Unlock Editorial Digest for Free
FT editor Roula Khalaf chooses her favorite stories in this weekly newsletter.
St James’s Place is under pressure from regulators to overhaul its charging structure to ensure it complies with Britain’s new consumer tax rules, people familiar with the matter have revealed.
Britain’s largest wealth manager faces scrutiny over what critics say are opaque and expensive financial advice fees and stiff penalties for early withdrawals.
Investor concerns about its business models have intensified since the Financial Conduct Authority introduced “consumer responsibility” rules in July, which force companies to show they are acting in the best interests of their customers.
Shares in the FTSE 100 group have fallen more than 40% since July when SJP announced modest changes to fees in line with the rules. The stock fell more than 16% on Friday.
But the company has been discussing further changes to assuage regulators’ concerns, according to people familiar with the matter.
The company has proposed eliminating early withdrawal fees for new customers by mid-2025 and simplifying or “unbundling” fees for various advisory and management services, they said. Regulators have warned senior executives that even these changes may not be enough, they added.
SJP has a complex fee structure involving upfront fees and ongoing annual fees. Some of these recurring fees do not apply for the first six years, but some clients must pay an early withdrawal fee (exit fee) if they withdraw funds during this period.
Executives were asked to justify retaining exit fees for existing customers while eliminating them for new customers, people familiar with the matter said. Under SJP’s proposals, customers investing before 2025 would still face early withdrawal fees, starting at 1%, which in some cases could apply to the first 11 years.
Regulators are also concerned about whether high upfront consulting fees are in the best interests of clients and whether SJP will make it difficult for clients to stop paying further consulting fees, people familiar with the matter said.
But SJP is concerned that eliminating exit fees for existing clients could have a significant accounting impact on its balance sheet, people familiar with the matter said.
As of June this year, around £47bn (30%) of assets under management at SJP were subject to exit penalties.
Regulators have been campaigning against the fee structure for nearly a decade, arguing it is anti-competitive because it locks in customers and some customers don’t understand the fees, a former insider said.
“Regulators have always had issues with this structure, mainly because they believe it masks the true cost of providing advice to customers. . . . The problem persists. The consumer tax gives the FCA more reason to push for this “The person said.
SJP declined to comment prior to publication of this article.
In a statement on Friday morning, the company said it would continue to evaluate “our fees and charges model” following the introduction of the consumer tax and believed the options it was considering “will ensure value for customers and ensure a strong, Safe and sustainable business “for all stakeholders”. SJP added that it was engaging with regulators during the process.
Asked about the regulatory pressure SJP faces to assess its exit charges, the FCA said it could not comment on transactions with individual companies.
“Our current view is that SJP’s fees may change in the future, which further adds to the uncertainty surrounding the stock,” analysts at RBC Capital Markets said on Friday.
If SJP scraps exit fees for existing customers, it would be the company’s most significant overhaul in 30 years.
Even without that change, SJP is faced with having to completely redesign its IT systems to reflect the new fee structure—a massive project that has been disrupted by wealth managers’ slowness in adapting to new consumer responsibilities. Tensions with regulators, people say.
The fee adjustment announced in July – which will cut top annual product management fees by 0.15 percentage points for 65,000 customers who have been with the company for more than a decade – alone could reduce earnings by $8 in 2024, according to UBS estimates %.
The announcement sent the company’s stock price down 16% in one day. Numis analyst David McCann expressed concern that the initial cost cuts were “just the tip of the iceberg”.
SJP’s next steps will be closely watched by other parts of the UK wealth and asset management industry, which is trying to assess how far-reaching the consumer tax will be on its business models and fee structures.
Addressing the FCA’s concerns will be one of the first tasks of incoming chief executive Mark FitzPatrick, who briefly served as boss of insurance company Prudential. He joined the board this month and worked on a remediation plan with Andrew Croft before succeeding him in December.
In July, Croft said SJP “looked at every part of our business from a consumer responsibility perspective and where changes needed to be made, we have made changes.”
Additional reporting by Laura Noonan in London
Svlook
