Companies that cater to a well-heeled clientele should be adept at handling high-maintenance demands with delicacy. Not so UK wealth manager St James’s Place, which has largely brushed aside a loudmouth complaint by activist shareholder PrimeStone Capital about high expenses. That may be a mistake.
PrimeStone has called for an overhaul at the 5 billion pound wealth group, which offers its investing nous and infrastructure to a network of over 4,000 financial advisers in return for a cut of clients’ fees, to boost lacklustre returns. It has a point. Despite stellar asset growth – on Tuesday Chief Executive Andrew Croft reported 119 billion pounds in funds under management, double the amount in 2015 – St James’s Place shares are slightly lower than where they were five years ago.
Higher outlays are a likely reason for such a jaded performance. Despite SJP’s increased scale, its average operating expenses per adviser have increased by two-thirds since 2014 to 96,500 pounds per year, nearly double the quantum at rivals, according to PrimeStone. And even though Croft managed to grow funds under management by an impressive one-fifth last year, the firm’s expenses were equivalent to 71% of income from fees and commissions. Competitor AJ Bell reported a 2019 cost-to-income ratio of 64%.
Croft’s retort that he is investing for future expansion is only partly justified. It’s true that SJP will need to recruit more advisers to reach its longer-term funds under management target of 200 billion pounds. But a six-year long sally in Asia has produced widening losses with no clear path to profitability: total funds in the region were less than 1% of the group total at the end of 2019.
With shares down one-fifth year-to-date, belt-tightening is an obvious way to boost SJP’s grubby valuation: the stock trades on 20 times forward earnings, a discount to peers on 30 times, according to Refinitiv data. PrimeStone’s mere 1% holding may persuade Croft that he can safely ignore their gripe. Yet, given the stock’s uninspiring run, the activist may well gain the support of more genteel investors.