In the last 24 hours St James's Place share price has plummeted further causing serious concerns for SJP clients and investors. SJP have recently announced the need to set aside £426 Million, and have slashed their dividends, as a provision for potential client refunds due to a significant increase in customer complaints.
Overview of SJP Problem
SJP have experienced serious issues over the past year due to Consumer Duty requirements and limitations in their business model. High Charges, forced client retention from unfair exit penalties, poor performance, and limitations in their 'restricted' business model, have led to a significant decrease in market confidence.
The share price and company value dropped a third yesterday (28th February 2024) from 618p to 415p due to an announcement from SJP that they have set aside £426 million and slashed dividends as a provision for potential client refunds. Over the last year, from 17th February 2023 to 16th February 2024, their share price dropped from 1250p to 655p per share almost halving the companies entire value. Yesterday's share price plunge marks yet another major setback for the wealth management firm.
Yodelar have for a number of years highlighted the lack of value that SJP provides to consumer investors. Despite facing issues such as poor performance, limited protection under the Government's Financial Services Compensation Scheme (FSCS), high charges, and unfair exit penalties, the traditional wealth management giant has continued to grow over the past two decades. However, in today's information age, savvy consumer investors are now more discerning and placing a greater emphasis on value.
The chart below details the St James's Place share price drop over the last year.
Factors Influencing St James's Place Market Position
The share price of St James's Place and its future is influenced by various factors. These include:
- Client Inflows/ Outflows: Throughout the past year, St James's Place has witnessed a significant decline in client retention, dropping from 96.5% in 2022 to 95.3% in 2023. As a regulated advice firm operating with a whole-market approach, Yodelar Investments has observed a heightened level of interaction from SJP clients compared to any previous periods The escalating number of client complaints and growing market apprehensions are key factors contributing to the potential loss of clients for the firm.
- Partner Retention: St James's Place Partners are the restricted self employed advisers that distribute advice on behalf of SJP, and at client level are responsible for the companies sales revenue and the distribution of SJP funds and products. Partner numbers increased from 4,338 in 2020 to 4,834 in 2021. The number of partners in 2023 dropped to 4,766. Furthermore, over the last few years as SJP have come under scrutiny we have seen a greater push internally in moving SJP employees through the SJP academy to become self employed partners. This would indicate that the recruitment of internal staff to SJP Partners, is subsidising partner recruitment from the external adviser market, demonstrating less demand for their partner proposition.
- SJP value proposition : Despite claiming in their most recent 'Value Assessment Report' that 38 out of 45 of their funds "delivered overall value", our analysis of their funds have consistently identified underperformance with 75% of their funds receiving a poor 1 or 2 star performance rating, when compared to all other same sector funds. Their ongoing charges are relatively high, especially in regards to their pension products. The company's presentation can be opaque and misleading, particularly when it comes to point-of-sale commissions and their tiered early withdrawal charges ranging from 6% to 1% is prohibiting for clients forcing them to remain with SJP when they wish to leave.
- Market conditions: The overall performance of the stock market can have a significant impact on the share price of St James's Place PLC. As seen over the last year, due to regulatory matters or other, SJP's market value has been cut by two thirds.
- Regulatory environment: Changes in the regulatory environment are impacting St James's Place PLC's operations and financial performance, which in turn are influencing its share price, in particular 'Consumer Duty' in force since July 2023.
- Investor sentiment: Investor sentiment plays a crucial role in determining the share price of St James's Place PLC. Over the last year Investor Sentiment has proven to be at an all time low.
What Next For St James's Place?
SJP is a distribution business in a 'catch 22' position. They distribute investment funds to consumer investors via their distribution network of advisers (referred to as SJP Partners), all of which are are self employed and free to move from SJP at any time. SJP PLC have shareholders which they must satisfy, all of whom are free to divest at anytime, which has been evident by their 2/3rd's drop in value over the last year.
The exit penalties implemented by SJP serve as their primary defensive strategy, acting as security in their business model to deter investors from leaving and providing a steady source of income for their partners and shareholders, albeit for a limited period. Yodelar have been informed that this particular facet of their operation is increasingly drawing scrutiny.
The company has allocated £426 million to cover potential compensation for clients who have received inadequate service while paying fees or were misled about exit restrictions. The past year has seen a notable increase in investor concerns relating to the constraints of SJP. If SJP are forced to eliminate their exit penalties, it could have serious implications from a financial, client retention and partner retention perspective.
Conclusion and Future Outlook
In a nutshell St James's Place currently offer poor value at a relatively higher cost when compared to other options for consumers in the investment/advice marketplace. Personal client relationships with SJP partners, and the misconceived positive of working with a large PLC firm (held my some SJP clients) are assets in relation to client retention. However, should exit penalties disappear with no change to their client and partner value proposition we have no doubt client retention will suffer.
Click here to access the latest St James's Place review
Should SJP experience a mass exodus of partner firms or clients leaving this would have significant implications for the company. Or course, this is the same for all commercial entities, however, their value proposition needs significant improvement, and it will be more difficult for SJP than most other firms to achieve this based on the limitations and restrictions within their existing business/distribution model.
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