Flows and hotels: 11 insights from SJP's annual results

Wealth management giant St James's Place published its annual results this week. Here are the key things we learned from its 93-page report and analyst presentation.

Advice giant St James's Place (SJP) announced its annual results this week. We have pulled together some of the most notable elements of the full 93-page report, along with a couple of the key talking points that arose from the executive team's presentation to City analysts, which was chief executive Andrew Croft's second since taking the helm. 

Advice giant St James's Place (SJP) announced its annual results this week. We have pulled together some of the most notable elements of the full 93-page report, along with a couple of the key talking points that arose from the executive team's presentation to City analysts, which was chief executive Andrew Croft's second since taking the helm. 

Flow warning

2018 was a tricky year for all wealth managers and even SJP is not immune to market shocks, but it weathered the sell-off better than most.

Assets under management (AUM) fell from a peak of £100.6 billion last September to finish the end of 2018 at £95.6 billion, up slightly from £90.7 billion 12 months earlier. After January’s market rally AUM has since risen to £102 billion.

Last year SJP made the audacious assertion it could hit 15-20% gross inflows each year, and in 2018 it managed to achieve this target (again).

Gross inflows for 2018 were £15.7 billion (up from £14.6 billion) and net inflows were at £10.3 billion (up from £9.5 billion). This did show a £5.4 billion outflow for the business but the growth is still remarkable.

However the firm’s chief executive Andrew Croft warned today this pace of growth is slowing.

'Challenging external factors, like those currently being experienced, are not in our control and the pace of fund flows has moderated compared with last year,' he said.

Profit power

We live in an increasingly unpredictable world, but one thing which does provide certainty is SJP’s ability to deliver strong profits year-after-year. 2018 was no exception to this with the advice giant posting profit before shareholder tax of £211.9 million, up from £186.1 million in 2017.

EEV operating profit (which takes account of future income) was up by 9% at £1 billion.

SJP’s share price was down 3.6% in hours after trading but it has since recovered.

Opening Bluedoor

Last year saw SJP move its client assets onto the back-office platform Bluedoor, run by DST. The migration saw £24 billion of accumulation pensions and £5 billion of drawdown money move onto Bluedoor, with the remainder of assets set to be moved this year.

These big replatforming projects rarely come cheap and SJP’s accounts showed it had spent a further £35.8 million on the migration last year, bringing the total replatforming bill to date to £236.4 million.

In a presentation to City analysts this morning, SJP chief operations technology officer Ian Mackenzie said that migration work will be finished 'over the coming months’.

'We will have done something very few have done before – we will have launched a new platform, we will migrate to a new platform, we will switch off the old one, and we will have done so with minimal impact to our clients and partners,' he said.

Advice fees

SJP’s advice charging structure is often the subject of debate and this year costs and charges will be disclosed in fresh detail due to new Mifid II disclosure requirements. (We reported on SJP's efforts around cost disclosure recently).

However all its recent accounts show an upward trajectory for SJP’s advice fee revenues.

For 2018 SJP made £743.2 million from post-RDR advice charges, up from £656.5 million in the previous year.

SJP has seen an 8% increase in adviser numbers within its partnership

As concerns surrounding the supply of financial advice within the UK mount, it seems SJP is having a more positive time. 

SJP's partnership model now has 3,954 advisers within it, which is an 8% increase on 2017 numbers. 

'We welcomed a net 293 new advisers through a combination of our experienced adviser recruitment channels and our academy initiative,' the company said. 

Perhaps this is one reason why Andrew Croft claims in the company's annual results the business is performing well, relative to the sector. 

Numbers-wise, the SJP academy is looking impressive:

SJP has a big vision for how to increase young blood in financial planning, and its academy is undoubtedly the healthiest looking of all the big firms.

The company spent £10 million on it in 2018, which it believes is an investment in the profession and the future of the company. 

Last year 142 people graduated from the SJP academy and next generation academy, and at the end of 2018 379 people were taking part in the programme. The company's paraplanning academy saw 50 'partner support staff' become fully diploma qualified in 2018. 

 

The contribution made by the business to industry levies shows a mixed picture

SJP is still paying a large amount in industry levies which support the safety nets available to consumers should things go wrong. 

SJP’s Financial Services Compensation Scheme levy fall last year with a contribution after tax of £12.8 million in 2018, compared to £17.1 million the previous year.

However its regulatory fees increased post-tax from £6.8 million to £8.1 million. We know this is something all IFAs are keeping a close eye on, so it will be interesting to see how this changes and develops over time. 

Comment: When will the SJP cavalry ride in to force FSCS reform?

 

The company has big plans for Rowan Dartington

SJP bought out Bristol-based private client broker and asset manager Rowan Dartington for £34 million in July 2015, describing the purchase at the time as an 'excellent platform' for further growth. 

An update on the purchase in the annual results today showed Rowan Dartington is now managing £2.3 billion in total funds. It now has operations in Hong Kong, and SJP wants to expand its reach to Singapore.

SJP says it will 'also continue to explore "bolt-on" acquisitions where we see both complementary fit and value.'

Read more: SJP to acquire Irish boutique to expand DFM business

Is SJP building a hotel?

The fine details in the company's accounting for 2018 reveal an investment in a hotel development. 

The business notes a 'funding commitment' of a £20.3 million for 'a hotel development on a freehold site owned by the group'. Building works are set to take place 'over the next two years,' the business said. The site has been pre-let to a hotel operator, with the lease completing on delivery of the finished building.

So will we be able to spend a night at the SJP-inn?

Apparently, the development is held within the company's property fund, which is invested in by clients and managed by external fund manager Orchard Street. 

'There's not any more to it than that and certainly no SJP hotel on the horizon,' a spokesperson said. 

SJP does not believe the new joint wealth venture by Schroders and Lloyds poses a threat

In its analysts presentation this morning, SJP managing director Ian Gascoigne said new entrants to the wealth management market 'underestimate' the challenge.

'It's no surprise other businesses want to enter the market, but these businesses always underestimate the challenge of building distribution,' he said.

'Looking at the business model, there is an underestimation of how challenging it is to recruit the right people, to manage them effectively, to govern a business within a culture that allows them to grow.'

SJP thinks 7,000 IFAs are going to retire in the next three years

In the same analysts presentation, Gascoigne outlined the company's predictions for IFA supply in the next few years, and it presents SJP - in his opinion - with an enormous business opportunity.

'78% of all our advisers are under 55 - the average age of IFAs is 60. There’s an advice gap, we’ve got the right age group and a growing distribution, so we are confident about the future,' he said.

'Our projections are 7,000 IFAs will retire in the next three years, and I can’t see anybody training another 7,000.'

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