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Under the bonnet: the rise of St James's Place
by Robert St George on Feb 26, 2014 at 15:25
SJP's shares are up by some 400% in the last five years. We parse this week's results presentation and highlight some of the most interesting dynamics of the business.
The annual results released by St James’s Place yesterday were welcomed by the market, with shares in the wealth manager rising by 5% through the day.
Reviewing 2013, chief executive David Bellamy (pictured) noted a series of significant developments for the business, including the sale of the Lloyds stake and the strong market rally.
‘I think we’ll look back on it as being one of the most defining years in our history,’ he said.
The firm has been a stockmarket darling, with its shares up by almost 400% over the last five years versus an 87% rise in the index.
Wealth Manager has parsed the results presentation and highlights some of the most interesting aspects of the group.
2013 hit St James’s Place’s rolling 10-year investment performance, with more than 20% of its funds below the peer group average for the first time in a decade.
‘Ironically, it’s largely Neil Woodford’s performance in recent years that has impacted on the latest 10-year period,’ commented Bellamy.
Woodford currently runs mandates worth £4.5 billion for St James’s Place, and Bellamy also disclosed that the firm was ‘very close to confirming our proposed solution’ for those mandates after Woodford leaves Invesco Perpetual. He expected to begin communicating to the group’s partners in a few weeks’ time.
Bellamy emphasised that ‘clients won’t incur any costs whatever happens’ regarding the decision. ‘Quite what small IFAs and clients invested in the other £30 billion managed by Neil will do is anyone’s guess,’ he added.
Using data from Numis, St James’s Place claimed that it was one of the cheapest providers for very long-term investors with £85,000 split between their pension and ISA.
However, it is in the middle of the peer group for those with a three-year holding period.
The research also underlined the extent to which Hargreaves Lansdown is undercutting other providers.
The market opportunity
St James’s Place furthermore cited recent figures from Datamonitor to quantify the size of the consolidation prize.
The number of UK individuals with between £50,000 and £5 million of liquid assets should pass 10 million within three years. To put that in perspective, St James’s Place currently has 420,000 clients.
In terms of how much money those 10 million individuals have to invest in total, Datamonitor estimates that it will grow from around £1.4 trillion today to over £1.7 trillion by 2018.
Despite this opportunity St James’s Place noted that the number of financial advisers in the UK was continuing to slide, albeit not as vertiginously as some had predicted before the Retail Distribution Review.
St James’s Place itself now boasts 1,958 partners, up by 9.5% in 2013. Including the firm’s advisers, Bellamy observed that St James’s Place employed almost 10% of the country’s entire adviser workforce.
Bellamy aims to grow the number of its partners by between 5% and 8% a year, with around 50 expected to graduate from its Academy this year and an equivalent cohort recruited into the programme in 2014.
The productivity of St James’s Place’s partners jumped by 12% in 2013, much higher than the 5% improvement recorded in the previous year.
‘Impacts on productivity can be a bit of a mystery,’ acknowledged Ian Gascoigne, managing director at St James’s Place. He attributed last year’s boost to a combination of buoyant client sentiment about markets and a bounce back from a drag on 2012’s productivity while partners undertook training ahead of the Retail Distribution Review.
‘I don’t think there’s a magic formula that the business has, but I do know that a softening of market sentiment is probably the biggest driver,’ said Gascoigne. ‘I’m confident that partner productivity will continue to be positive unless there’s a massive turnaround in market conditions.’
The productivity of St James’s Place’s partners is now up by 50% over the past five years, while the size of the partnership has increased by 46% through the same period.
Client and partner breakdown
Both St James’s Place’s partners and clients are evenly distributed through the country. They differ mostly in gender: 88% of partners are male, while 53% of clients are male.
The average age of the clients is 53, with a spectrum from 22 to 102. ‘The clients with the most money invested with us are slightly older than the average, much as you would expect,’ Bellamy commented.
The funds under management for St James’s Place clients is £105,000 each on average, although that average climbs to £214,000 for the 200,000 clients investing more than £50,000. Bellamy relayed that clients’ assets ranged from £20,000 to more than £10 million.
St James’s Place has had 150,000 clients for more than 10 years, and added 48,000 new investors in 2013. Through 2012 and 2013, St James’s Place brought in 52,000 new clients with less than £50,000 to invest.
Getting in early
For Bellamy, attracting these smaller investors is a crucial growth strategy. At the moment, over 90% of the £44.3 billion St James’s Place manages is on behalf of clients with more than £50,000.
‘What that says is that we have a fantastic opportunity to build on the relationships we have, not only with the clients who have significant investments with us but also those clients below £50,000, where in many cases that relationship has just begun,’ Bellamy contended.
St James’s Place commissions an independent survey each year to uncover both its clients’ happiness and how investors with other wealth managers feel.
The findings for St James’s Place’s own clients are shown above, but the survey also provided data on the peer group.
For other wealth managers, the survey found that 65% of respondents were satisfied overall, 59% regarded their client service as acceptable, 60% liked the communications they received from their adviser, and 55% would re-invest with their wealth manager today.
‘It is clearly influenced by the market and investor sentiment, but it is very encouraging relative to our peer group too,’ stated Bellamy of St James’s Place’s scores.
‘One of the major focuses of regulation today is on client outcomes and I hope these results demonstrate that’s our major focus too.’
With St James’s Place poised to acquire Henley Group in Asia, Bellamy was cautious on his plans for further expansion. This might involve the Middle East, he suggested, but would depend on the success of the Henley venture. ‘We will play it by ear, pretty much,’ he said.
St James’s Place expects its margins in Asia to be similar to those it enjoys in the UK.