The other week I had the pleasure of presenting in Birmingham to around 40 advisers. The session was a whistle stop tour of the joy that is Mifid II. As part of the presentation we covered reporting, disclosure, and suitability of charges. I cracked an admittedly cheap joke about the level of charges levied by St James Place, which got a decent laugh, and we moved on. However, after the event finished I was collared by a couple of SJP Partners. We had a perfectly amicable discussion and they correctly pointed out it’s not all about charges, ‘our clients trust and value the advice and service we give them’. We shook hands, and I (rapidly) made my exit.
Most journalists I know are fully aware of how many clicks and comments they will get if they get the magic letters SJP into a headline. The comments will quickly descend into a feeding frenzy, with SJP, the FCA and anyone else who gets caught in the cross fire all considered fair game. On one hand this is to be expected, they are a huge organisation. Their latest results show total funds under management of £83bn, net flows in the 6 months to June 2017 of £4.3bn and adviser numbers up 3.7% since the start of the year to 3,540. This makes them the largest advice firm in the UK.
Yet, there is still the question of charges. SJP are very transparent with their annual client survey, showing that, out of 40,000 clients surveyed, 98% felt that the service provided is ‘reasonable, good, or excellent value for money’, however ‘in my opinion’ they are not so transparent with charges. Fund factsheets tell me pretty much everything I’d want to know apart from the charge, and I find it equally challenging to find any figures for product/wrapper or advice charges. To my mind, this really isn’t good enough.
However, my new friends from Birmingham do have a point. It’s not all about charges. In the direct platform market, Hargreaves Lansdown utterly dominate, and they have conclusively proven their customers, who now number over a million, are not price sensitive. It’s a similar story in advised platforms. To quote @langcatsteve from a recent Money Marketing, ‘If you look at new business flows and market share there is almost no direct link between price and new business. Standard Life, which is one of the top players in the marketplace, it is well above the market average in terms of costs and Transact for a long time was above the market rate as well.’
For the other elements of total cost (adviser fee, investment costs and DFM) we’ve recently published some research on this. For advice fees, the average ongoing fee from our cohort was 0.92%. Almost all are facilitating this via the platform (as opposed to direct charging/invoicing). Fewer than 10% are using flat fees, although some more were ‘considering’. For investment costs, if used, the average DFM investment cost (before DFM service and platform fees) is 0.6% (down from last year), although clearly lots of deviation from the mean here:
For multi asset funds, average cost is 1.06%. This obviously includes the management/service element that the DFM stuff above doesn’t have, but doesn’t include platform or advice fees. Again, lots of deviation:
From a total cost of ownership perspective, the average lowest cost solution was 112bps and the average highest 176bps. So, based on our cohort of around 100 firms, as a client you are unlikely to be paying more than 200bps all in.
How does this compare to St James Place?
Well, in the absence of hard evidence, it’s impossible to say..
PS – If you want to know more about investment propositions, charges, and how advisers are using them, our new research is all you need. Click right about here to find out more #marketing