I think there are two parts to the story around St James’s Place and ongoing advice.
Firstly, there is what’s happening in SJP Land (worst theme park ever). And secondly, there is what might happen in the wider advice sector.
For SJP we are reasonably far down the line. It has announced a £426m provision for potential client fee refunds, but unless we see any further regulatory action, that will probably be it. The damage to their share price has been done though (over 66% down in last year) and will be long lasting.
SJP’s issue was not delivering ongoing services to clients paying ongoing fees. Or more specifically, not being able to evidence they had done so prior to 2021 when they implemented their new Salesforce CRM. Regulation 101 – if it’s not written down, it hasn’t happened.
These fees have been (or are being) refunded. In its full-year results announced on 28 February, SJP also talks about a further 2% of clients for whom ongoing fees have been switched off. The company is at pains to point out that the combination of their new CRM, Consumer Duty and this remedial work should draw a line under the whole sorry episode. We can only hope this is the case.
The value challenge
The question is: What does this mean for the wider advice sector?
Here I think we are much earlier in the story.
If SJP believes/hopes it is coming to the end of this process, for advisers and planners we are only at the first chapter.
As a reminder, FCA data tells us that 77% of advice sector revenue comes from ongoing fees, so any regulatory pressure on this revenue stream would be very disruptive.
This pressure is already starting to be felt. We’ve had the FCA survey on ongoing advice, which went out to around 20 of the biggest advice firms earlier this month. But there are also multiple questions on ongoing advice fees (whether that’s related to fee structures and levels, fee suitability or the systems and data to evidence delivery) as part of the regulator’s retirement income advice thematic review. And as the FCA confirmed at #langcatlive, the results of this review are due before the end of Q1.
The output from this thematic review feels like a big moment for the wider advice sector. This is the FCA’s chance to confirm just how much of a problem the regulator has with ongoing advice fees.
I think this will boil down to two aspects. Firstly, are you like SJP in that you haven’t been delivering these services (or can’t evidence you have)? In which case, expect to hear from the FCA’s enforcement team in the not too distant future.
The second aspect is less cut and dry. Consumer Duty means it isn’t enough to simply deliver these services. You need to evidence that they represent fair value. So, emailing a PDF valuation to a client and getting several thousand pounds a year for the pleasure? Good luck with that one.
But here’s the thing – our fair value research we carried for Royal London confirms several points:
- Value is subjective.
- Around 90% of consumers who pay for ongoing advice believe it represents value for money.
- The things clients value are peace of mind, reassurance, the safety net of knowing you have a plan and someone there to help if and when needed. The old joke of it being good news that you didn’t need to see your IFA over the last year stands true. But if/when life events happen, boy are you glad you have had them holding your hand along the way.
From our extensive research into the advice sector (Advice Gap, The meaning of value and State of the Advice Nation to name a few), and our countless regular conversations with advice professionals, we know the profession is predominantly made up of really decent folk who do the best for their clients day in and day out. These firms wouldn’t dream of charging for a service only not to deliver it. Yet it’s the measuring and evidencing it, and the value you deliver, that can be difficult in practice.
No one would disagree with the FCA cracking down on firms which are taking advice fees for no services at all. But it’s worth taking the opportunity to highlight that this fair value issue is dangerously subjective. Amid the headlines, there is a real risk that the good advice and planning firms get tarred with the same brush.
