Friday 13 October 2023 is proving to be an unlucky day for owners of St James’s Place (LSE:STJ) shares.
They crashed 16% after reports emerged that the UK wealth manager is under pressure from the Financial Conduct Authority to reduce its fees.
The company’s directors responded by issuing a bland statement saying: “all the options under consideration will ensure value for clients and a strong, secure, and sustainable business for all stakeholders“.
Poor run
Friday’s events come on top of a miserable six months in which the share price fell by 43%, including a 16% drop on 27 July 2023.
That was the day that the company released its results for the first six months of 2023. And first hinted that the Consumer Duty regulation was likely to impact its business.
Its share price is now lower than it was at the height of the pandemic. This makes me wonder whether it’s a good buying opportunity.
Not all bad
Amidst the gloom there is some good news.
During the first half of 2023, clients entrusted the company with £8bn of their money.
The underlying cash result was marginally better than for the same period in 2022 and the business now has more qualified advisors than ever before, which should help increase the level of new business.
And the interim dividend was increased to 15.83p a share.
The company has policy of paying an interim amount equivalent to 30% of the full-year payout. This means shareholders could receive 52.77p this year. If this happens, the stock is currently yielding 7.8%, well above the FTSE 100 average of 3.9%.
Although, given the uncertainty, I wouldn’t be surprised if the final payout was much lower.
Charges
There is some talk that St James’s Place may be forced to scrap early exit charges for all existing customers. I think that could be disastrous for the business.
Early termination fees act as a deterrent for clients wishing to transfer their funds to other wealth managers.
The company had £157.5bn of assets under management (AUM) at 30 June 2023. And during the first six months of 2023, it earned £1.35bn of fees and commission on these funds. Doubling this to reflect a 12-month period suggests it earns 1.7% from clients.
If (say), 20% of the company’s AUM were moved as a result of exit fees being eliminated, revenue could drop by over £500m. Just imagine how investors would react then!
That’s why investing in the company at the moment would be too risky for me. Until the position becomes clearer I think there could be further downwards pressure on its share price.
But I would be happy if the company was forced to change its charging structure. Not because I want to see existing shareholders suffer even more, but because the company manages my pension! Any fee reduction is therefore welcome.
