Martin Bamford

SJP – we have been here before

Martin Bamford has produced an excellent piece explaining why everyone he knows “loves to  hate St James’ Place” . It turns out that quite a few people Martin knows work for St James’ Place (SJP) (and that they are perfectly nice).  Martin’s article questions whether St James Place are misguided or evil – it conclusion imply they are misguided- I agree with him.

St James’ Place set up shop when I was working as a self-employed adviser for Allied Dunbar. It now looks very much like the Allied Dunbar I knew in those days

1. It is hugely profitable and a market-dominating player
2. Its business purpose is to extract fees from the funds of its clients
3. It has no sustainable advisory model

As Martin points out, there is absolutely nothing wrong with any of this as long as the people who invest with SJP know what they are doing.

The SJP advisory model will continue to balloon, as Allied Dunbar did – until it finds itself pricked by legislation , after which it will deflate slowly till it becomes a shrivelled kernel of what it once was – rather like Openwork. The wider business model appears to rely on the retention of margins on funds on advice whatever the situation with advisers.

If I was an SJP adviser, I would be worried about the “bubble”.

How SJP might have been

There are models that SJP might have aspired to that do not contain the phrases Hambro Life or Allied Dunbar. It might have  aspired to provide the mutuality of Equitable Life or the direct to market model of Hargreaves Lansdowne. But it has done neither, and chosen to stick with the “restricted advice” model that served Mark Weinberg so well in the seventies and eighties.

But that model is deeply flawed because it has no wider purpose. Hargreaves Lansdowne had and has the wider purpose of enabling its clients to take decisions autonomously. Equitable Life had pioneered this way of doing things before it collapsed from the immense actuarial hubris of its management.

The advisory model operated by SJP is too expensive to its clients. It works so long as the products work, but the products cannot work as they should because of their costs. The inefficiency of the SJP business model requires high AMCs , hidden costs and obscure charges such as their punitive exit fees. It is precisely the business model SJP took from Allied Dunbar in the late eighties when it set up.

Why Allied Dunbar failed

Allied Dunbar was undone because it fell into the hands of a parent (Zurich) with a wider global ambition than the management of Allied Dunbar could deal with. It didn’t suit Zurich to have Allied Dunbar’s embarrassing book of business when it was championing a different set of values through its other UK businesses and its global business model.

SJP has unashamedly achieved what Zurich would not let Allied Dunbar do, and become a means to appeal to the vanity of high net worth individuals. It has created the club-like atmosphere that those who are easily flattered respond to. This is what Allied Dunbar lost,

The smart money that goes to Hargreaves Lansdowne is the smart money that went to Equitable Life and it thinks itself smart because it avoids disintermediation. But without an intermediary to blame, the high costs (and high profits)  of Hargreaves Lansdowne seem a lot more sustainable. As the Equitable did, Hargreaves Lansdowne have convinced their customers they are not just in a club – but a “smart persons” club.

Why SJP will fail

The really big problem for SJP will come when the “nice people” who advise there, stop feeling good about themselves and start to feel socially excluded. A club does not work well if you feel you might get black-balled.

I sense that SJP has very little to fall back on if the current trickle of abuse turns into a torrent. For this they have no-one to blame but SJP’s management which (like Allied Dunbar’s thirty years before) has been cash-cowing the business for some time. SJP’s failure to become the market leader in anything other than maintaining margins, makes it acutely vulnerable.

In the short-term, many respected IFA firms will sell to SJP and SJP will continue to grow at its extraordinary rate. But there are some powerful regulatory headwinds in SJP’s face. The SJP business model does not fit with the vision of financial services set out in the FCA’s Asset Management Market Review. Nor can SJP appeal to its partners for the entrepreneurial drive that saw it grow in its early years. SJP is a business that can only grow by acquisition from a decreasingly small pool of truly independent financial advisers.

But what will kill SJP, will not be the regulators, or the limited opportunities for growth, but the loss of confidence of its existing advisers as and when they lose their social cachet.

If clients turn against them as the true costs of SJP fees are revealed.

And if revenues fall as margins are reduced by regulatory interventions

Then fragile edifice of the SJP advisory model will crack, as did Allied Dunbar’s. SJP will continue to manage its £80bn of money under advice, but advisers will find themselves disconnected from the revenues they brought to the company (as happened at Allied Dunbar).

SJP – a zombie in waiting

SJP already has achieved its business purpose – it has the funds to be a magnificent Zombie. But without a social purpose, I suspect it will become over the years to come an embarrassment to its Salesforce as will the Salesforce to SJP. This is what happened at Allied Dunbar and I see exactly the same thing happening to St James Place in the next ten years.

For many of the advisers who are selling their businesses into SJP, this is no bad thing, but if you are Martin Bamford it would be a very bad thing indeed.

You can read Martin’s article here;-

https://www.moneymarketing.co.uk/issues/9-march-2017/martin-bamford-everyone-love-hate-sjp/