Introduction
Several recent press articles featuring St James's Place (SJP) describe how their exit fees will be abolished for new clients from 2025 onwards to comply with Consumer Duty rules. This has caused their share price to fall by around 40% since the start of the year as the market alters its expectation for potentially reduced future revenues. It's not the first time SJP has appeared in the news, with regular coverage around their supposedly high fees, poor performance and selling culture. It's probably fair to say that many IFAs have been only too pleased to see this coverage and have been active on social media discussing this.
This article examines SJP's current fee structure and performance and attempts to determine whether the criticism is justified. It then covers what to ask when evaluating a potential adviser.
The Company
SJP was founded by Mark Weinberg and Mike Wilson in 1991. It is now a FTSE 100 company with around £150bn under management and almost a million clients, looked after by nearly 5,000 advisers. These advisers may be self-employed (known as partners) or employees of the self-employed partners.
The average client has around £175,000 invested, with each partner looking after about 190 clients.
SJP runs an Academy, helping second careerists transition into the financial adviser world. Having spent a couple of months in the Academy (I realised that SJP wouldn't be my ideal long-term home), I can vouch for the quality and investment that SJP has put into this. At the time, there was nothing comparable in the marketplace.
How does SJP charge?
There has been much coverage around SJP fees. Many of these articles contain flawed reasoning, errors and biases. Some examples include:
Comparing SJP fees to non-advised (DIY) alternatives.
Confusing product-specific charges and assuming both initial and exit charges apply to a particular product.
Below, we explain the fee structure and establish how it compares with alternative options. Before reading this, you may want to read our deep dive, which covers financial advice fees in great detail.
SJP offers restricted advice through a vertically integrated model. This effectively means that the adviser can only offer SJP's or their approved partners range of investment products, and all charges are bundled into one ongoing fee. In contrast, an independent financial adviser will select financial products from the whole market and give a breakdown of fees (platform, adviser and investment funds). SJP has announced that they will make their fee breakdown more explicit, but this article analyses fees as they currently are.
SJP have differing charging setups depending on whether you are investing in an ISA or a pension/investment bond, and their charges are detailed on their website
Pensions/Investment bonds
For pensions/bonds, the client pays no explicit initial fees (although the partner receives 3%, which SJP funds), meaning the client has 100% of their money invested from day 1. Annual management charges (which cover adviser and platform costs) are 1.5% per annum, with fund costs of around 0.4%.
In addition to the above, there are also transaction costs to consider.
Total ongoing costs are, therefore, around 2.2% per annum. If you leave SJP within six years, you may be liable to pay up to a 6% exit fee.
ISAs
In contrast to pensions/investment bonds, there is an initial fee of 5% for ISA investments (with the adviser receiving 3% as with pensions/investment bonds), although some SJP partners have been known to reduce or waive these fees. It's worth noting that these fees can also apply to topping up existing assets. A couple using their ISA allowance could pay their SJP partner an additional £2,000 per year (2x£20,000 * 5%) in addition to ongoing fees.
Annual charges, again including adviser fees, are lower than pensions/investment bonds, at around 1.6%. Including transaction costs, this works out to about 1.9% pa.
Worked example
Making sense of various fees can be tricky. We've created a spreadsheet in an attempt to clarify this. Please feel free to get in touch if you would like a copy or disagree with any of the numbers.
Our sample client has a starting balance of £100,000 for their ISA and £75,000 for their pension. They contribute £10,000 to their pension and ISA each year. Investment growth is assumed to be 5% per annum.
For the ISA, we can see that for every contribution (both initial and ongoing), the adviser receives 3% and SJP 2%.
For the pension, SJP effectively subsidises the initial advice fee, this being clawed back (on a sliding scale) if the client leaves within six years of a given contribution.
The table below shows the total fees across the ISA and SIPP. For our example client, we would estimate the fees to average around 2.4% pa over ten years.
How does this compare?
SJP has stated that they are not the most expensive in the market, with research by Grant Thornton placing them at the mid-lower end of their peer group. This peer analysis was repeated by Ernst and Young in 2023 and shows a reduction in yield of 2.2% a year for a £100,000 investment over ten years. This is slightly below our estimate of 2.39%, but it's not clear whether the EY analysis included transaction costs. Furthermore, they only looked at a one-off ISA investment rather than a combination of pension and ISA with periodic contributions.
