The position of trusted adviser gives enormous power to financial intermediaries. Historically they have focused on an in-house product set. In the days before unit trusts dominated retail savings it was hard to get any kind of information about the returns or the underlying portfolios of life company endowment policies.
An enterprising intermediary, Richard Wharton-Hood, set up a survey in the 1990s of these products, but after a series of returns were unflattering to Liberty (run by his brother Dorian) they simply withdrew from the survey.
Some investment groups, such as Acsis and Citadel, fought tooth and nail to prevent their returns getting into the public domain. What should we infer from that? It is no wonder that it was often suggested that investors should buy Liberty shares not Liberty policies, given the layers of fees involved.
St James’s Place (SJP) was started by Mark Weinberg, who was also one of the founders of Liberty, so it is no surprise that they share a strong sales culture. On a p:e of 19 even at the height of the Covid-19 crisis, SJP is seen as a safe haven. Its main competitor is JSE-listed Quilter on a similar forward p:e, though while only 5% of SJP’s funds have a four or five star rating 27% of Quilter funds do.
Clyde Rossouw, manager of the Ninety One Global Franchise Fund, recently took a position in SJP, which returned the compliment by giving his firm the Continental European Fund to manage.
As a note of caution, Yodelar, which wrote the report, has had several digs at SJP over the years. It argues that SJP has used the cash it generates from high charges to buy competing financial advice firms, in effect funded by their clients. And it still builds up a war chest to incentivise its salesforce through, as Yodelar puts it “rewards from cufflinks to cruises”. It offers large upfront payments to advisory firms as an incentive to join and then the newcomers transfer their clients into SJP portfolios, which attract upfront fees.
Yodelar talks of SJP’s “scandalous” rewards scheme and an “expensive and punitive” fee structure. SJP charges a 5% upfront fee on its unit trusts. A practice that ended in SA more than a decade ago. Pension products incur a 6% fee and ongoing costs can reach 2.5%. The industry average for upfront fees is 2.06%.
All of this might be ignored if it wasn’t for the “continuous poor performance” of their funds. No less than 85% of their funds are below average in their sectors. In fact, only two of the SJP funds, the International Equity unit trust and the Worldwide Managed pension portfolio, have been in the top quartile of their sectors over one, three and five years.
SJP is a multimanager, wisely forbidding its salespeople to pick stocks. It has the power to improve performance; for example it moved its Far East Fund from the huge and dysfunctional Standard Life Aberdeen to the nimbler Stewart Investors and change the name to the less Eurocentric Asia Pacific. The mighty BlackRock was struggling with the Alternative Assets fund and this was moved to Wellington Asset Management. Yet the fund fee alone for SJP Asia Pacific is 2% and even a basic UK Income fund commands a 2% fee. And 0.4% is rich for a UK Money Market fund given that it would wipe out the gross yield.
What in SA would be called retirement annuities and endowment policies attract a 0.5% so-called “maintenance” charge. And there have been accusations that SJP has adopted stalling tactics to try to stop clients moving to another provider. Consumer magazine Which? did mystery shopping exercises in which advisers misled customers, hyped up performance and failed to disclose charges. There isn’t a salesperson anywhere in the world that isn’t guilty of these practices, but St James’s Place is clearly happy to be confused with St James’s Palace and to be considered a pillar of the British establishment.
SJP is restricted, which doesn’t mean it is a club that excludes certain ethnic groups, nor that it can provide racy R-rated movies to clients. It means that they are tied agents who can only sell SJP products, even when in good conscience they believe there are better products on the market. This makes the relationship sales-based or transactional, rather than advisory.
Quilter has also built up a substantial roster of restricted advisers, but unlike SJP it makes its platform (what we would call a linked investment service provider) available to independent financial advisers, who are then free to use any of the third party funds loaded on the platform. SJP also charges a 6% exit fee on its pension and bond (endowment) products, which enables it to hold on to funds.
• Cranston is a Financial Mail associate editor
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