Investors who want to know how a St James’s Place fund compares to any other vehicle in the market have a problem: they just can’t do that.
Traditionally, funds can be compared by taking into account the performance of their assets, minus the fees on the fund, and comparing that with other funds in their sector.
However, St James’s Place’s fees are expressed as an all-inclusive charge that combines the advice, product or platform, and fund charge.
According to City A.M. analysis, funds at Britain’s biggest wealth manager performed an average of 6.3 per cent worse than their peer group over the last five years, widening to 6.9 per cent when looking just at the group’s equity and multi-asset products.
This left only six of the wealth manager’s 31 funds as top quartile over the last five years, meaning they performed in the top 25 per cent of their peer group.
In contrast, 13 were in the bottom quartile, with an additional nine in the third quartile.
Earlier this month, St James’s Place faced negative headlines for running the largest ‘dog fund’ in the UK, a label for serially underperforming funds.
The group has three of its funds in the doghouse, with the largest being the £10.7bn St James’s Place’s Global Quality Fund, which has underperformed its benchmark by 27 per cent over the last three years, according to data from Bestinvest.
However, these comparisons just don’t work. Despite clearly not posting stellar performances, an accurate assessment of St James’s Place against its rivals isn’t possible, thanks to the wealth manager’s unusual fee structure.
St James’s Place’s fee structure
This complex fee structure has been a large part of why the company has been hammered by such poor media coverage for the past year and criticised as “opaque and complex” by analysts.
“The operational and cultural DNA of St James’ Place goes back to the 1980s,” explained Andy Agathangelou, founder of campaign group Transparency Task Force.
“Of course, the market has moved on since those days; the market is no longer willing to tolerate high, opaque fees and mediocre investment performance, and there is no doubt about it – high fees eat into bottom line performance.”
Meanwhile, almost every other fund on the market will simply list its management fee and can be bought by investors on a platform, which will then charge an additional ‘platform fee’. Alternatively, they can be bought through an adviser with an advice fee on top.
This enables you to track the performance of the fund and compare them to others, without having to try and tease out advice or platform fees.
This criticism came to a head last October as the Financial Conduct Authority’s new Consumer Duty rules and complaints from customers built to the point where St James’s Place was forced to announce it would be scrapping its controversial exit fees and separating out other fees for the first time.
“The fact that you can’t split the charges out strikes at the heart of the reasons they have made the announcements that they’re going to make fee changes,” one analyst told City A.M.
With the changes due to roll out midway through next year, analysts told City A.M. that customers will finally be able to tell whether their investments are actually performing well.
However, while fees are being split out, they won’t necessarily be going down.
How expensive is St James’s Place?
Ben Yearsley, director of Fairview Investing, said the “big issue” for the wealth manager was still fees, not necessarily performance. Just like growth compounds, fees do as well.
Yearsley pointed to the bundled fees on a fund like the St James’s Place Emerging Market Equity, which charges 1.84 per cent.
“That’s about 0.75 per cent or more than most peers in that sector – over five years that works out at about four per cent knocked off performance,” said Yearsley. “Surely, one simple route for them to improve performance is to charge what the rest of the industry charges!”
The average fee for a St James’s Place fund is 1.59 per cent, with 0.5 per cent of that being the ongoing advice charge, which pays for the financial advice provided by an SJP partner.
Even when this is subtracted, and the cost of the average platform fee is taken into account, St James’s Place fees are still clearly expensive.
Earlier this month, City A.M. revealed that the UK’s largest multi-asset range, St James’s Place’s Polaris funds, charged significantly more than their next best competitor, the Vanguard Lifestrategy range.
“What some would see as its many service-centric brand virtues and values have, until now, enabled the wealth manager to ‘defy the laws of gravity’ in a manner rather akin to the myth of the bumble bee; in theory unable to fly but in fact it does so, with aplomb,” added Agathangelou.
“But there is no certainty that such a state of affairs will last forever – true IFAs are getting better at immersing their clientele with supreme service offerings – so all else being equal, why would a well-informed client pay more than necessary for what they get?”
A spokesperson for St. James’s Place said they did “not recognise the performance figure quoted” but simplification was coming to its fee structure.
“When considering performance, it is important to factor in all charges someone will pay in order to make a like-for-like comparison,” the spokesperson added. “Under our current charging structure, the performance of SJP funds is inclusive of a single ongoing charge, which covers the costs for the external fund manager, administration, and advice.”
The ‘unbundling’ of charges in 2025 will “have the effect of simplifying comparisons with our peers”, they said.
“Most of our clients have their capital allocated into diversified portfolios of investment strategies,” they added. “In our view that is the best way to meet client outcomes and deliver risk adjusted returns over the medium to long term.”