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Will RDR kill the St James's Place threat?

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Will RDR kill the St James's Place threat?

Wealth management executives are being forced to ask whether advice network St James’s Place (SJP) represents one of the largest threats to their business as we enter 2013.

SJP posted another round of bumper results in the fourth quarter, with new business up 46%, from £152.8 million in 2011 to £223.8 million on an annual premium equivalent (APE) basis, with net inflows of £3.34 billion over the year. The firm took in £106.9 million in new investment business over the last quarter, according to unaudited figures.

But as we enter the 2013 retail distribution review (RDR) world, which brings with it greater transparency on charging and the removal of trail commission, can the company’s upward trajectory continue?

As part of its post-RDR proposition and adviser charging regime, SJP will deduct adviser charges from products rather than through a direct payment. For third party products, the firm charges an explicit initial and ongoing charge for advice, paid by the product providers on top of their factory gate prices.

When the company unveiled the charging structure back in December, it explained that while partners previously received initial and renewal fees, these would be replaced with initial advice fees and ongoing advice fees funded from the advice charges paid by clients.

In a note to partners, chief executive David Bellamy (pictured) explained: ‘Post-RDR the initial adviser charge disclosed on the services and costs disclosure document and illustration will be at 4.5% (compared to the 5% disclosed today).’

The impact of transparency

Like a number of advisory and wealth management firms that have moved to adviser charging, will increased transparency stall growth at SJP due to client attrition or pressure to lower charges?

Alex Wright, who took over the £347 million Fidelity Special Values trust from Sanjeev Shah last year, said that after consideration he had opted not to back SJP on the expectation that its fees may come under pressure.

However, Tony Dunk, investor relations director at SJP, anticipates that greater transparency on charges will not lead to a mass exodus of clients.

‘Providing that we continue to provide high quality advice, service and good investment returns, we believe that our clients will not behave any differently than they do today, he said. ‘We continue to retain 95% of existing client funds, year on year. We are certainly not complacent, however, and fully appreciate that we must continue to provide “high value”.’

Stuart Duncan, an analyst at Peel Hunt, said: ‘I think SJP has always been quite transparent and has set out the fees it charges. It has made no great secret about the cost of some of its products.’

While the threat of losing clients to large execution-only players like Hargreaves Lansdown looms, he still believes there is a place for SJP’s service proposition.

‘They offer a different service and people across the country are willing to pay for that - not just in London. People across the country want financial advice,’ he said.

Although he is confident that SJP can continue to grow, he says other large wealth management companies should not view this as too much of a threat to their businesses, given the differences between propositions and relatively low penetration of the UK’s asset base by wealth managers.

In contrast, Rathbones chief investment officer, Julian Chillingworth, who currently holds SJP in his Rathbone Recovery fund, says wealth managers should view SJP as a competitor.

‘With my Rathbones hat on, we see it as a competitor and I think most wealth managers do. You would be naïve not to,’ he said.

He does not view the RDR and increased transparency as more of a challenge for SJP than the rest of the industry and expects the firm to continue to grow at a similar rate, barring a dramatic shock in markets.

His sentiments are echoed by Giles Hargreave, who holds SJP in the Marlborough Special Situations fund. He is positive about the company’s ability to gain market share whilst there is upheaval in the adviser community, by attracting assets and new hires.

‘I think they are going to be a big beneficiary of the RDR, which is why I own them. I think they can gain market share at the expense of the IFA community and will continue to do so and a strong stock market is good for them as well,’ he said.

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