple ways of presenting more accurate charges data – and SJP is clearly wise enough to know it is potentially misleading as an illustration.

On both of these points, I question whether SJP needs to do any of this. Pre-tax profit came in at £526m last year. It’s not a pharmaceutical company that needs cash to plough into new cures. Can we really justify such profitability in terms of the safety net or security it provides then? Or, more likely, does SJP, as all listed companies do, have one eye on the City and its shareholders at all times.

The same goes for exit fees. SJP currently boasts client retention of 96 per cent. If you buy the argument that people stay with the firm because they are treated so well, not because they are locked in financially, then you wouldn’t expect a massive drop off in that figure should it either reduce exit charges, reform them so they hit fewer clients for a shorter period of time, or eliminate them altogether.

Either way, it’s a hit SJP could most certainly afford in the name of treating clients fairly.

Devil is in the data

It may sound pernickety, but I also have serious issues with SJP’s dodgy data collection. SJP loves producing the results of client surveys showing how amazingly satisfied they are with its service. I have two pretty significant methodological issues with how that data is presented.

The first is that SJP does not disclose what proportion of clients rate it as “reasonable”, or “good”, compared to “excellent”, lumping them in as one single positive category, meaning plenty could just think them “reasonable” rather than the much loftier bar of “excellent”.

A further website trawl does indicate that 82 per cent are in the “higher categories” – but this still doesn’t tell us the split of “excellent” to “good”.

More importantly, in several questions, including over value for money, there are three positive options presented compared to one negative one. The choice is “poor”, “reasonable”, “good”, or “excellent”. It doesn’t take a data genius to realise this will skew the results.

Here’s what it looks like from the Wealth Account Survey 2017, which as the name suggests is an annual polling exercise sent to all SJP clients each year with their annual review.

That survey is also where some lovely numbers about how many clients would recommend SJP come from. Again, let’s play spot the data error in how the question is presented.

There are two positive options to one negative again; for this question to be fair, you would have to include a “no, and I do not plan to in future” response option or similar. Of course when both questions are phrased as they are with the available responses as they are, you are going to come out smelling of roses.

Why doesn’t SJP ask a similar question about whether clients understand its fees? (And make it a fair one – no “do you understand the charges?” “absolutely”, “definitely”, “probably” or “unsure” nonsense).

The case for reform

If you removed some of this, I don’t see any reason why SJP couldn’t turn itself into a modern advice firm, that uses its segregated mandate model to deliver cheap investment advice to mass market clients, with a robust compliance mandate, leveraging its scale to drive investments in technology in the name of customer value.

So here’s my blueprint for a fairer SJP:

  1. Scrap the exit fees, or at least reform them so that they don’t restart again every time top up contributions are placed. You’re not reasonably recouping the upfront cost of doing business any more, you’re just locking clients in for no good reason – even if the clock only restarts on new money placed in it’s still prolongs the barriers to exit.
  2. Cut down on the overseas trips. At best, they’re an unnecessary extravagance funded by clients. At worst they give advisers perverse incentives to hard sell to new and existing clients.
  3. Present your charges in all instances in cumulative terms, and in pounds and pence, as opposed to cartoon diagrams clearly intended to minimise their appearance.
  4. Get more honest client feedback by adding neutral options and balanced questions in the annual survey.
  5. Make documents like the Partnership Handbook and Field Management Handbook public so that potential clients can see for themselves exactly what is in it for the adviser.

None of this is beyond the wit of man. Bar the exit fees, it could all be done in a matter of months.

It wouldn’t take a lot for SJP to reform itself to be a firm the advice profession can genuinely be proud of, and one we could show off to prospective clients as an exemplar of a business that treats customers properly.

SJP should use its considerable resources to seize on this opportunity while it can.

Justin Cash is editor of Money Marketing. You can follow him on Twitter @Justin_Cash_1

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Reasonable balance Justin but I think you are looking for fault where none exists. The fact SJP get c.40,000 survey respondents is remarkable in it’s own right, and it is well known that respondents are normally biased towards those who are unhappy with a service.

    The overseas trips and partner levels are not necessarily bad things if the appropriate risk management systems are in place. My understanding is that SJP are exceptionally thorough around the advice process and are strident in their attempts to weed out anyone who tries to beat the system – they are too high profile not to be. The ‘rewards’ are then only recognition of achievement, something that exists in all businesses, and all mostly linked to some kind of monetary benefit. Recognising performance can be difficult in what is by definition a ‘flat’ business model.

    The ills of our industry are usually the fault of poor management and inadequate governance, neither of which are the case at SJP. PPI is the best example of this.

    SJP charges are high which means their products/services have to work harder to be of value. Their results (and the surveys) seem to to suggest they demonstrate that extra value. Should they not be admired by (or the envy of) their peers for achieving this?

    They appear to have a brilliant understanding of where value lies – in the maintenance of a meaningful dialogue with a well-equipped adviser. There does not seem to be much ‘digital’ going on, and they are committed to increasing adviser numbers by 50% over the next few years. Whether you can maintain the quality with those sort of numbers we will have to wait and see, but I suspect if anyone can get it right they will. I also suspect they’ll do ‘digital’ when they know they can boost value from it…

    To be clear, I am not a customer of SJP, I am not a financial adviser, and SJP are not a client of TORI Global. I just believe we should admire what they have achieved.

  2. What the ‘partners’ should be is categorised as employed – because in all logical parameters that is exactly what they are.

    • I’m told by my accountant that a key parameter for being deemed employed, as opposed to self employed, is whether the individual receives leads from the principal which, to the best of my knowledge, SJP partners don’t.

  3. I would be interested to know how the 0.11% figure is arrived at.

    It’s hard to argue against the 5 points of the blueprint. It will be interesting to see if they are open to change. If they were to change, the mud slinging would stop and IFA’s would have nothing to moan about.

    The FCA have made much of culture within organisations over the years, and rightly so. The current SJP business model says volumes about its culture. And it’s not pretty.

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