Research by the FCA shows initial fees of around 2.4%, with total ongoing fees around the 2% mark. Many independent financial advisers have headline total fees (for both initial and ongoing) lower than these averages. But, and it's a big but(!), these firms may not accept the average SJP client with £175,000 invested. Many of these firms have minimum ongoing fees in the region of £2-3,000, which would be considered unacceptably high for invested assets of £175,000. We made this point in a recent case study where we showed that for a client with £1.45m invested, our annual total fees of around 0.85% is less than half what SJP would charge, but at the £175,000 point, the client probably wouldn't be a good fit for our financial planning and advice service.
Performance
As with fees, there is often a misunderstanding regarding SJP investment performance. SJP state their investment returns net of all costs (adviser, funds and platform), and an apples-to-apples comparison is not always undertaken.
SJP go into some depth on their investment management approach, emphasising the external consultant expertise they can draw upon. We will attempt to compare SJP performance against two benchmarks over five years:
1. Asset Risk Consultants Private Client Indices
ARC offer four indices with differing risk levels. We looked at ARC when we evaluated the "No Brainer" portfolio.
As mentioned above, SJP returns are net of all costs (including adviser and platform). In contrast, some contributors offer just investment management (and therefore don't incur the additional fees, which will inevitably drag on performance). This, therefore, puts SJP at a disadvantage in some cases.
2. A typical independent financial planning firm using a low-cost, globally diversified portfolio.
Of course, there is no "typical" offering, and as mentioned above, not all financial planning firms will accept clients with £175,000 to invest.
We will assume a "typical" client that Pyrford Financial Planning works with - someone approaching retirement with between £500,000 and £2,000,000 of investable assets. For this, we would charge an initial fee of around £5,000 (1% or less), and ongoing costs would be around 1%-1.3% per year (adviser, platform, funds and fund transaction costs). Of this, 0.3% covers fund and fund transaction costs. We will, therefore, remove 1.2% pa from the raw fund returns (1% initial amortised over five years plus 1% ongoing) to get a broad SJP equivalent.
For the portfolio, we will use a mix of global equities and global bonds, both funds provided by Vanguard. This portfolio will be rebalanced quarterly. Note that this is broadly similar to how we invest.
For the SJP portfolios, we will use the SJP Balanced Portfolio and SJP Managed Funds Portfolios.
ARC is shown in red, with the SJP funds in blue. The Vanguard offering (net of 1.2% pa costs) is in green.
Our IFA example has given greater risk-adjusted returns over the five years than ARC or SJP for our chosen parameters. Of course, the usual caveats apply: past performance is not a guide to future returns, and as mentioned previously, there are many investment solutions that IFAs may use, some of which are more expensive and may not perform as well. Our article on the "No-Brainer" portfolio takes a deeper dive into how simple, low-cost investment solutions have historically fared vs alternatives in the marketplace.
The important questions that should be asked
SJP believe three areas contribute most to client outcomes. Below, we give our views.
Investment management
As covered above, the SJP investment management approach does not necessarily lead to market-beating performance, falling some way between the ARC benchmarks and an equivalent low-cost, globally diversified approach. While there are offerings that can beat the market, these opportunities are unlikely to be available to those in the retail space (be that via SJP or IFAs). That being the case, we believe that investment management is commoditised, and most people are best served with a low-cost, globally diversified portfolio.
With this in mind, we'd struggle to ascribe much value to an investment management approach, be that SJP or anyone else in the retail investment management space, and we certainly wouldn't choose any adviser because they offered supposed great historical performance (in fact, we'd probably consider it a warning sign!).
2. Products and Platform
Our website shows the value we believe we add, part of which is ensuring lifetime taxation is optimised.
However, the platform and tax wrappers used are mere tools to get the job done, and we consider these to be commoditised.
3. Advice
Given the above, it's clear that we think the vast majority of value is in an ongoing financial planning relationship with a financial adviser rather than the products and investments. We've written about this in many articles, and we are passionate that clients should be demanding value from their financial adviser over and above investment management and fund reviews/switching (something that is, unfortunately, all too common).
We believe all clients would benefit from having a financial plan. The ongoing financial advice relationship should be an immersive experience, offering much more than an annual review to discuss investments.
