If you switch the radio off, and get everyone in the office to shush, and the cars outside to stop, and the children to stop playing, and the wind to drop, you can just, if you try really, really hard and perhaps get your ears syringed a bit, hear the world’s smallest violin, wielded by the independent advice profession, playing in honour of St James’s Place and the right old shoeing it’s been getting from various sections of the media of late.

The fantastically named Fred Schwed wrote the famous book Where Are The Customers’ Yachts? about sixty years ago. Had he written it in the last year or two, he’d have been forgiven for including the subtitle “I Don’t Know, But The SJP Advisers Are Over There On That Big Luxury One”.

NO JOKES

It’s easy to make SJP jokes, like this one – “How many SJP advisers does it take to screw in a lightbulb? Only one, but you’ll never find him again if you want to take it back out,” but that’s not the purpose of the Update this week.

EXCEPT THAT ONE

Ho, ho. Rather, let’s think about what’s going on under the hood here. It’s axiomatic that SJP is really really expensive. And for sure the exit fees (because that’s what they are no matter what SJP calls them) are in dire need of being taken out behind the woodshed and disposed of (m’colleague Mr Michael Barrett of the lang cat’s Isle of Wight offshore branch covered this with elegance in his blog).

But how much does the expense matter? And how real is it? Happily we have some from-the-horse’s-mouth disclosure from SJP to help clear the fog.

SJP’s 5% initial charge is nastier than the 3% industry average, that’s undeniable. The mid-risk managed funds portfolio is 1.93% a year including ongoing advice, product and transaction costs, but not including initial charges and exit fees.

Is that the worst in the world? Well, I know firms holding multi-asset funds costing nearly that on a platform which adds another 0.3% a year and then a 0.8% advice charge on top which takes the total cost of ownership to around 3%. Equally I know firms who get the client out for a total of 1.4%, including evidence-based portfolios on low-cost platforms and 1% to the adviser.

And how much do clients care? Well, SJP’s £100bn or so under advice gives us a clue on that score. How many other firms giving advice do you know with £100bn? No, I think what we have here is the dictionary definition of a price inelastic good. Some have suggested advice is a Veblen good – the more expensive it is, the more desirable – but I don’t think that’s right. Clients are so intimidated by the advice process that their ability to parse the market based on price is close to nil; they will generally sign up with the first adviser they sit with.

So I don’t think that press reports on high charges or price wars will make much difference to SJP. But the inability of the business to prevent these recent stories of excess and poor practice might.

CONTROL FREAKERY

Some years ago I sat on a panel with the then chief exec of SJP, David Bellamy. We were talking about tech and mobile stuff and platforms and whatnot, and David said something interesting. His point was that (outside of the financial stuff) his beginning and end was about controlling in obsessive detail every touchpoint with the customer. That’s why he put so much money into the offices, the famous stationery and so on. Everything was planned out. And those touchpoints, taken together, were the sum total of the experience for the client. The actual investment return was secondary.

I remember thinking that – from a different angle – that this is exactly the song sung by financial planners – it’s everything else that matters; the actual products and investments are a secondary concern. That’s probably as far as the similarities go, mind.

This is why the recent reports are so damaging. SJP and brands like it from all types of different industries from restaurants to tech create a convincing and very desirable experience. The quality of this experience depends on not paying attention to the man behind the curtain. When we see advisers whooping it up on yachts, or foul conditions in restaurant kitchens, or the suicide statistics for the people that make your iPhone, the fourth wall is broken.

When that happens, we look to the quality of the product, and how easy it is to find an alternative. Apple fanbois can’t leave their beloved fruity ecosystem easily, and conditions at other factories in Shenzhen and Longhua are just as bad. But it’s easy to find another restaurant. The question is: how easy is it for clients to find another adviser who will let them see behind the curtain from the outset?

CUFFED LINKS

• • We’ll soon-ish be closing our Adviser Sentiment Survey (ASS) into platforms. Actually that’s not its real name. It’s the Adviser Real-time Sentiment Exercise. Anyway, we’re a bit light on Standard Life Wrap ratings just now, so if you do use SLW would you be a love and pop onto the site and tell us what you think? Actually all welcome, whichever platform you use.
  • More stuff on unregulated investments – surely the greatest alpha advisers add is keeping clients away from this horrible stuff (and we should include SJP advisers in that as well). How do we put a value on that?
  • And your music choice this week wishes to give you nothing more than a break from the turmoil outside. Please do enjoy the luminous Epitaph by County Wicklow’s God Is An Astronaut.

See you next week

Mark