Forget St James's Place: Listed UK wealth managers have been a basket case

Ian Orton, 27/10/2020

"St James’s Place (SJP) is fundamentally a strong business which has been delivering great value for clients, partners, employees and even the regulator for many years," says Primestone Capital, an interventionist investor, in a letter to SJP’s board of directors.

"Unfortunately, however, it has failed to deliver meaningful value for shareholders over the last five-years," the letter adds. "This is especially disappointing given that client assets have doubled over this time."

Returns to SJP’s shareholders – including Primestone which says it owns 1.2 percent of the wealth manager’s equity – have lagged its rivals, says Primestone. SJP shares have “significantly underperformed those of its publicly listed peers”, Primestone claims.

Primestone wants something done about this, not least by SJP reducing a very "bloated" cost-base. If this is done then SJP has the potential to more than double its share price "once the company realises its full profit potential".

Oh really?

Few would dispute Primestone’s claims made in the first paragraph. Nor would they contest that SJP’s cost base offers scope for improvement.

But the claim that SJP has underperformed its listed “peers” in generating shareholder value just doesn’t wash.

SJP’s five-year returns, as measured by its share price performance, have not been very satisfactory. But according to thewealthnet’s estimates it has in fact outperformed. And in some instances it has outperformed by a substantial margin.

So who are SJP’s listed peer firms?

Primestone identifies three firms: AJ Bell, Hargreaves Lansdown and IntegraFin.

Unfortunately though, apart from being listed on the London Stock Exchange (LSE) and falling within the “other financials” category (i.e. they are not banks or insurance companies), AJ Bell, Hargreaves and IntegraFin bear little resemblance at all to SJP in terms of business model.

AJ Bell and Hargreaves Lansdown are primarily execution-only stockbrokers that target self-directed investors.

IntegraFin is the owner of Transact, a pioneering investment platform that caters primarily for financial intermediaries and their clients.

Although SJP is difficult to fit within most of the taxonomies employed by wealth management researchers, it doesn’t bear much resemblance to any of the three firms cited by Primestone.

Yes, it does offer investment platform facilities as well as the infrastructure for intermediaries to service clients.

But a typical SJP adviser, or associate firm, tends to focus on providing wealth management advisory services to a vast swath of personal customers. And most of these personal clients’ funds will end-up in branded investment vehicles managed by SJP for which it will receive an annual management, as well as advisory, fee.

The real competitors

SJP targets the same client group as most conventional wealth managers, especially those that target affluent as well as rich clients.

Unfortunately, there are not many of this particular species listed on the LSE.

But SJP has tended to outperform them, at least on the basis of an admittedly crude five-year share price comparison.

Take the share price performance of Brewin Dolphin, Brooks Macdonald, and Rathbones, for example.

Brewin’s share price fell by 8.2 percent in the five years to 22 October 2020; Brooks Macdonald’s by 8.9 percent; and Rathbones by 31.0 percent.

By comparison SJP’s share price increased by 13.5p or 1.5 percent over the five years to 23 October 2020.

It also narrowly outperformed Hargreaves Landown, whose share value is virtually the same as it was five-years ago.

Of course a comparison of total returns, which include reinvested dividend payments made over a five-year period might generate a different result. But this is probably unlikely.

The reality is that not only have UK “other financials” not performed well as a group over the past five years, the entire UK market has turned out to be a basket case, especially relative to international markets. The FTSE 100 returned just 10 percent over the last five years.

And why has this occurred (answers on a million pound banknote please)?

Still, the one consolation that most UK-based wealth management clients can take is that the portfolios advised or managed for them by their wealth managers will probably have performed much better than a basket of UK wealth managers’ shares.

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