Clarity, Consistency and a Confusing Conversation

Have you ever had a conversation where you enter into it trying to get clarity on a particular subject and ending up at the end of the conversation with more questions than answers?

I had one of these conversations recently with a St James’s Place financial adviser but before I tell you about the conversation let me ‘set my stall out’….

Many of us in the independent advice and financial planning community are pretty disdainful of SJP.  However I believe that whilst there’s a lot about SJP I don’t like (I want to talk about one of these things in particular later on this article) there’s a lot about SJP we could potentially learn from.

SJP seem to be a very process driven business (processes which, once changed appropriately, could potentially benefit a lot of IFA and financial planning business), they have a highly effective recruitment machine and there’s no denying that they market their products and services in a powerful and effective way.  They also seem to have a decent servicing proposition.

However I do have a particular issue with SJP.  An issue that I naively thought would be dealt with by RDR.  An issue to do with the way they charge for their services.

So, let me tell you about my recent conversation.  I’ll start with my comment….

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“So, I’m curious about how St James’s place charge especially post RDR….can you explain it to me?”

“Sure.  We have access to a manufactured pension, bond and OEIC and for the remainder of need areas we can use who we want within reason”

“Okay.  So what’s the charging structure on the manufactured products?”

“On the unit trust business it’s a 5% bid offer spread with an annual charge starting at 1.5% but increasing depending on the fund selected.”

“Okay.”

“For investment bonds there’s no bid offer spread, broadly similar annual management charges but there are ‘exit penalties’ for the first 6 years starting at 6% and decreasing by 1% every year.”

Okay”

“Pensions are charged in a similar way to investment bonds with no bid offer spread and a 6 year period where the same exit penalties as bonds apply”

“Right I understand that….so I’m assuming you ask your client for a fee to complete any work product focussed or otherwise now we’re in the ‘new world’?”

“No….we normally get paid via the product.  However I believe that it’s RDR compliant due to the fact that regardless of the product recommendation we get paid 3% for manufactured products and the fact that we’ve ‘vertically integrated'”

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Now it’s important to say that this conversation is based on one conversation with an SJP adviser and there have been varying reports in the press (see here and here) of how charges are incurred for SJP products.

However if we assume that the adviser I spoke to was entirely accurate and is broadly correct in relation to the charges they mentioned it raises one question..

In some parts of our profession, has anything genuinely changed post RDR?

In our practice we unashamedly charge fees for the work we do.  Regardless of RDR, we just feel it’s the right thing to do for our clients.

I’m also not concerned about the ‘competition’ from SJP.

SJP will continue to attract certain clients and advisers under their model and our business (on a far smaller scale) continue to attract the right type of clients and adviser for our business.

My concern is that I look at their charging model and it doesn’t seem to be fundamentally different to an old school bancassurance model.  Therefore I’m not convinced that model will every truly deliver positive outcomes for SJP’s clients over the longer term which could lead to potential damage to our reputation as a profession.

I’ve also got a bunch of different issues with the fact that whilst you can argue that the income paid to the adviser is the same and therefore displays no bias I’d argue that potentially the one recommended may not be the best  solution for the client but the one easier to explain. You could argue that this might the bond may seem superficially attractive to SJP advisers and clients due to the charges are deferred as opposed to up front.

However let me ask you some questions…

Do you actually think the SJP model is RDR compliant?  If so why? If not, why do you think that the regulators allow this proposition to continue?

What do you think the positives and negatives are when it comes to SJP’s proposition?

and

I don’t believe that ‘vertical integration’ and consistent charging mean a proposition complies with RDR.  However it seems that both the regulator and SJP disagree…what do you think?