The Daily Telegraph - Saturday - Money
The trouble with St James’s Place
Britain’s largest wealth manager is battling claims management firms and a falling share price, writes Charlotte Gifford
In just over 30 years, St James’s Place has grown into the biggest wealth manager in Britain, with 4,800 advisers looking after the fortunes of more than 900,000 clients.
However, the wealth manager is now facing perhaps its toughest year yet, as claims management firms circle and its share price tumbles.
The FTSE 100 company’s charges have come under increased scrutiny amid the arrival of new consumer rules this summer that mean companies have to provide their clients with fair value for money – or face action from the regulator.
Telegraph Money has learnt that St James’s Place advisers have been sending letters to clients warning them that they can no longer keep them as customers if they do not receive advice they are paying for.
At the same time, claims management firms are targeting the wealth manager – suggesting that clients may have been charged annual fees without speaking to an adviser for years.
One firm, which says it has clawed back £ 3.5m in fees for clients of St James’s Place since the start of the year, warns that failure to provide an ongoing service is endemic across the financial advice industry.
A St James’s Place partner, who owes £ 180,000 to the firm, has also told Telegraph Money that advisers like him are reliant on fees to pay off debts they take on to secure clients.
The Financial Conduct Authority said it is concerned that some clients within the wealth management industry are paying for an ongoing service that does not represent value for money.
Clients should expect to see their adviser at least once a year in order to justify paying an annual fee. Financial reviews, a vital part of the ongoing advice process, are supposed to be carried out at least once a year if a client is paying their adviser annual fees.
On top of fees for management and administration of the funds, clients who receive ongoing advice pay St James’s Place a 0.5pc annual charge. This works out at £1,000 a year for someone with £200,000 invested. Other wealth managers charge as much as 1pc each year.
Michael Jordan, of claim firm AMK Legal, says it has helped a large number of St James’s Place clients who have not had a full review with their adviser for years despite paying ongoing fees.
So far in 2023, the company has recovered £ 3.43m for clients of St James’s Place, he says. Many of these were for cases regarding a lack of review meetings. One client won back £8,000 in compensation after he did not receive a full review from his adviser between 2016 and 2021.
“In our view, if you have not received a full review every year then that is grounds for compensation,” says Mr Jordan. “This is because your circumstances could have changed significantly in that time – you might have changed jobs or retired, for example – and therefore previous advice may no longer be appropriate.”
Mr Jordan says fees-for-no-service was an issue across the wealth management industry but was particularly notable at St James’s Place because it is a large brand “and its clients tend to be wealthier”.
He adds that St James’s Place’s decision to make the letters available to its advisers was a sign the company was “getting their act together” in the wake of the FCA’s Consumer Duty, which was enforced in July.
An FCA spokesman said: “We are concerned some financial advice consumers may be paying for an ongoing service that does not represent value for money and we’ll consider all information that is passed to us.
“Firms must have robust controls to ensure consumers receive any ongoing service they are paying for.”
A spokesman for St James’s Place said: “Our St James’s Place Partners and advisers build long-term relationships with their clients and get to know and understand their needs over the long term. The ongoing review of the continued suitability of their investments to meet their financial planning goals is an essential part of the service we offer.
“Clients choose to pay for this ongoing advice service as it is key in providing the confidence that financial plans remain on track over time by providing a regular opportunity to revisit investment objectives, discuss financial goals and changes to personal circumstances.”
St James’s Place’s share price has plummeted by a quarter since the start of the year, and it has cut its annual product fees from 1pc to 0.85pc for pension and inve stment b ond clients who have been with the firm for at least 10 years. The wealth manager has also this year provided its advisers
with template letters, inviting recipients to a review meeting, that they can send to clients they have not seen in a year. The firm says the letters are “not a mass mailing to clients”, but rather an additional resource that advisers can use “as and when appropriate to ensure clients continue to receive the value of ongoing advice”.
