An investment professional and activist shareholder has referred under-fire wealth management firm St James's Place (SJP, STJ) to his own MP in a bid to trigger an investigation by the Treasury Select Committee (TSC) into its business practices, transparency, and Consumer Duty responsibilities, Morningstar has learned.
Philip Rose is the founding director of investment firm Halwyn Capital. He has been a shareholder in SJP since early Q4 2023, but says the position is "non-material". The company's share price does not substantially impact his own finances.
He says he was struck by SJP's historical approach to charging its pension clients and has submitted a document bearing Halwyn's corporate branding to his local Edinburgh MP Joanna Cherry in an attempt to encourage the TSC to probe SJP's business practices. He has also used his position as a shareholder to highlight his concerns to SJP's investor relations team.
Last year, SJP announced it would be overhauling its fee model for new clients after coming under pressure from the Financial Conduct Authority (FCA). It has since announced plans for a £426 million provision for client refunds, a move which sent its own shares plummeting last week.
Rose first started investigating SJP's withdrawal charges for its pension clients in September last year – before SJP's work with the regulator and subsequent fee overhaul were made public, but after Consumer Duty rules came into force in July. He says he was surprised the UK's largest wealth manager had continued to use deferred sales charges, which have been long-abandoned by the wider financial services world.
Clients Don't Understand SJP Charges
"This style of accounting for charges gets used because it appears to soften the blow from the investor's perspective," Rose alleges.
"The investors do not see a chunk of their pot disappear on day one when they invest, even though that is what is happening. They just smooth it through the accounting.
"You often end up with this scenario where you have got a product with a deferred sales charge with an associated early withdrawal charge where clients think: 'well if I do not come out, I do not pay it. That is universally misunderstood.'"
Rose believes that, if SJP had pursued a policy of waiving the early withdrawal charge and clients subsequently left within six years, it would force SJP to refund the commission already charged and paid away, resulting in a cash hit for the company. Instead, clients are left with a system they find hard to understand.
"Clients do not understand it, the company's own insitutional investors struggle with it. Even I am digging through all the paperwork," he says.
"With all my years of experience, it took me a while to get to the bottom of exactly how they were charging it. An ordinary consumer, frankly, has zero chance of understanding how the charges work on the pension side."
In his view this may contravene four of the FCA's 12 Principles, which all financial services firms within its regulatory perimeter must observe (see below): integrity, customer's interests, communications with clients, and the recently-implemented Consumer Duty, which demands relevant firms must deliver "good outcomes" for retail financial customers.
In subsequent communication with Cherry seen by Morningstar, Rose writes the business's pension plans may have been misleading because clients may have made decisions based on a misunderstanding of the information presented to them.
There is also the possibility that, if SJP's pension clients universally realised there was not an explicit extra charge for them to leave, then the company's impressive client retention rates might falter, he adds.
"The overwhelming majority of [SJP's] investment products do not offer value to customers, by their own assessment," the document reads.
"They have relatively high charges and, in relation to their pension products, they are opaque and misleading in their presentation by the company, particularly with regard to point-of-sale commissions."
He adds he has also sent an "in-depth report" on SJP to the FCA, the Treasury itself, and the TSC's own clerks, who "triage" submissions to it.
Pension Clients Are Central
Although this particular example of charging only relates to SJP's pension business, Rose argues the issue is hugely significant because the business's pension clients are a driver of its revenues.
"Back in October, SJP announced some changes to its pricing structures. One of the things that is happening after these changes is, for new pension clients, it is moving away from deferred sales charges to a simple upfront sales charge," he says.
"They are moving in the right direction, but that does not improve things for the existing client bank. The reason any financial organisation has ever used this type of sales charge in the past is because simply it doesn't look as bad to the client. That's the whole reason the industry invented it in the first place."
Over the last 12 months, shares in SJP have fallen 66%. The company has swung to an annual attributable pre-tax loss of £4.5 million for 2023, compared to a £503.9 million profit in 2022. That said, total funds under management have jumped 13% to £168.2 billion at the end of 2023 from £148.4 billion.
On the back of the results, SJP declared a final dividend of 8p, cut from 37.19p. This lowered its full-year dividend to 23.83p from 52.78p.
A spokesperson for SJP declined to comment.
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