St James’s Place will lower fees for a wide range of investment options, reducing its projected profits and causing the steepest drop in the share price of the FTSE100 company in seven years.
The UK’s biggest wealth manager announced alongside its interim results that regulatory changes would cause a reduction in its net income of £12mn for the second half.
The company announced that the annual product management fee for clients who have held bond and pension investments with the firm for a long time will be reduced to 0.85 percent from 1 percent starting next week. St James’s Place clients will benefit in the amount of 65,000.
The shares of St James’s Place fell 16 percent on Thursday. Analysts say that a larger than expected drop in client inflows contributed to the sale.
The changes in fees come before the Financial Conduct Authority introduces its so-called Consumer Duty, which will force financial service companies to prove that they are working for the best interests of their customers. St James’s Place’s chief executive Andrew Croft stated that the rules were the “catalyst”, which allowed it to implement fee changes.
He said: “We looked at our entire business from the perspective of consumer duty and made any necessary changes.”
St James’s Place charges for both the advice and the products that it offers.
The initial fee for advice is 4.5 percent of the investment value. An additional 0.5 percent of that amount will be charged annually to cover costs.
A product management fee of 1 percent is added to the initial 1.5 percent product charge. The latter fee is now reduced to 0.85 percent.
Inflows net in the six-month period ending June were down 38 percent on an annual basis, to £3.4bn. Croft stated that a difficult economic climate “naturally” affected clients’ ability to invest.
The total amount of closing funds under management has increased by 6 percent in the last six months, reaching a new record high of £157.5bn.
David McCann is an analyst at Numis. He said that analysts were more optimistic about the long-term prospects for St James’s Place. The company has a client retention rate “market-leading” of 95,6%.
The company made a profit before tax of £385mn during the period, compared to a loss in the same time period last year of £296mn. This year’s result was distorted because of a January change to the way insurance companies report their returns (St James’s Place is one of them).
The board declared a dividend interim of 15,83p per share, a rise of 1,5 per cent.