The other week, shares in the UK’s biggest wealth manager (holding £150 billion of client funds) fell by more than 20% in a single day. Why?
Suspected fraud? Accounting scandal? No… a report that the UK regulator might force it to scrap the exit fees it charges its customers.
People have complained about the fees of St James’ Place (SJP) for years, and this latest drop prompted me to take a closer look.
I’m far from an expert. But I quickly found 2 reasons I wouldn’t give them my money…
1: Actively underperforming
SJP only invests client money in actively managed funds. These are funds where clever people pick shares that they believe will perform better than average, rather than following the “passive” approach of just owning a bit of everything.
Problem is… they mostly don’t. In fact, 85% of US large cap equity funds under-perform just owning the entire S&P 500 over a 10 year period. Other categories are even worse.
SJP doesn’t even have access to every single fund: their range is “restricted” to certain fund managers. So it’s even less likely they’ll pick one that ends up beating the average.
2: Reassuringly expensive?
If you invest with SJP, you’ll immediately pay 5% of your investment in fees. You’ll then pay a further 1.6% – 1.9% every single year (not including fund transaction costs, which are extra).
(This is for general investments rather than pensions, which have a wildly complicated but seemingly no cheaper fee structure.)
If that doesn’t sound expensive… it will once you work through an example.
Let’s say that 10 years ago you’d let £100,000 build up in a savings account, and you decided to do something with it. You invested it in a passive global equities fund (Vanguard’s VWRL), which went on to achieve an average compounded performance of 7.55%.
That would have turned your £100,000 into £207,721 over 10 years. From that you’d pay a 0.33% annual fee (Vanguard’s account fee plus fund charges), meaning you’d pay £6,420 in fees and end up with £200,079.
OK – rewind the tape, but this time say you decided to let SJP invest the money for you instead.
Well, 5% would vanish in initial fees on day 1 – so you’d only invest £95,000. Then assume that they invested in funds that exactly matched the performance of VWRL, even though there’s something like an 8/10 chance they wouldn’t have done (see Point 1).
Taking the low end of the annual fee estimate – 1.6% – and ignoring transaction fees – you would have paid an extra £30,749 in fees and ended up with £169,330.
But shouldn’t advice cost money?
What about the advice that SJP provides? After all, lumping everything into a global tracker fund is unlikely to be the right choice – so isn’t it right that you should pay fees for professional guidance?
Well, for a fraction of that £30,749 difference in fees, you could have paid for a comprehensive piece of advice from another Independent Financial Advisor – allowing you to manage your own investments based on a plan you’d put together with a professional.
You could go on to pay for an annual catch-up and occasional reviews, and still have tens of thousands of pounds left over.
(Alternatively you could still have an IFA manage your investments for you and save money: I’ve just quickly Googled 6 advisors’ fees and they were all significantly cheaper than SJP.)
Use the experts, but invest in your own knowledge too
SJP is a pretty major offender, but you need to look out for the same two drawbacks whenever anyone manages your money:
- Fees make a huge difference over time, even if it looks like a small percentage
- If they only use actively managed funds, they have a high likelihood of underperforming (and charging you a lot for the privilege)
Above all, this emphasises the importance of educating yourself about money. Just reading a book or two can help you pick the right professionals to work with, and give you confidence that they’re making the right decisions on your behalf.