St. James’s Place has attempted to once-and-for-all lay out its pricing structure to face industry criticism around cross-subsidisation.
Following the Retail Distribution Review in 2013, several advisers and industry figures questioned the firm’s charging structure in the light of new remuneration rules, which explicitly preclude vertically integrated firms ‘cross-subsiding’ advice costs.
St James’s Place argued that investors should use a reduction in yield comparison to compare total charges between it and its rivals, with then marketing director Tony Dunk stating that although it was not the cheapest service, “we are by far and away not the most expensive, so we kind of sit in the middle of the pack”.
Later that year, Mr Dunk also suggested that having the total cost of advice disclosed in one figure from the outset, as SJP does, was preferable to having individual costs for separate components of the advice process.
Late last year, the firm’s divisional director for development and technical consultancy Tony Mudd also pointed out its “unique” pricing structuring had the regulator’s blessing and the fact that advisers “sometimes moan” was put down to jealousy.
Using the Key Investor Information for its North American Unit Trust as an example, the maximum initial charge is 5 per cent, which depends on the nature of the service provided by the adviser ‘partner’ to the client.
The ongoing charge of 1.55 per cent includes the cost of the ongoing advice (0.5 per cent), the external investment manager fee (0.24 per cent) and the ongoing cost of administering the investment.
Andrew Humphries, marketing and communications director at St James’s Place, has now told FTAdviser that with the exception of the external investment management fee, which varies depending on the individual manager running each fund, these charges are standard across the unit trust range.
He said: “Once you spread the cost of the initial advice over 10 years - the recognised industry approach - you arrive at a reduction in yield figure of 2.05 per cent, which is the total charge clients pay.”
The combination of funds within the balanced portfolio leads to the 2.4 per cent reduction in yield figure quoted in Grant Thornton research, which places St James’s Place around the average for wealth managers and banks on a total, annual charge basis.
Grant Thornton collated publicly available information and some mystery shopping face-to-face meetings in July with 22 anonymous firms, the most expensive of which came out at 3.6 per cent a year, while the cheapest charged just 1.9 per cent, and most settle around 2.5 per cent.
The figures were for a £100,000 investment into an unwrapped mutual fund, assuming 5 per cent fund growth.
Mr Humphries said: “The challenge for any investor is to be able to pull together the various elements of the value chain into a single easily comparable total cost figure,” adding that the strength of any business is ultimately measured by the value clients place in the services provided.