This type of relationship, and financial planning in general, takes significant time, and given that many financial planners have invested considerable time in their offering and are highly qualified, it will come at a cost.
We believe there are three challenges with the SJP pricing model:
1. Providing a full financial planning service to the average client
For the average SJP client, with £175,000 invested, the adviser is paid less than £1,000 annually for ongoing advice. Only around 25% of the ongoing fee (0.5% of a typical total of 2%) goes to the adviser, who should be delivering the vast majority of the value. We'd suggest that providing a full financial planning offering will be challenging at these fee levels, and we would prefer to see the adviser take more of the share, something we understand SJP will soon implement.
2. The adviser is incentivised to find new business
The SJP adviser receives six times as much for every new pound of new business that they bring on versus what they are paid for existing client money (3% vs 0.5%), and you need to be comfortable that their focus is on looking after you and your financial plan rather than looking for new business.
3. SJP does not (officially) discount for larger clients
There is also a question to be asked for those with larger pots. For example, a client with £2,000,000 invested will pay approximately £10,000 pa to their SJP adviser. This should enable the adviser to offer a full financial planning service that might be more challenging for those clients with a smaller investment pot. However, it also means that the client will pay in the region of £30,000 a year for non-advice services (see example below)! Given that platform costs at this level can be had for 0.1% or less (£2,000) and investment management for around 0.3% (£6,000), you must ensure you receive value for the additional five-figure sum you pay each year.
An example client (a couple) joining SJP with a £1,000,000 pension and £1,000,000 ISA and investing £40,000 into an ISA each year is shown below.
We cover the seven questions you should be asking a potential adviser in a separate article, but here are a few for a potential SJP client:
1. What will you, as my potential financial adviser, be doing for me?
If the answer is "to give you access to great investments", push harder!
2. What value am I getting for the fees unrelated to your advice?
Again, if the answer is "to access great investments", push back!
3. What will you charge me for new investments?
We believe that investment top-ups should be included in the ongoing fee.
4. (For those with more to invest). Why am I paying the same in percentage terms as your average client?
While complexity may increase with a higher investment balance, we don't believe someone with £1,000,000 should pay ten times that of someone with £100,000 invested.
Conclusion
As advisers, we have a lot of respect for SJP, and we think that many Independent Financial Advisers (IFA) are secretly jealous of SJP's marketing machine! We have many friends who work for SJP, and we often find ourselves defending them on various forums when they have been unfairly treated.
In terms of their client proposition, there are a few takeaways:
SJP isn't necessarily expensive compared to the alternative options for their average client with £175,000 invested, particularly if you can avoid paying the 5% initial fees on ISAs. For clients with larger investment balances, we would consider the proposition to be less compelling.
While not appearing to offer anything that a low-cost, globally diversified portfolio doesn't, their investment approach is unlikely to provide the poor returns that some like to point out.
Some may favour working with a FTSE 100 company versus a smaller independent financial advice firm. I see this as similar to taking your car for a service. Some may prefer the smaller specialist and potentially pay lower costs, while others prefer the reassurance of a franchised dealer and are willing to pay slightly more for it. It's probably worth pointing out that Vanguard (the example portfolio used above) has around 8 trillion USD under management, while another firm that many financial planners invest their clients' money with has Nobel laureates consulting with it. This means that many seemingly small advice firms can consult and invest with some of the world's biggest investment firms (but as mentioned above, it's unlikely to lead to market outperformance!)
We believe the quality of the adviser is where the majority of the value is added in an advice relationship. A good restricted adviser may well deliver better client outcomes than a poor IFA. Of course, we believe the gold standard for financial planning remains working with an Independent, Chartered Financial Planning firm!
Next steps
If you want to discuss what a genuine financial planning relationship should offer and what you should pay for it, please get in touch.
About us
The team at Pyrford Financial Planning are highly qualified Independent Financial Advisers based in Weybridge, Surrey. We specialise in retirement planning and provide pension advice, investment advice and inheritance tax advice.
Our office telephone number is 01932 645150.
Our address is No 5 The Heights Weybridge KT13 0NY.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Although best efforts are made to ensure all information is accurate, you should not rely on this blog for your personal situation or planning.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.