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St James’s Place is renowned for its strong sales culture. It’s no surprise, given that its life president, Mark Weinberg, previously established high-pressure marketing operations like Allied Dunbar.
However, a “consumer duty” that will go into effect at the end of this month is forcing a shift in their approach. The obligation is somewhat vague, with a heavy emphasis on desired “outcomes.”
As a result, SJP recently announced modest fee reductions, with more expected in the future. The Financial Conduct Authority (FCA) appears unsympathetic to the argument that comprehensive advice necessitates higher fees.
The UK retail financial services industry is facing cost-cutting pressures, yet SJP continues to charge a 5% upfront fee on their typically fast-selling individual savings accounts.
While it’s too early to determine the full impact of the consumer duty, SJP has already made some minor adjustments. They are reducing annual product management fees for older investments, specifically bonds and pensions, by 15 basis points to 85bp. This change will benefit around 7% of their clients, or roughly 65,000 individuals.
However, this adjustment will lower the margin on funds under management by 4 basis points, leading to a £12mn decrease in net income from client assets in the second half of this year.
To adapt to these changes, SJP also plans to increase spending on customer communications. However, they must proceed cautiously, considering a 2019 press exposé that alleged SJP rewarded top self-employed salespeople with luxury items like Montblanc pens and diamond cufflinks.
Analysts attribute the 15% drop in SJP shares to lower-than-expected net new money inflows of £3.4bn in the first half. This discrepancy indicates a potential impact from negative secular changes within the industry.
SJP deserves recognition for its strong shareholder returns, particularly as it emerged as a winner following the decline of independent financial advice in the UK. However, the new consumer duty poses challenges for the company, and its success will depend on the FCA’s enforcement approach and the industry’s response.
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