St James’s Place shares have been exceedingly profitable in the past — rising 10 times in value between 2008 and 2021.
But the shares are down 72% since 2022 after three earnings warnings and the firm being accused of throwing money away on staff cruises rather than providing a good service to clients.
Is this an opportunity to pick up the shares while they’re cheap? I don’t think so. In fact, I wouldn’t touch them with a lengthy bargepole. Here’s why.
Big fees
The root of the problem stems from the fees St James’s Place charges.
The wealth manager made billions from these fees helping people to invest, but things have been unravelling recently.
The Financial Conduct Authority (FCA) has lined the firm up in its crosshairs because of its complex fee structure.
What are the fees? Well, the St James’s Place fees page looks pretty exorbitant to me.
First off, you pay 4.5% of assets for “initial advice”. So someone with a £100,000 pot sits down for their first meeting with an advisor and effectively slides £4,500 across the table.
Amazingly, that’s not the only upfront cost! When your advisor finds you a St James’s Place product, you pay a further 1.5% “initial product charge”.
Is that end of it? No!
The firm then shaves off 1% per year as an “annual product management charge” and 0.5% for “ongoing advice and the relationship with your adviser”.
And these charges weren’t even what drew the most ire from the FCA either. Those were its punishing exit fees.
Fund returns
I will say that while these fees look expensive, St James’s Place provides a service that I’m sure some are happy to shell out for. After all, investing isn’t straightforward, and the firm lets clients sit down with a trained expert who can talk through the various options.
And with 47% annualised revenue growth over the last five years, this business model is seeing plenty of success.
Further, the firm sells actively managed funds. Perhaps these premium products also deliver market-beating returns over the long run? Well, the answer is no. The best-performing St James’s Place equities fund returned 8.92% annually over the last decade.
Compare that to the MSCI World Index (a global tracker) with annualised 9.64% returns over the last 10 years. So not a single St James’s Place fund performed better than the global average, and worse still, passively managed funds usually charge a fraction of a per cent.
Value?
Here’s the important question. What value does St James’s Place add past pretty brochures and someone to sit down and talk to?
I suspect the answer is not much and that the business runs on naive clients who want a friendly face to assure them their wealth is growing.
To add a little more fuel to the fire, another issue the FCA were looking at was that some advisors weren’t even fulfilling their yearly meetings with clients!
Putting it together, this does not look like a sustainable business and I won’t be investing in it.
