Specialist
Former executive at St James's Place Wealth Management
Agenda
- FUM (funds under management) growth trends at St James’s Place (LON: STJ)
- FUM category mix trends and implications for advisor and product fee revenue
- Competitive dynamics in UK wealth management, highlighting players such as Hargreaves Lansdown (LON: HL) and True Potential
- Establishment cost trends and platform digitisation
- IFA (independent financial advisor) and partner network growth
Questions
1.
I’ve always used the FUM [funds under management] or AUM [assets under management] as a barometer of success for wealth management companies. SJP [St James’s Place] hit just shy of GBP 144bn in FUM in H1 2021. How would you expect this trajectory to trend?
2.
Do you expect SJP’s potential growth to be concentrated in specific products or assets? The company talks about three distinct groups – investment, pensions and unit trusts – and it discloses the gross and net flows for each. Might one of these products drive growth?
3.
What does it mean if the pensions category attracts significantly more assets than investment and unit trusts, considering the basis point margin SJP can generate on its efforts? Is the category generally accretive?
4.
Pensions were a reasonably significant portion of gross flows in H1 2020 and H1 2021. You mentioned a broadly one-third, one-third, one-third split across the three categories. I imagine people probably crystallise the benefits with their pension more frequently, likely leading to higher outflows and therefore lower net flows. Are we talking about one-third, one-third, one-third for the net flows more than the gross inflows?
5.
Is there any positive or negative aspect around the changing category mix? What are the typical fees a wealth manager such as SJP can generate on the different categories? Are they significantly different across each category?
6.
What are the pros and cons of approaching the pension charging structure the way you outlined?
7.
Is the 5% advice fee you mentioned industry standard or can SJP charge a higher advice fee?
8.
Can new advice fees be generated on old client accounts with new assets or does it have to be a new client?
9.
What ongoing fees will a typical client pay for the different products? How do bonds, pensions and ISAs boil down into the ongoing fees? I suppose it varies slightly, depending on the clients’ circumstances, but you mentioned these are clearly outlined in the terms.
10.
What’s a reasonable basis points charge a client will pay? Can it reach as high as 200-250bps on average or is it less than that?
11.
Does the IFA [independent financial advisor] get the initial advice fee upfront?
12.
What does the gestation period mean and why does it exist? Why does SJP talk about having funds in this gestation period, because it is generating fees in this time?
13.
Is it possible to get the IFA to defer their initial advice fee to bring the gestation period down, so pay them in stages similar to how the client account pays for it?
14.
What portion of the asset flow is typically new assets that are subject to new advice fees vs contributions to existing wrappers that aren’t generating these fees? I think when people ask about new business, it’s presumably because it’s higher-margin and incurs the initial advice fees.
15.
Are ongoing fees typically higher, lower or the same as older assets? Are assets coming into the book with the same charging structure as older assets, or is pricing new business with ongoing fees becoming more competitive?
16.
Does SJP have its own products where it doesn’t incur fund fees?
17.
What basis point margin could SJP realise in the medium term?
18.
Do you think more passive products and younger demographics’ greater experience with DIY-type products will pressure advice fees over the much longer term? A younger generation seems to be coming into these services with more experience managing their money and assets across a range of different products, but not necessarily good experience.
19.
Which profitability metric would you focus on? Would you take operating cash result over FUM because it captures the business’s day-to-day expenses?
20.
How much cost does sorting out the technology estate take out of SJP? Might the company hand that back to clients in the form of lower admin fees or take some or all of it to margin?
21.
Do you think materially lower administration fees would attract more funds or do people not closely consider the admin fees being charged?
22.
What growth can be achieved within the advisor network? How much of that could come from experienced hires vs those coming through the academy?
23.
What proportion of fund growth comes from acquiring new partner businesses vs growing existing partner businesses by bringing in additional advisors, who may be managing their own books?
24.
Does SJP lend advisors or partners the money to acquire other partner businesses?
25.
How might a company such as True Potential impact partners’ ability to continue acquiring IFAs? Are you noticing anything around the valuations IFAs want, or is there something unique about SJP being part of this partner network that means IFAs are happy taking a lower multiple, because they receive benefits through SJP?
26.
What kind of multiple do you think SJP or a partner within the network would pay for an IFA? Do you assess it on a multiple or as a percentage of the book?
27.
Are only consolidators paying the multiples you referenced, or would wealth managers and larger IFA businesses also pay these multiples for good businesses?
28.
Do you think most fund growth comes from organic growth of existing partners rather than via acquisition? Alternatively, has acquisition historically driven rising assets for the myriad of wealth managers in the UK market, not just SJP?
