FTSE 100 wealth manager St James’s Place (STJ) is to review the incentives schemes for advisers after the Sunday Times revealed that its partners received lavish perks for bringing in new client business.
Chief executive Andrew Croft said in an internal memo: “We have grown rapidly as a company and I believe that it is time we take a fresh look at what we do and how we do it, to make sure it is suitable for the next phase in our growth and keeps us ahead of ever-increasing client expectations.”
While not specifically mentioning the accusations by a whistleblower that advisers were taken on luxury cruises and safaris as a reward for bringing in sales, Croft says the internal review will look at incentives and events, including the “overseas partners’ business meetings”.
He says it is important to celebrate and recognise “the success partners deliver for clients” but “we should we question ourselves on whether they fully meet our needs or appropriately reflect the culture of our business”.
St James’s Place advisers work on a self-employed basis and are known as “partners”. Justin Modray of Candid Financial Advice, says the SJP model of partner rewards is “antiquated” and out of step with the rest of the industry.
Under the Retail Distribution Review in 2012, independent financial advisers have been banned from taking commission from clients to avoid incentivising recommendations. Modray questions whether incentives such as those at St James’s Place are in the best interests of clients. “The faster those kind of practices are stamped out within the industry the better," he says.
Modray anticipates that if overseas trips are banned in the future, partners will receive more straightforward financial incentives instead, such as cash bonuses. He believes that the negative publicity the news has generated may not lead to immediate change to the rewards culture at St James’s Place.
Separately, Morningstar data shows that St. James’s Place funds have underperformed their peer group in many categories over a number of different timeframes. For example, over 10 years, three of its equity income funds have underperformed their peers. Its UK Government Bond fund has returned 30% over 10 years, compared to an average of 60% among rival funds.
The Financial Conduct Authority is looking closely at how financial advisers charge their clients, particularly in relation to pension advice. “Contingent charging”, where a firm charges a client more to transfer a pension than doing nothing, is set to be banned by the FCA. Its research into defined benefits – or final salary scheme – transfers found that nearly 70% of clients had been advised to switch out of defined benefit pensions to defined contributions. Clients are usually tempted by a large lump sum to transfer out but are then at the mercy of stock market performance to pay for their retirement.
