Wealth management firm prepares to refund £426m to angry customers

St James's Place

Wealth management firm St James’s Place has set aside £426m for refunds to clients who were forced to pay excessive fees and charges.

The Gloucestershire based company has had to deal with a deluge of complaints about its fees structure and was handed a warning from the Financial Complaints Authority.

As a result of the warning the UK’s largest wealth adviser carried out a major restructure of its fees and charges.

Chief executive Mark Fitpatrick said the review was undertaken “following a significant increase in complaints, particularly in the second part of 2023, mostly linked to the delivery of ongoing servicing”.

News of the £426m set aside to pay for refunds was included in a bruising set of results for St James’s Place.

The firm said net inflows through 2023 came in at £5.12bn, below market expectations, as funds under management came in at £168.2bn at the end of the year, up from £148.3bn at the end of last year.

The pre-tax underlying cash result of £483m was in line with the previous year but the post-tax Underlying cash result of £392.4m was a reflection of the higher corporation tax rate in effect in 2023.

The post-tax cash result of £68.7 million – a drop of £340m – was a result of the expected costs of pay-outs to disgruntled customers.

Mark FitzPatrick, said: “It has been a challenging backdrop for UK savers and investors, but it is at times like these that advice really makes a difference, helping people stay on course to meet their long-term financial goals.

“Against this background, the hard work of everyone in our SJP community to keep delivering for clients has driven a resilient business performance where we’ve achieved continued strong net inflows underpinned by high client retention, strong investment performance, and record funds under management.

“With expenses managed tightly in the context of a high inflation environment, our underlying financial performance has been robust and the pre-tax underlying cash result is broadly unchanged year on year, albeit 4% lower on a post-tax basis due to the higher corporation tax rate in effect for 2023.”

He added: “The cash result for the year of £68.7m has been significantly impacted by an assessment into the evidencing and delivery of historic ongoing servicing and the provision we have established for potential client refunds.

“This work was undertaken following a significant increase in complaints, particularly in the latter part of 2023, mostly linked to the delivery of ongoing servicing. The assessment revealed that our evidence of ongoing client servicing was less complete in the years preceding investment into our Salesforce CRM system in 2021, and we have therefore made a provision for potential client refunds to address this. Looking forward, the investment we’ve made into Salesforce means we are confident this is a historic issue.

“While our financial results have been significantly impacted by this legacy matter, the board recognises the importance of returns to shareholders and is confident that sufficient capital and liquidity is available to deal with the financial impact of the provision. In light of this, the board therefore proposes a final dividend of 8.00 pence per share (2022: 37.19 pence per share) to make a total of 23.83 pence per share for the full year (2022: 52.78 pence per share).

“A combination of the provision we have established and an expected decrease in the level of profit growth in the next few years as we transition to our new charging structure, reduces our ability to invest for long term growth in our business over the next few years.

“Accordingly, the board has decided to revise our approach to shareholder distributions. Going forward, the board expects that total annual distributions will be set at 50% of the full year Underlying cash result. For the next three years this will comprise 18.00 pence per share in annual dividends declared, with the balance distributed through share repurchases.

“Once our new charging structure is fully embedded, we anticipate that the business will be on an improving earnings trajectory during 2027 and beyond.

“Overall, 2023 was a difficult year for SJP but we’ve faced into our challenges. We’ve raised our standards around both the delivery and evidencing of ongoing client servicing and we’ve announced changes across our business, including our charges structure, so that we’re in good shape for the future.

“In the near-term, we expect the industry outlook to remain challenging given the pressures that clients continue to face. The near-term environment notwithstanding, the longer-term structural opportunity for the financial advice industry is hugely attractive. With scale advantage, a strong Partnership of advisers, and an investment approach that delivers for clients, we are very well placed to capture this opportunity and deliver value for all our stakeholders.”