An adviser has raised questions about St James’s Place’s strategy after a client incurred a one-off 2.2 per cent transaction cost for a manager change.
In a letter seen by FTAdviser to clients, SJP said those invested in its Emerging Market Equity fund would incur an estimated transaction cost equivalent to £2.20 per 100 invested.
SJP said there was a one-off estimated cost of repositioning the fund following the policy change announced earlier this month.
It has said the transaction costs are calculated by an independent specialist and it does not profit from the process - but it has said these costs tend to be "materially higher" in emerging markets.
The FTSE 100 advice business announced a change to the investment objective and policy of its Emerging Market Equity fund earlier this month by moving from a single manager to a multi-manager strategy.
As part of the change, it appointed three managers - Lazard Asset Management, ARGA Investment Management and Somerset Capital Management - to help provide a more diversified source of returns and align with the strategy of Wasatch Advisors, the existing manager of the fund.
But chartered wealth manager Philip Milton said: “I was very surprised when I saw the letter and immediately I wondered why at least some of the underlying stock could not be retained to cut costs rather than a total clear-out. It can’t all be ‘bad’ after all.
“The other ‘cost’ not mentioned is the inevitable delay between liquidation and new investment and that could take days if not weeks with settlements and administrative processes and investors could be caught between two stools, something which would not happen if all the assets were absorbed by the new managers to sell-down instead.”
In the letter, SJP said it was lifting the requirement to hold a focused portfolio of only 40-50 stocks to allow the fund to continue to meet its objective of long-term capital growth.
“Removal of this restriction will allow the fund to increase the number of stocks held and reduce the concentration risk,” it said.
But Milton said: “What about the difference between bid-offer spreads on stocks – all payments which the investors ‘suffer’. There is so much concentration in our industry about headline costs too without covering the whole issue and at the end of the day the investor pays the price.
“It is good SJP is prepared to change managers but it also reminded me about how expensive their offering is generally, especially with sales’ commission concealed as deferred withdrawal charges, let alone when a structural change takes place like this.”
Milton said that when three funds were merged into SJP's UK & General Progressive Unit Trust in May 2021 the estimated cost of changing advisors was between just 0.81 to 1.06 per cent.
“I suspect such costs are inherent to the way SJP operates and you will already be aware that this happens. I was not and, had I been made aware, would possibly not have invested in an SJP Isa.”
The client said both changes have incurred transaction charges to the funds that are disproportionate compared to the charges for transactions that he has through Philip J Milton & Company.
A spokesperson for SJP said: “This fund has a single manager exposure in an environment that has low liquidity and high volatility. The fund holds a focused portfolio of only 30-40 stocks, and although it has performed strongly since launching in 2014, this growth has led to an increase in concentration and liquidity risk within the fund.
“We believe diversification and asset allocation are key to driving change. For this fund, we want to remove the constraints within the fund and increase the number of stocks held to drive potential for the fund to perform well over the medium and long-term.”
SJP said the estimated transaction costs are calculated by an independent, specialist, transition manager and said it does not profit from transaction costs.
“Instead, these are the share of external costs that are incurred whenever assets are traded,” it added.
“This is the one-off estimated cost of repositioning the fund following the policy change, to add fund managers, and increase the number of assets held. Transaction costs in emerging markets tend to be materially higher than those experienced in developed markets.”
sonia.rach@ft.com
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