A prominent investor in St James's Place believes the company’s changes to its charging structure will ultimately improve returns for shareholders in future.
Richard Knight, who runs the £736mn Merchants investment trust and other mandates at Allianz, has long owned shares in the FTSE 100 wealth management firm.
He admitted that the current charging structure, which many commentators have claimed is opaque, was hard even for him to understand.
St James Place shares have fallen by 6 per cent to the present level of £6.18 over the past five days, mostly in response to the announced changes to the fee structure.
So far this year the company's share price is down 44 per cent as speculation has mounted over SJP's charging structure and its long-term viability due to the new consumer duty regulations.
And last week SJP announced it would scrap exit fees for the vast majority of new investment bonds and pensions as part of an overhaul of its charging structure.
Knight said: “It’s a dramatic change. The biggest in 30 years, and quite unexpected.”
But he said he bought more shares in SJP in September as he believed market nerves about the fee model was overdone before the actual announcement and said that while the changes announced now were “negative for the firm over the short and medium term" he said they may be a positive in the long-term.
Knight said: "This is because the fee income under the current price structure is quite volatile, but I think the new fee structure will reduce the volatility of the fee income over the longer-term and that is a positive.
"This is because with the current pricing structure, if new flows from clients are down, then the revenue is down a lot, but under the new structure, that won’t be as volatile, and reliability of income is something investors like.
"And it has to be said, St James's Place has a strong market position, and its product is something that people need, and eventually people need face to face advice, which is what they provide, and they have a very high customer retention rate.
"I think the old pricing structure, I spent far too much of my career trying to understand and explain it, but some of the media reports about the change, there has been double counting in the figures.”
He wouldn’t be drawn on whether the most recent share price fall will lead to him buying more shares in the business, commenting that he will shortly meet with Andrew Crofts, the SJP chief executive, and may make a decision following that, but says “the investment case is evolving rapidly".
Knight is also aware of FTAdviser’s reporting on the £673mn of debt individual St James Place practices owe, either to the firm directly, or to banks, with the latter loans guaranteed by St James Place.
He said he regards there as being very little risk to SJP from the arrangements as he believes the default rates are low.
david.thorpe@ft.com
