St James’s Place: wealth manager pays price for fee structure change

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At wealth manager St James’s Place, clients matter a lot but so does its network of 2,622 partners. These “partners” received 238 mentions in the last annual report. After pressure from the UK Financial Conduct Authority, SJP will reduce its expensive advisory fee structure. That has negative implications for these wealth advisers.

On Friday, the Financial Times reported that SJP was seeking alternative funding for partners exiting their lucrative relationships with the group. The wealth manager funds this partly to ensure that clients remain with SJP. It plans to raise £1bn of equity, not necessarily in the public market, to pay for the programme.

Before, this was not an issue. Fees were high, and SJP could lend money at affordable rates to new buyers of these franchise-like arrangements. At end 2022, the wealth manager had £315mn of partner loans outstanding. Since 2018, SJP has even raised money by packaging and selling some loans to third party investors.

But higher borrowing costs make it more expensive for any new buyers of partner franchises. Also the FCA’s Consumer Duty, focused on fee transparency and value, may have irked potential buyers. Exiting a partnership requires a valuation of that partner’s franchise. Higher interest rates are thus likely to reduce the net present value calculation, thinks Nasib Ahmed at UBS.

That SJP seeks more funding for this financing hints at a wider problem about fee changes. SJP’s share price fell 6 per cent. The wealth manager talks of bringing in private equity to help with partner financing. Given its £159bn of assets under management, SJP will get attention. There are more than 30 UK wealth managers keen to consolidate a fragmented market. Most are backed by private equity funds including Permira, Cinven and JC Flowers.

SJP’s revisions to its high fee structure must rattle some partners. With the share price down 40 per cent this year, its investors should be discomfited too.