St James's Place finally scraps exit charges – is it time to move your money out?
St James's Place will introduce its much-anticipated new charging structure next month, reducing costs for some clients, but others will still be subject to its controversial exit charge for six years to come.
Britain's biggest wealth manager, which has long been criticised for the complexity of its fee model, first announced the overhaul in 2023 following the introduction of new regulations by the City watchdog.
In the same year, The Telegraph revealed that some clients had paid thousands of pounds for advice they did not receive, driving a surge in complaints from claims management firms.
The firm, which looks after the pensions and savings of more than one million clients, came under pressure after the Financial Conduct Authority published new 'consumer duty' rules.
It has since earmarked £426m for potential refunds in relation to the scandal.
After a tumultuous few years, the new charging structure – which also does away with the controversial 'early withdrawal charge' for new customers – is a chance for the firm to draw a line in the sand.
So, is this the moment to leave St James's Place for good – or give it another chance?
James Rainbow, chief executive at St James's Place, said: 'I wouldn't understate the extent of the change we are making. It's been the result of 18 months of significant work from across the St James's Place organisation.'
As part of the overhaul, the firm is now separating out its charges into advice fees, product fees and fund fees. Previously, the wealth manager bundled up its charges, making it extremely difficult for clients to work out how much they were paying.
How the new charges work
Some costs are coming down. St James's Place used to charge an initial advice fee of up to 4.5pc, but now this will now be tiered based on the amount invested.
This means a new client would pay £10,500 upfront on a £400,000 sum, according to the firm's calculations.
However, the annual advice fee is increasing from 0.5pc to 0.8pc. The firm said this was to reflect 'where clients get the most value'.
An annual advice fee of 0.8pc is the industry average, according to research from the Financial Conduct Authority published in 2020.
The firm is also launching tiered product charge. The fees are 0.35pc for investment bonds and pensions, falling gradually depending on the amount invested, with 0.25pc due on sums over £3m.
For Isas and unit trusts, the charge is 0.27pc, dropping to 0.17pc on amounts over £3m.
Until now, the price of a fund has included advice charges. But going forwards, the firm is stripping these out, which should make investment performance easier to compare.
Fund charges will now range between 0.09pc and 0.69pc, with the average at 0.52pc.
Altogether, the ongoing charges for a client with a pension add up to roughly 1.66pc each year.
How St James's Place compares
Holly Mackay, of research firm Boring Money, said this put St James's Place 'pretty bang on in the middle of the pack', compared to other wealth managers.
She said: 'On average, most St James's Place clients will be better off. A big problem with their previous charging structure was its complexity – it was head-bangingly difficult to work out what you were paying and then compare [with others].'
Most of its funds are cheaper following the restructure. However, a minority now cost more.
St James's Place said that the majority of investors would see their charges go down regardless, because clients tend to hold a combination of funds in a portfolio.
But a small number of clients will see their overall fees go up. The firm said it was writing to these clients to inform them.
Pensions and investment bonds will be more expensive in the short-term. The new charges work out at about 1.66pc per year, up from 0.92pc in the first six years under the previous system.
However, they compare favourably over the long-term – down from 1.92pc in years seven to 10, and from 1.77pc after that.
One of the biggest changes has been the removal of the so-called 'early withdrawal charge'.
St James's Place used to levy a charge if a client with pensions or investment bonds left the business within six years. The charge applied on a sliding scale – reducing from 6pc in year one to 1pc in year six. This was designed to recoup initial fees which were spread over six years, the firm argued.
New clients will no longer have to pay this fee if they want to move their money. Investments outside of the six-year window will move into the new charging structure from August.
But those with pensions and investment bonds who joined the firm in the last six years will still face a penalty if they leave within that timeframe. In fact, any money added to pensions or investment bonds in the last six years would be subject to the charge if the client left.
Lee Goggin, of the website Find A Wealth Manager, said: 'I would be mightily peeved if, as an existing client, I still had to endure the early withdrawal charge, and yet new clients aren't caught by this ridiculous fee.'
Mr Goggin also said he thought the fund charges were still 'at the upper end' of the market.
'For high-net-worth investors, particularly those with larger portfolios, the total cost of investing with St James's Place is likely to remain steep when compared to other, more modern discretionary managers or platform-based models offering low-cost passive funds.'
St James's Place said that nearly 95pc of its funds will now rank below average in terms of cost for the relevant fund sector.
Mr Rainbow said: 'We see the real value in the relationship between our clients and their advisers every day.
'These changes will make it much simpler to see just how competitive we are on a like-for-like basis for the fully personalised, trusted advice our advisers provide. It's a good thing for our advisers, our business and most importantly our clients, the majority of which will benefit from lower overall charges over their relationship with us.'
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