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St James’s Place is under pressure from regulators to overhaul its fee structure to ensure it complies with the UK’s new consumer duty, according to people familiar with the discussions.
The UK’s largest wealth manager has faced scrutiny over what critics say are opaque and expensive charges for financial advice and stiff penalties for early withdrawals.
Investors’ concerns over its business model have intensified since the Financial Conduct Authority introduced “consumer duty” rules in July, which force companies to show they are acting in customers’ best interests.
Shares in the FTSE 100 group have shed more than 40 per cent since July, when SJP announced modest changes to fees in response to the rules. The shares tumbled more than 16 per cent on Friday.
But the company has been discussing further reforms to assuage regulators’ concerns, according to the people.
It has proposed removing early withdrawal charges for new customers by mid-2025 and simplifying — or “unbundling” — fees for a variety of advisory and administrative services, they said. Executives have been warned by regulators that even these changes may not go far enough, they added.
SJP has a complex fee structure involving upfront fees and ongoing annual charges. Some of those recurring charges do not apply during the first six years, but certain clients have to pay early-withdrawal charges — exit fees — if they pull their money during that time.
Executives have been asked to justify keeping exit fees for existing customers while scrapping them for new ones, the people said. Under SJP’s proposals, clients who invested before 2025 will still face early-withdrawal charges, which start at 1 per cent and in some cases can be applicable for the first 11 years.
Watchdogs are also concerned about whether high upfront advice costs are in customers’ best interests and whether SJP makes it too difficult for customers to stop paying advice fees further down the line, according to the people.
But SJP has expressed concerns that scrapping exit fees for existing customers could have a significant accounting impact on its balance sheet, the people said.
About £47bn — 30 per cent — of SJP’s assets under management were subject to exit penalties as of June this year.
One former insider said regulators had been pushing back against the charging structure for almost a decade, arguing it was anti-competitive because it locked customers in, and that some customers did not understand the fees.
“The regulators always had questions about that structure, principally because they thought it disguised the true cost of advice to the customer . . . that issue has always been there. The consumer duty has given the FCA more of a reason to push on this,” the person said.
SJP declined to comment prior to publication of this article.
In a statement on Friday morning, the company said it continued to assess “our fees and charging models” following the introduction of the consumer duty and was confident the options under consideration “will ensure value for clients and a strong, secure, and sustainable business for all stakeholders”. SJP added that it was engaging with regulators during the process.
Asked about regulatory pressure on SJP to evaluate its exit fees, the FCA said it could not comment on dealings with individual firms.
Analysts at RBC Capital Markets said on Friday that “our view now tilts to seeing future changes on fees for SJP as probable, which further adds to the uncertainty surrounding the shares”.
If SJP did scrap exit charges for existing customers, it would be the most significant overhaul of the company in its three-decade history.
Even without that change, SJP faces having to completely re-engineer its IT systems to reflect the new charging structure — a huge project that has caused tension with the regulator over the slow pace with which the wealth manager is adapting to the new consumer duty, the people said.
The tweak to fees announced in July — a 0.15 percentage point cut to the maximum annual product management fee for 65,000 clients who had been with the firm for more than a decade — could alone take 8 per cent off 2024 earnings, according to UBS estimates.
That announcement knocked 16 per cent off the company’s shares in a single day. David McCann, an analyst at Numis, flagged concerns that the initial fee cut was “just the tip of the iceberg”.
SJP’s next moves will be closely watched by the rest of the UK wealth and asset management sector, which is trying to assess just how far-reaching an impact the consumer duty will have on their business models and charging structures.
Addressing the FCA’s concerns will be one of the priorities for incoming chief executive Mark FitzPatrick, who briefly served as boss of insurer Prudential. He joined the board this month and is working alongside Andrew Croft on the remediation plan before replacing him in December.
In July, Croft said SJP had “looked at every part of our business through the consumer duty lens and, where changes needed to be made, we have made them”.
Additional reporting by Laura Noonan in London
