Advisers accused of misleading clients on costs
LAST week I talked about the impact of risk on your investments and pensions but failed to mention one of the biggest risks I see within an investor's (or pension investor's) hard earned money. That is apathy.
Just as on a bright sunny day in a hot air balloon, no-one checks for parachutes, when a stock market is rising few people check to see if they are receiving their money's worth, or are indeed in for turmoil if a storm arrives.
It's all a bit tardy when poor piloting uses up your gas (high charges) and flies you into a storm, just in time to notice the oncoming electrical hazards.
Balloon rides are often chosen on convenience and price (or perceived price as you will find out) and most pilots agree it's the weather that dictates the safety, but in difficult times the pilot earns their wage.
As we move into volatile geo-political times, how's your pilot and gas usage for your investments?
St James Place (or SJP) manages £83 billion of client money and is often on the receiving end of independent financial advisers' wrath.
In July the FTSE 100 wealth management group was accused by consumer watchdog Which? of failing to explain fully its charges to potential customers.
In a report shared directly with the Financial Regulator, 12 undercover ‘customers' asked SJP for advice. SJP cannot give independent advice as they are not independent, but instead operate from a small selection of funds they have chosen to be the ‘better' funds.
As a ‘non independent' they won't charge a fee and therefore will only be paid if you invest with them. This assumes you should be invested, rather than receiving advice which you pay for, which may lead you away from investing in the first place.
This makes me consider further the document leaked to the Sunday Times which warned that advisers' income and ‘standard of living' would drop if they struggle to get clients to part with money.
SJP sales representatives (or partners as they are referred to) are paid from the huge upfront fees on the funds they place your money into. The financial website ‘This is Money'' exposed the incentives given to the representatives such as Asprey cuff-links and trips to St Moritz. Indeed George Osborne was paid £40,000 to attend their last annual trip and make a speech.
Which? pointed out SJP's fees were 40 per cent greater than an IFA and indeed are more than 40 per cent greater than ours as a specialist independent financial adviser in investments. And so we might expect their performance to be better as they talk of their best of breed.
Ten minutes of analysis tells you to look a lot further. I compared just three funds in a short time and the results were horrifying. In each of the three, the returns by the better funds in the same comparable group/sector were over 90 per cent better.
For example, their SJP UK and International Income fund produced 61.96 per cent but the Artemis Global Income fund was more than double over the same five-year period at 124.14 per cent.
Their Strategic Managed fund produced 44.99 per cent, whereas the consistent Premier Multi-Asset Growth and Income fund produced over 90 per cent better at 86.18 per cent return.
The biggest percentage difference was in the star fund manager Neil Woodford whose Woodford Equity Income fund outperformed his own SJP UK High Income fund by over 200 per cent, with a return of 28.67 per cent versus 9.07 per cent.
Which? also pointed out the discrepancies between the ‘white labeling' that SJP claim. It showed that investors buying George Luckcraft's fund direct through an independent rather than through SJP would save you £1,000 in fees initially and £340 ongoing based on just £50,000 investing.
David Bellamy, outgoing chief executive of SJP, said: “St. James's Place offers high quality, face-to-face, financial advice, evidenced by 98 per cent of clients who said our services represent reasonable, good or excellent value-for-money."
He said more than 80 per cent of clients had described the value of the service as "good" or "excellent".
“Our advisers are committed to putting clients' interests first and we will continue to provide the excellent service to clients that has underpinned our growth over the past 25 years.”
:: Peter McGahan is the owner of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you would like your investments reviewed call Darren McKeever on 028 6863 2692, email firstname.lastname@example.org or visit us on www.wwfp.net.