Why do firms like SJP have to publish an Assessment of their value? SJP is an authorised fund manager or “AFM”. This is the FCA two years ago
The FCA Assessment of Value rules which entered into force in September 2019 require UK Authorised Fund Managers to:
- assess the value offered of each fund,
- take corrective action if it does not offer good value, and
- explain the assessment annually in a public report.
The SJP Annual Value Assessment (AVA) is much delayed , it’s title is still showing March 2020.
Surprisingly, there is very little ownership of the document. Apart from a brief welcome from Emma Griffin , a non executive director, no one speaks for SJP, the videos are recorded with professional voice overs, we have no sense of who is taking decisions , who advises on those decisions and how SJP benchmark themselves. In short, the document is marking its own homework,
The document kicks off with a video. The video makes it clear that SJP’s value proposition is based on being more than being an authorized fund manager. The video ends with a strong message on responsible investment, Integrating ESG into SJP’s funds is something that Robert Gardner considers his major impact on SJP so far.
Assessment methodology – is this really independent governane?
In the first half of the AVA , these messages are repeated. There are seven assessment areas for SJP to mark itself
Using these seven assessment areas, we conclude our fund range offers
Our fund charges are appropriate in the context of the overall service we
provide, and we successfully pass on economies of scale where we can.
Our assessment also revealed areas where we can do better and do more. We share details of actions we intend to take, and we explore how to improve our services and provide you with clear and fair communications about your
investment with St. James’s Place.
In part two of the assessment , each fund offered on SJP’s platform is reviews by SJP and every single fund gets a green RAG score on every fund. Actually there is no admission from SJP of any weakness in any aspect of its service.
Every orange and red score in the report is reserved for the assessment of external suppliers.
I find it hard to accept a value assessment that can only find failure outside the organisation and I challenge SJP to look again at its own proposition. It is hard to consider the AVA independent of SJP and entirely aligned with consumer interests
“Money” – does this report really tell clients what they are paying?
The disclosure of costs and charges in the document falls some way short of what I’d consider best practice. SJP has commissioned Grant Thornton to compare SJP’s costs to clients against other similar organisations. This is what is published
I find this very difficult to understand. The 2.4% pa figure quoted by SJP is not for the total cost of ownership of the funds, (it excludes transaction costs). Are others measured the same way and who are these others? This is potentially misleading and were it being judged as a financial promotion, I would consider it fell some way short. If you are investing similar amounts into a workplace pension , you would not expect to pay more than 0.5% for the value of your money.
The costs and charges quoted for savers are extremely high and can only be justified by the cross subsidy they provide to financial advice, which might otherwise have had to be paid for out of taxed income and subject to VAT. By integrating advice into the product, partners can argue that the advice is subsidized by the tax-payer but that is no excuse for an average fund charge of 2.4%.
Until SJP can properly promote the value of this 2.4% against the rest of the market, the well publicised “gating” of funds in the first six years of a client’s investment just seems wrong.
I am also far from happy with this description of transaction costs
Transaction costs occur when a fund’s manager buys or sells assets within the
fund. These are not charges, but rather your share of the inevitable external
costs that are incurred whenever assets are traded. The level of these costs is
variable since it depends on the number and nature of the transactions made.
Information on the level of estimated transaction costs is available here.
Transaction costs of the scale listed by SJP when the link is followed are very high.
SJP’s narrative uses words like “inevitable” , but transaction costs of this scale are not inevitable, they are not being created by passive funds. Add these costs to your 2.4% quoted cost and you can see why some SJP funds have a total cost of ownership to clients of more than 3%.
SJP’s capacity to pass on fees to clients without any explanation is a notable feature of this report. Here for example is one fund fee which is apparently good value
That 2.41% figure is actually misleading, it is only fully charged if KKR achieves its targets but this is not made clear in the document. I had to query the figure because it is the highest cost fund in the range and SJP are claiming it is offering good value under this methodology.
