St James's Place announces product charges cap

The share price of St James's Place (SJP) cratered after the asset manager announced that it intended to cap product charges at 85 basis points a year for clients who have been invested for a decade, a move that will benefit around 65,000 clients. The change will lower the margin range on net income from funds under management by around four basis points. The change, which comes ahead of the introduction of the FCA's Consumer Duty rules, will result in an exceptional charge of £859mn, with all the attendant risks to profitability.

The interests of loyal clients and shareholders seem at odds on the issue, but both groups wouldn’t have been overly ecstatic with the £3.4bn net inflow recorded by St James's Place in the first six months of the year. True, general economic anxieties predominate, and risk appetite is low, but the inflow still represents a 38 per cent decline from the same period last year, when UK asset managers were struggling to hold on to investment capital.

Nevertheless, the group has fared better than some peers in this regard, and group chief executive, Andrew Croft, said management was “pleased at the continued strong retention of client funds under management, with annualised retention of 95.6 per cent in the first half of the year" – he may have a point. Funds under management hit a record £158bn, up from £148bn at the 2022 year-end.

Profitability metrics differ depending on whether they’re judged on embedded value principles or IFRS, but we can say that underlying cash profits were 4 per cent to the good at £207mn – a reasonable outcome given inflationary pressures on the cost base. The forward rating of 13 times consensus earnings isn’t daunting, especially given the 5.5 per cent forward dividend yield, but the investment environment remains problematic. Hold.   

Last IC view: Hold, 1,280p, 01 Mar 2023