Tim Sargisson: SJP – More sinned against than sinning?

The recent news the St James’s Place (SJP) advice arm continues to lose money provided another opportunity for advisers up and down the country to update us with their own opinions on the situation.

I have always been somewhat perplexed about this habit of advisers laying into the competition in this way. When I began in financial services in the 1980s, it was the banks that received a frequent kicking from advisers for offering uncompetitive products to the masses … choosing to ignore their own lack of reach into this area.

The same week, I also read KPMG has been fined £3.2m for a string of failures for its audit work on Quinnell. Not good I know, but I do not expect there will be legions of small and mid-sized accountants being openly critical of KPMG and seeing it as the occasion to pour opprobrium over the ‘big four’ accountancy firms.

The question of SJP’s losses reignites the ongoing debate over the cross-subsidy that exists in these businesses. This runs counter to the requirements of the regulator that the allocation of costs and profit between the adviser’s charge and product cost should be such that any cross-subsidisation is insignificant over a five-year timeframe.

Advisers are understandably concerned because this five-year giveaway to the likes of SJP disadvantages IFAs by taking away a key part of the level playing field. Basically, it suggests providers should be allowed to reduce advice costs by shifting them to a product.

IFAs look more expensive in comparison, coupled with a consequent shift towards selling product rather than advice. Now we see SJP losses widening significantly to the extent that a five-year window – indeed any window – is unachievable.

To be overly critical of these widening losses, however, takes a somewhat myopic view. This is because such a view fails to recognise two key contributory factors behind this increase. First up, of the group’s £35.4m loss, £18.9m is down to the FSCS levy and this amount is on top of the £16.5m paid the previous year.

If I were running SJP, I might want to respond to some of the comments I have read by taking a swipe at the advice community and, more specifically, at the poor execution of governance and risk management that results in firms going bust and heaping all the liabilities on the rest of us.

SJP are not responsible for this mess, but they pay a hefty chunk of the total sum each year and the bills being paid by the rest of us would be a lot bigger if the likes of SJP were not here to carry the load.

Young blood

Second, there’s a further £8.2m for running the SJP Advice Academy. Every adviser I speak to up and down the country bemoans the lack of young blood coming into our profession and the fresh ideas that different generations bring to the world of commerce.

Nine out of 10 (89%) adviser firms have between one and five advisers and I appreciate the challenge of recruiting and training advisers that this presents to the small and mid-sized adviser, coupled with the risk of losing that person in the early stages of their career.

Another firm comes knocking, offering more money, having not had to fund the development costs and the adviser is off and the firm back to square one. SJP is prepared to put time, money and resource behind the idea of training the next generation of advisers.

Remove both these costs and the SJP loss is £8.3m. Maybe we should spend less time on SJP and its like and more time focusing on our own businesses, with particular emphasis on risk management. This provides the best chance to see the iniquitous FSCS levy reduce.

And do take real encouragement from this month’s FCA Data Bulletin. This shows that firms with between six and 50 advisers earn more revenue per adviser, the revenue per adviser is growing faster and the difference between two to five adviser firms and six to 50 adviser firms is pretty marginal.

Published on 19th June