Frankly, the cost and charges section of the document falls some way short of the full disclosure I would expect from SJP and if I was scoring this report on a RAG basis , I would be certainly in orange territory. Next year must be better!
Value- does this report really tell clients what they are getting for their money?
I quote from Robin Powell’s report on AVA’s which specifically references SJP’s statement.
In the event, the statement makes for sobering reading. Of the 39 funds assessed, 28 have either failed their objectives, underperformed their benchmarks or their relevant Investment Association sectors. Some have done all three.
What’s more, the real picture is probably even worse. For example, five funds that failed on all three counts are still considered to offer “overall value”. And nine funds weren’t even assigned a benchmark. It’s impossible to judge a fund’s performance without a benchmark to compare it to.
Yet SJP are able to make this claim for the value they are getting from their funds
The research concludes that St. James’s Place compares favourably with
similar portfolios of funds, and our fund charges provide good overall value
when the full range of services are taken into consideration
The SJP AVA is a really important document . It is produced to a high standard and it has a consistent tone and is very well written . It shows that in some areas, such as responsible investment, SJP has already made progress.
But I have reservations about this report in terms of the independence of its governance, its cost transparency and in terms of its view of the value funds are offering. However, it is a start and it allows us to take our own view, this is mine,
From speaking with SJP’s Rob Gardner, I understand that the average cost of fund management paid by SJP is 0.39%. That means that clients are paying more than 2% pa on £106bn to SJP and SJP partners. In addition they are paying around 0.25% pa in transaction costs.
Assuming a 50/50 split between SJP and its advisers , that’s over £1bn extracted to each party each and every year. That is simply too high an amount – whatever the perception of clients of the quality of service they are getting.
In order for SJP to grow to be a 100 year company (in a way that its predecessor ,Allied Dunbar never did), it is going to have to look at its margins and reduce the cost to clients both of SJP and its advisers.
There is precious little evidence of the economies of scale being enjoyed by SJP and partners currently being shared with clients
The AVA is , I hope , the start of a journey. I will leave the final word to Robin Powell
It is, of course, too early to say whether the AoV regime has succeeded. It has already prompted some firms to reduce their fees, which will result in significantly improve outcomes for their customers.
But transparency only really works if everyone plays by the rules, and if firms who break those rules are properly punished.
They’re still a work in progress, and regulators around the world will continue to watch with interest. But, with a bit of judicious tweaking, value assessments might just be the genuine game-changer the investing public has been waiting for.
Re the 2.4% comparison number, the clues that this is based on 100k, 10 years and 5% growth indicate that it is RIY which is the compulsory FSA standard method of cost disclosure for all investment firms. The numbers for competitors indicate that these are all “advised” propositions so comparison with passive fund costs or even auto enrolment pensions are inappropriate since neither include even the slightest level of guidance or advice. The cost of advice is the single biggest component in all these numbers.
Stanley, the cost of advice at the point of sale has zero impact on the saver’s bank balance. But it impacts the ability of a saver to build up capital and reduces the income that a saver can take from that capital. Unless there are cross subsidies (where for instance the pension is paying for tax advice), we have to assume that the cost of advice is reflected in better outcomes. The acid test is to measure the impact of the 2.4% charge on outcomes using an internal rate of return calculation. If this can be benchmarked against the typical outcome of a non-advised outcome (say from NEST or some other workplace pension), then we have a proper comparison and an indication of whether value is being achieved.
In my opinion , the comparisons for SJP (and other vertically integrated providers) would show that in terms of pension outcomes, most people would be better off not taking advice. So the issue is whether this reduction in yield can be justified by the impact of other benefits of being an SJP client.
In arguing that the pension is paying for much more than pension advice, vertically integrated providers can get into dangerous waters, the various tax exemptions applying to the payment of advisory costs from the AMC are granted because they are product related. There is only so much opportunity cost that the tax-payer can bear.