St James’s Place plans to raise up to £1bn to buy out partner businesses

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St James’s Place is planning to raise up to £1bn by 2030 to buy the businesses of retiring partners, as it tackles challenges wrought by its increasing scale and higher interest rates.

The funds will support succession planning within SJP’s network of 2,622 partner firms, who manage the group’s relationship with its 914,000 clients. Some of these firms contain more than 50 advisers running up to £2bn in client assets.

“We have been thinking about how we increasingly employ equity alongside debt to help with succession planning,” Iain Rayner, SJP’s chief operating officer, told the Financial Times. “Providing continuity of client servicing if and when advisers retire and being able to occasionally move client relationships around the partnership is really important to us.”

SJP has a network of 4,800 self-employed financial advisers working at partner firms who take home a cut of the fees they bring in from giving their clients financial advice.

When SJP advisers retire, they typically sell on their book of clients to other advisers in SJP’s network. The buying advisers borrow money in order to do this, through transactions enabled by SJP. The wealth manager guarantees these loans, which are drawn from a consortium of external banks.

SJP relies on this internal market to keep clients within the group when partners want to leave or slim down their practice book. Dubbed a “business sale-and-purchase scheme”, or BSP, it contributes to SJP’s industry-leading client retention rate, which was 96.5 per cent last year.

But rising interest rates over the past two years, and an increasing regulatory burden for advisers, have also damped appetite among potential buyers to take out the loans needed, putting pressure on the internal model.

Shares in SJP have fallen 40 per cent over the past year. The FTSE 100 group, which has long faced scrutiny over what critics say are opaque and expensive charges for advice, has been forced by the UK’s Financial Conduct Authority to overhaul its fee structure.

SJP was unable to confirm the number of internal buyouts that have taken place over the past four years versus the number this year.

Rayner said: “We see pressure from higher interest rates — just like any other business — but there is nothing causing us alarm across our lending book.”

SJP sets the interest rate on the loans to partners, which are 3.5 percentage points above the base rate of interest. For most of the past 15 years this has sat at or below 0.5 per cent, meaning advisers were paying 4 per cent on their loans. The steep rise in rates over the past two years has raised their repayments to 8.75 per cent. 

One former SJP adviser said he had been trying to sell his book of clients for 18 months “[There are] no buyers whatsoever inside SJP,” he told the FT. “The tracker rate of interest has just killed anyone’s desire to buy any clients.”

The adviser said the model is “the anchorage for how SJP has grown its business”. He added: “it is not only creaking, it is literally falling apart”. 

But Rayner said 2023 is on track “to be one of our largest-ever years for partner loans. The idea that the market has ground to a halt internally is not accurate.”

As part of this succession planning, SJP has already taken equity stakes in several SJP partner businesses, using shareholder funds.

Ben Bathurst, analyst at RBC Capital Markets, which has an “outperform” rating on SJP’s shares, said if advice businesses were brought under SJP’s ownership he would have concerns over the implications for their entrepreneurialism.

“A key differentiator between St James’s Place and other wealth manager business models is that the asset gathering is conducted by well-incentivised business owners rather than employees.”