A follow-up letter, which can be sent out if the client does not respond, reads: “You are a valued client, and I would like to continue our ongoing relationship. However, it’s not appropriate for you to continue paying for a service that you are not receiving.
“Therefore, if I do not hear from you by the [one month from date of this letter], I will be required to cancel the ongoing service.”
St James’s Place says the letters are to be sent to clients who have ignored requests for review meetings or where the adviser has been unable to contact them.
It is not always possible for an adviser to set up an annual review meeting. A client may be ill, or difficult to contact or perhaps even uninterested in meeting their adviser.
Nevertheless, an adviser who has not seen their client all year should turn off the ongoing advice charge, says Ian
‘Firms must have robust controls to ensure customers receive a service they are paying for’
St James’s Place £11.47bn Global Quality fund has consistently failed to beat its benchmark
Cumulative return %
Millward, of Candid Financial Advice, even if it is the client’s fault. He says: “If you are not providing a service, then no fee.”
Many are concerned that advisers across the wealth management industry have been failing to provide their clients with the ongoing service they are paying for, or refraining from switching off the ongoing fee where a client has become disengaged.
A spokesman for St James’s Place said: “We review all complaints on a case-by- case basis and offer redress where we recognise service has not met the standards clients should expect. We regret any occasion when a client has cause for complaint and would always urge clients to speak with us directly if they have an issue they would like to raise, rather than go via a claims management company where clients can expect to pay commission approaching 50pc of any resulting compensation.”
An FCA spokesman said: “We are concerned some financial advice consumers may be paying for an ongoing service that does not represent value for money and we’ll consider all information that is passed to us. Firms must have robust controls to ensure consumers receive any ongoing service they are paying for.”
St James’s Place allows its partners to borrow money from the firm in order to buy the client books off other advisers who are retiring. The scheme ensures clients are not left stranded when their adviser eventually leaves.
But a partner at St James’s Place – who claims he owes the firm £180,000 – says it can prevent advisers from leaving the business for up to 10 years.
He said: “St James’s Place facilitate the purchase with loans and guarantees spread over a 10-year term, which eat into the adviser’s other income, forcing them to bring in more clients’ money to increase their income.”
As of December 2022, St James’s Place partners owed their employer £ 315.6m in loans, according to its annual report.
Documents seen by Telegraph Money show once they have taken out a loan, advisers are not permitted to fully exit the business until they have either paid off their loan or seen out the 10-year term. This drops to five years for those over 55. The maximum an adviser can borrow from the company is £350,000.
St James’s says advisers can sell up at any time and that they can partially sell their business as long as they have carried out three years of service.
Businesses are allowed to borrow from the company – responsibly, and with affordability checks – if it will help them expand but are not required to do so, it adds.
The firm says it has many partners who manage only small numbers of clients and are not looking to expand, and this works successfully for the partners, the company and the clients.
Internal documents shared with Telegraph Money show that St James’s Place businesses who collect £80,000 worth of initial fees in one year will earn an extra 2pc of the initial fee in the next. This rises to 8pc if they earn £ 176,000 in fees. The rate goes up incrementally to reach a maximum 40pc, reserved for those who generate over £2.096m in fees.
Partners are also rewarded with titles for bringing in fees.
An adviser who has earned £4.5m in fees will be considered for the managing partner title. St James’s Place says its advisers are not salaried, and these “Business Allowances” are meant to cover the operating costs of partner practices.
More than 80pc of advisers operate from their own premises and this means they have their own operating costs, such as renting office space. Many employ their own staff, another significant expense.
The remuneration scheme also factors in the quality of advice given to clients. The rate advisers earn is adjusted up or down depending on factors such as the percentage of clients who have had a review meeting in the last two years, the suitability of advice as measured by its business assurance team and whether the adviser has received any complaints.
Offering staff incentives like this is permitted within advice firms under FCA rules.
A St James’s Place spokesman said: “In our view, investors should remember that past performance is no indicator of future performance, and approach short- term performance rankings and recommendations with a healthy dose of scepticism.”