Yahoo Finance Why St James’s Place had no choice but to cut its fees
Britain’s biggest wealth manager St James’s Place has long been under pressure to cut the charges customers face if they want to move their money elsewhere.
This week, it finally snapped. After action from the City regulator and having billions wiped off its market value, St James’s Place announced it was reducing fees across the board.
In a market statement published Tuesday morning, the firm said it would remove its controversial exit charges for clients who leave the business early as well as cap its initial advice fees, ongoing advice fees and fund charges.
The company’s share price had fallen 20pc on Friday as it was reported that fees could be slashed. St James’s Place now estimates that the overhaul will cost between £140m and £160m by the time the changes are rolled out in 2025.
The wealth manager, which has been managing the fortunes of savers for more than three decades, generates millions of pounds in annual charges from clients. Year-to-date, its share price is down almost 40pc.
The raft of changes come in the wake of new regulations introduced by the Financial Conduct Authority in the summer under the Consumer Duty, which requires businesses to provide fair value to consumers, or face action from the regulator. It meant that St James’s Place, which charges a range of fees, had to clearly explain what value for money customers were getting from each.
St James’s Place had already taken steps to ensure compliance with the new rules. The Telegraph revealed last month that the wealth manager had been writing to clients to warn they could no longer retain them as customers if they did not receive the advice they are paying for.
The firm had also previously revealed it was lowering ongoing fees for clients who have held pension and investment bonds for longer than ten years.
However, the scrapping of its exit fee – which St James’s Place calls an “early withdrawal charge” – is something critics within the industry have been calling for for years.
Few wealth management firms have charged exit fees since the FCA introduced rules in 2012 to improve transparency within the sector. Critics claimed these fees discouraged customers from switching and left more people with providers they would otherwise leave.
St James’s Place, however, previously levied an early withdrawal charge as high as 6pc for pension and investment bond clients, with the charge falling to zero after six years.
The FCA’s guidance on complying with the Consumer Duty includes a rule that firms should not impose “unreasonable” exit fees.
According to the watchdog, an exit fee is more likely to be reasonable “if it is commensurate with the costs incurred by the firm due to the customer terminating the agreement early.”
But St James’s Place has also come under pressure from claims management firms, pursuing complaints from clients who alleged having gone years without seeing their adviser yet still paying ongoing fees.
Claims firm AMK Legal has told the Telegraph it recovered £3.43m for clients of St James’s Place so far this year, in many cases because of a lack of review meetings between adviser and client.
Andrew Croft, the outgoing chief executive of the wealth manager, said that customers have always been able to turn off the ongoing advice fee whenever they wanted.
He said a new upfront advice fee of 4.5pc – which is higher than its rivals – will depend on the type of advice given, as well as the size of a customer’s investments.
He said: “I am confident it [SJP] has a great future and the changes will make the company more comparable and make clients more willing to embrace us.”
Mr Croft added that they had also seen an influx of younger customers pushing for simpler and cheaper charges.
He said: “As we have said, there is regulatory change, and there is Consumer Duty, and the value assessment work that is required for investment funds. So there is regulatory pressure to be more simple and be more comparable [with rivals].
“There is also a growing demand for that [simplicity from consumers], especially as more younger clients joining us, they are most definitely interested in a more simple [fee model].”
As well as removing their exit fee for new clients, St James’s Place is also reducing its ongoing and initial advice charges and its fund charges.
Initial advice fees will be reduced from up to 6pc for pensions and investment bonds and 5pc for unit trusts and funds to 4.5pc for both. Ongoing advice fees will be capped at 0.8pc and fund charges at 0.52pc.
St James’s Place is also separating out the components of its charges into product fees, advice fees and fund charges instead of grouping them together. This should make it easier for clients to compare St James’s Place’s fees with other firms.
Experts said the changes “had been a long time coming.” Lee Goggin, of the platform Findawealthmanager.com, said: “It’s about time. Too many clients have had to endure an opaque charging structure that was pricey and not good value.”
Robin Powell, an investment consultant, said he expects that St James’s Place will announce further fee reductions over the coming months as well as greater use of passive funds.
He said: “The recent appointment of two indexing advocates — Justin Onuekwusi and Joe Wiggins — to senior positions at SJP clearly suggests that’s the direction the company is heading in,” he said.
Passive funds are cheaper than actively managed funds and are set up to track an index, like the FTSE 100.
The changes announced on Tuesday will not come into effect until the second half of 2025.
A St James’s Place spokesman said clients who invest with the firm now, before the new structure comes into effect, will have a broadly similar outcome compared to those who sign up afterwards.
However, if you are already a client of St James’s Place, then the early withdrawal charge will still apply until it tapers off. This means clients could still be paying exit fees as late as 2030 – five years after they have been scrapped.
Mark Polson, of financial services consultancy The Lang Cat, said: “This is bizarre and seems to me to be against both the letter and spirit of the new Consumer Duty rules – if something isn’t right it should be fixed for both new and existing clients, and as quickly as possible.”
St James’s Place said the changes are not coming into effect immediately because there is a substantial programme of system and process changes required to implement the changes.
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