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St James’s Place/wealth management fees: new rules bring needed self- reflection

Private investors cannot influence gyrations in stock markets and interest rates. They should, though, have a say in how much they pay to access investment advice for their savings. The power of compounding means that over the long term high fees can make a huge difference to savers’ returns.

The Financial Conduct Authority, the UK regulator, has increased its scrutiny of the charges well-heeled savers pay to access wealth services. This puts financial pressure on listed wealth advisers such as St James’s Place.

Few have excelled in this niche of the asset management industry more than SJP. Founded by Mark Weinberg with the help of Jacob Rothschild in 1991, its besuited advisers offer personalised services for wealthier customers. SJP has, through acquisitions, rolled up advisers and funds into the UK’s largest network, with £158bn under management. 

This week SJP appointed Mark FitzPatrick, formerly at UK insurer Prudential, as its new chief executive. He will have the unenviable task of accommodating the FCA’s new Consumer Duty rules, finalised last year.

These went live at the end of July, unnerving shareholders. SJP trimmed annual product management fees on bonds and pensions by 15 basis points (hundredths of a per cent) for investments 10 years or older at its half-year results in July.

Its share price has fallen 24 per cent this year, more than peers such as Quilter. At 11 times, SJP now trades at the lowest forward price-to-earnings valuation for a decade. While the FCA may appreciate a proactive approach by SJP, shareholders rightly fear a slippery slope of fee erosion.

Lex Populi chart showing the market share of UK wealth management

A closer look at SJP’s fee structure hints at the work ahead for FitzPatrick. SJP charges a 4.5 per cent upfront advice charge to new ISA customers on their first investment. That is nearly double what Quilter charges upfront. Pension investors avoid the initial fee but annual management and product charges apply. Pensions are also subject to a 1 per cent exit fee if sold within the first six years. 

Yet, SJP is not necessarily the most expensive wealth manager out there. Over a 10-year basis, the average annual cost for managing a £500,000 portfolio split across pensions and savings comes to 2.15 per cent, thinks David McCann at Numis. On the same basis Quilter, Rathbones and Brewin Dolphin all have annual charges above 2.4 per cent, says Numis.

Lex Populi chart showing the annual estimate  of wealth management fees

Compounding effects reveal how these fees can tot up. A £500,000 portfolio growing with a simplified 5 per cent annual return for 10 years would pay almost £150,000 in annual fees (set at a flat 2 per cent). For a passive equity index fund, charging 20bp a year, the total is just £16,000.

The value of the expensive advice is moot. Wealthier clients with more complex investments may be less able, or interested, in self-managing their savings. Such customers prefer peace of mind and are happy to pay for it.

Regardless, Consumer Duty has sparked a much-needed bout of self reflection in the industry. Clearly, lower fees would cost the likes of SJP in the short term. But in the long term, a cheaper, more transparent industry could win more customers.

Apple/iPhone: Pro will add bite to China sales

iPhone fans must also be an affluent lot. Their lack of price sensitivity has been a boon to Apple.

The average selling price of an iPhone has increased by almost a fifth in the past three years, reaching nearly $1,000. The new $1,199 iPhone 15 Pro Max, with its Mars Rover-grade titanium frame, goes still higher. 

Mostly, design tweaks across the latest range of iPhones are incremental. Apple did its best to make a switch to USB-C charging cables sound exciting. But the real reason was more mundane: EU legislation designed to reduce electronic waste by making charging interfaces compatible. 

The real changes come at the top end. Inside the iPhone 15 Pro and Pro Max is a new A17 chip that will improve battery life, gaming capabilities and camera function. Apple wants to encourage its customers to give up their old phones and spend more money on a high-price model.

The iPhone is Apple’s most important product. That looks a problem when global sales of smartphones are falling. In the second quarter of the year, shipments dropped by nearly 7 per cent on the previous year, according to data from the International Data Corporation.

At least Apple has a strong grip on the premium phone market, a sector more resilient to economic downturns than cheaper handsets. Indeed, it raised its market share by nearly 1 percentage point. Pro models mean the average iPhone selling price has reached a record $988 in March, according to data from Consumer Intelligence Research Partners. 

Pricey handsets bolster Apple’s high profitability. Its year to date net margin has hit 25 per cent, a record. These phones are also the key to its popularity in China, which lacks a large range of ultra-premium phone models. In the last quarter, IDC estimated that the world’s largest smartphone market almost became the biggest buyer of iPhones.

Geopolitics puts this expansion in danger. The US wants China to remain a tech consumer while cutting it out of the supply chain and imposing sanctions. Beijing’s retaliation includes reports that state employees have been told to stop using Apple phones. This presents an opportunity for Huawei. But the iPhone 15 Pro’s power should keep it ahead.

Information on SJP’s charges has been amended since publication.

Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore

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