SJP under the microscope: Where does the profit come from?

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St James’s Place’s 2016 results dropped a few weeks ago, and it proved to be another bumper year for the advice market giant.

SJP reported profits of £140.6m, alongside record gross inflows of £11.4bn over the year.

But the firm has come under fire in recent months over complaints and charges.

Fund Strategy sister publication Money Marketing has dug into the data to see where the money is being made and see if the challenges to the firm stand up to scrutiny.

Profits

SJP has a number of different business within the SJP Wealth Management Group: St James’s Place Wealth Management, St James’s Place UK plc, St James’s Place Unit Trust Group Ltd, S. James’s Place International plc and St James’s Place Investment Administration.

Together, they have around 550,000 clients.

SJP Wealth Management is responsible for the advice provided by SJP’s partners.

SJP UK plc is responsible for the administration of life assurance, pension and investment products.

SJP Investment Administration looks after the administration of Isa’s and unit trust products.

Going back through SJP Wealth Management’s accounts for the year ended 31 December 2015 – the latest set available through Companies House – the advice arm actually looks to have made a loss. Though turnover grew from £590m to £667m, losses doubled from £12.9m to £25.7m as the cost of sales increased.

Losses have actually been on the way up since 2012, even as turnover has grown rapidly.

SJP Investment Administration’s latest accounts also say that profits only amounted to £3m, and “the majority of the Company’s income and expenses have been earned following the re-registration of £14.5bn of clients’ SJP unit trust investments into the name of SJP Nominees Limited in late October 2015.”

So, where does the profit come from then?

One source with knowledge of the firm, who has also noticed the “advice business” is not making money, says: “Basically, SJP is an investment management business and generates margins from both product charges and, far more importantly, from investment management charges. In essence, it’s all about assets under management.”

They add that, eventually, SJP may fall foul of cross-subsidy rules by supporting loss-generating advice income.

“Over time this could be a significant issue as the RDR contains very clear conditions for vertically integrated firms. In essence the fees generated must over time be capable of covering the expenses in order that there is no subsidy.”

The following section from the advice arm’s 2015 accounts implies that adviser’s remuneration is also tied to cross-selling through the group:

“The Company’s appointed representatives also act as introducers for life insurance and unit trust business sold by other companies in the SJP Group. In relation to this role as introducer, the Company receives a distribution allowance from each of SJP UK, SJP Unit Trust Group, SJP International plc and SJP Investment Administration. This distribution allowance is based upon the levels of business introduced.”

People, places, charges

SJP advisers are in effect self-employed partners of the business; the client pays SJP which then pays the adviser.

Essentially, this means that the adviser’s fee is paid out of sale of SJP manufactured products: up to 3 per cent initial for unit trusts, pensions and bonds, and half or a quarter of a percent ongoing for unit trusts and pensions respectively.

Anything outside of SJP’s investment deals, for example life insurance or medical cover, the firm runs a whole of market approach.

While partners may be self-employed, directors are given “uncapped” indemnities by the company against liabilities.

This from the Plc’s 2015 accounts:

“SJP…has taken out insurance covering directors and officers against liabilities they may incur in their capacity as directors or officers of SJP or its subsidiaries….These indemnities are uncapped in amount and protect recipients from certain losses and liabilities that they may incur to third parties in connection with the furtherance of their duties as directors or officers…”

Complaints and satisfaction

Here’s how complaints break down for three of the business lines between 1 January and 30 June last year, the latest data available. (An SJP spokesman has confirmed that complaints data for the second half of 2016 will not be published because SJP had too few complaints to have to disclosure them under regulatory rules.)

To account for the relative sizes of the different business streams, let’s look at complaints per thousand customers.

While advisers might be surprised to hear the actual advice is, proportionately, the least complained about part of the wealth management giant, it might not be so reassuring that administering simple products like Isas is seemingly generating complaints twice as frequently.

Breaking down SJP’s advice complaints by product also shows that pensions and investment complaints dominate the workload compared to general insurance, pure protection and home finance related advice.

Clients remain happy with SJP’s service, but it is instructive to look at the wording of the statement that SJP provides on customer satisfaction:

“The results of our 2016 client survey, which attracted more than 33,000 responses, showed that 98 per cent felt SJP offered excellent, reasonable or good value for money and 95 per cent would recommend SJP.”

Simple statistical logic suggests that, without separate percentages for clients who rated value for money as “excellent” compared to “good” or “reasonable”, the vast majority could in fact just rate the service as “reasonable” – a significantly lower bar to praise that “excellent.”

Two months ago, SJP did attempt to shed some light on this, saying that 82 per cent were in the “higher categories”. That still means, technically speaking, that zero per cent could rate it excellent, and 82 per cent good.

The jury is still out after all of this, but at least people should be able to know a bit more about what’s causing the arguments.

Justin Cash is Money Marketing’s news editor. Follow him on Twitter @Justin_Cash_1