SJP, Britain’s biggest wealth manager, is cutting its fees from next week. But, says ROBIN POWELL, the fee reduction is a drop in the ocean compared to the total cost of using an SJP adviser. But good financial advice, he says, is valuable. So what are the alternatives?
So St James’s Place Wealth Management is finally cutting its fees.
For those outside the UK, SJP is a financial services colossus — a combined advice firm, fund manager and life insurance business. Part of the FTSE 100, it has more than £150 billion under management.
SJP has been criticised for many year for its high fee and charges, its sales culture and the poor performance of its funds. Now the firm has announced that it’s reducing the annual management charge on its funds from one per cent to 0.85 per cent.
Andrew Croft, the chief executive of SJP, says the “catalyst” for the decision has been the new Consumer Duty, which requires financial services companies to act in clients’ best interests.
Shares in St James’s Place fell sharply after the announcement, as investors grappled with the prospect of lower fee income. The reduction in fund charges will mean a fall in net income for SJP of around £12 million in the second half of the year.
Eye-wateringly expensive
I have no particular axe to grind with St James’s Place. A firm with (at the last count) more than 868,000 clients has to be doing something right. I know good advisers who work there, and whatever else people say about SJP, it does help clients get their act together — work out a plan, sort their wills, arrange insurance, diversify their investments and so on. These are all hugely important things which, without cajoling from an adviser, most people tend to put off.
But there’s no escaping that being a client of SJP is eye-wateringly expensive. Clients are charged a whopping initial advice fee of 4.5 per cent of the value of their investments, plus 0.5 per cent a year to cover the cost of their adviser.
Of course, a 15 per cent reduction in fund charges is welcome, but it’s a drop in the ocean compared to the total cost of being a client of SJP. Also bear in mind that 0.85% is very expensive compared to passively managed funds, which in most cases will produce better cost- and risk-adjusted returns in the long run.
To add insult to injury, if you withdraw your money in the first six years you are liable for an Early Withdrawal Charge of up to 6%.
Rather like a trap
Good financial advice is worth paying for, but overpaying to the extent that SJP clients do makes no sense whatsoever. And the problem is, once you’ve signed up with SJP and paid your initial 4.5%, much of the damage has already been done.
I often hear from SJP clients who’ve realised too late quite how much they’re paying and want to get out, but then discover that, if they do, they’ll need to pay a hefty exit fee as well. It’s rather like a trap. The wheels of financial regulation move painfully slowly, but I suspect it’s only a matter of time before exit fees are banned.
In the meantime, the best advice, surely, is to avoid signing up in the first place. And I don’t mean to single out St James’s Place. The same goes for other large, vertically integrated advice-cum-asset-management firms. Believe it or not, there are even more expensive options than SJP.
What are the alternatives?
Again, good advice is worth paying for, which why two years ago, we launched our Find an Adviser service. But what should investors do if they’re looking for an alternative to.a firm like SJP?
First, understand exactly what it is you actually need. For example, do you really need someone to manage your investments for you, or could you do better investing the money yourself in low-cost index funds? It’s not exactly complicated.
Secondly, if you do want to have your money managed on an ongoing basis, you should avoid using firms that use actively managed funds, especially their own funds.
Choose a firm instead with a low-cost, evidence-based investment proposition from a provider such as Timeline or Sparrows Capital. Or opt for a firm that runs its own portfolios but favours passive, or at least broadly passive, funds from the likes of Vanguard or Dimensional.
Thirdly, look for a firm that emphasises the importance of proper financial planning, including cashflow modelling, tax planning, later life planning and estate planning. An adviser who spends much of the initial meeting talking about investing, share prices or the economy is raising a red flag; he has also almost certainly underperformed the market by some distance.
Fourthly, and crucially, look for a firm that charges fair and transparent fees. If you only have a small amount of money to invest, paying a percentage fee might make sense. But fixed fees generally work out much cheaper in the long run, especially for those with larger portfolios.
Which firms tick the right boxes?
An excellent example of a firm that ticks all of the right boxes, i.e. that’s client-focused, evidence-based and provides ongoing holistic financial planning, is rockwealth. Yes, I’m biased — I work there part time — but I genuinely believe it is one of the best planning firms in the UK.
And for those who either don’t have money to invest, or who are happy to manage their own investments, I’m pleased to announce the launch of Second Life Financial Planning — a non-regulated financial education consultancy for UK residents that can help you take charge of your life and money.
Proper financial planning can be truly life-changing, yet only a tiny proportion of the population gets to benefit from it. We desperately need new business models, like Second Life’s, to help redress the balance.
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