Are there better options than investing with St James's Place as an expat?

04/14/2022

St James's Place are a FTSE100 wealth and fund management company in the UK. Below we will review St James's Place and discuss the positives and negatives.

Who are St James's Place?

St James's Place are originally a British company, and still have their HQ in the country, but also now have offices in Singapore, Hong Kong and Shanghai, targeting expats. There are two ways to gain access to their funds. Firstly, you can invest directly with them. Second, their funds are available on countless DIY platforms, especially in the UK. They claim that their advice is guaranteed and that they "have won many awards". 

What are the typical costs?

The costs vary but typically are:

  1. Up to 5%-6% to get in - upfront cost.
  2. Ongoing charges of up to 2.5% per year. This includes fund fees.
  3. There are exit fees. 

There has been some contradictory information online, with some people suggesting that the upfront fee is included within the ongoing fees, and others saying that isn't the case. Either way, their fees are far above the industry average, and this lack of transparency has caused a far bigger issue, with negative public relations and media reports. One of the most prominent examples is the consumer advocate group, Which?, that has criticised how opaque some of the fees are, whilst others have critiqued some of the trips and incentives for advisors. So, there is certainly a lot of room for improvement.

Are the fees different within their funds?

Yes but not radically different. None of the funds can compete with low-cost ETFs or index trackers. 

How have their funds performed?

The performance of their funds has been mixed. Some funds have performed very bad, with 80%-90% lagging their competitors and benchmarks. So, the mileage varies with these funds and as the saying goes, past performance is no indication of future returns. So their poorly performing funds might one day become their best "star performers", and vice versa.

How about the St James's Place portfolios?

St James's Place recommends that expat clients go into one or even two of their portfolios. They have a portfolio which combines many options into one, and this takes into account clients attitude to risk and volatility. Something to remember about their funds performances is that the global stock markets have had, on average, a good period in the last 10 years. So their average funds performances haven't been great.

What are the positives about this option?

The main positives associated with St James's Place funds are:

  1. As this is a well-regulated company, you are unlikely to face the worst case scenario. All advice is checked. 
  2. Most of their funds don't lose money, if you buy and hold them for many years. So whilst they might not be the best funds in the world (more on that later), they also aren't the worst. This could be one of the reasons why they have a relatively good client retention rate in the UK but not overseas. For the average conservative investor that isn't overly happy with getting 4% per year when the market is doing 9%, for example, they might not want to leave the company and invest elsewhere.

What are the negatives?

The main negatives associated with this option is:

  1. The funds are neither cheap nor do they perform well compared to the benchmarks in general.
  2. They are not truly independent. So this isn't a million miles away from investing with a well-regulated bank, even though they can offer external fund managers. So it is highly likely that you will be suggested St James's Place funds if you go with one of their advisors, especially in the expat market.
  3. In addition to point two, this point gets even more complicated. Their investment committee does look for excellent fund managers. So some fund managers are in-house and some are external. Regardless, even if the advisors believe that another provider has a better product they can only use SJP products.
  4. They are quite UK-centric when it comes to expat advice and that isn't ideal for non-British expats in Asia.
  5. The high net wealth solutions are quite basic, and again expensive, compared to the alternatives.
  6. The regulation is a double edged sword. Most clients, even if they want advice, also prefer to have some say about some of the investments that may be picked. With St James's Place, you won't be able to do 80% in "safe funds" and 20% in "index funds" for example. So you have very little control.
  7. The approach is quite old fashioned. Two or three face-to-face meetings, fact finds and a traditional approach to trying to beat markets, isn't what expat clients are looking for these days. We all want to use Uber rather than "normal taxis", and likewise, with wealth management as well, most people want speed and online traceability. The corona virus period is a great example of this. People didn't want to meet in-person even before this pandemic. So they need to use technology more in the future.
  8. Linked to the last point, there have been some complaints online that the company stalls when it comes to moving money out to other providers or when a client wants to sell out. An old fashioned company, which is used to face-to-face and paper forms, isn't going to be as quick as an investment platform, when it comes to withdrawals and top ups.
  9. A big brand name isn't always a good thing. It can mean you are client number 108,625 with less tailoring. In reality, you have different fund options with them, but you don't have greater flexibility and choice compared to some providers.
  10. Beyond the actual fees, you have the opaque nature of the set up. Even one of their newest board members admitted their fees weren't particularly transparent.
  11. As per the analysis above, your mileage might vary. Investor A, could be happy with Advisor B, in fund C. Investor B, in comparison, could be in one of their underperforming funds.
  12. In some offices, they have high advisor turnover, which significantly affects consistency of service.
  13. The way they have compensated and incentivised advisors has attracted a lot of negative publicity. Incentives cause conflicts of interests!
  14. The difference between the service in the UK and overseas is likely not the same.
  15. The reliance on "star fund managers" as per the Neil Woodford affair.

What was the Neil Woodford issue?

Neil Woodford was a "star fund manager" in the UK for years, beating the FTSE100 in the process:

Woodford beat the FTSE for a long time before his fall from grace. He was seen as a safe manager to manage some of St James's Place's funds. However, that came to an abrupt end and St James's Place dropped him from the funds he was managing, after Woodford's funds were suspended. That included the St James's Place UK High Income and UK Equity Fund. Whilst St James's Place acted swiftly in this case, it does expose the idea that they can do due diligence on "star fund managers" based on previous performance. Past performance is seldom, if ever, a guide to future returns in the investment management business. Merely relying on previous star performers adds an extra layer of risk to the equation for expat investors.

What can you do if you have a SJP fund and you aren't happy?

This partly depends on whether you simply own their funds on an external platform, or are a direct investor. If you own one of their funds on an external platform, selling out should be easy. If you have a portfolio with them directly, you might be able to sell out without any penalties, or partially sell out, but that will depend on countless factors. Sometimes you will need to wait a few years to have complete access to the money.

How are SJPs funds likely to perform during a crisis?

One of the claims made for their funds is that they might underperform their benchmarks, but they won't go down as far as the market, during periods of crisis like 2008 and 2020. It is too early to tell how their funds will perform during 2022, although it seems likely that they won't fall as far as the general market, or rise as quickly once the situation improves. During 2008, many of SJPs funds did little better than the overall market. With that being said, expat investors that use advisors do much better than those that do it yourself (DIY) invest. That is true regardless of whether people use SJP or another advisory firm. The main reason for that is most investors, left to their own devices, panic sell during a crash. 2020 offers a great example of that. Global stock markets did very well on average. US Markets increased by 17% during 2020, with the Nasdaq rising over 43%, yet countless people panic sold during the worst of the stock market crash in February and March 2020.

What are some of the biggest mistakes expat investors tend to make?

Many expat investors, the majority in fact, are more worried about losing something, than gaining. This is called "loss aversion". This is partly linked to sayings like "it is better the devil you know" and is one reason why "slightly disappointed" expat investors tend to stay long-term with numerous advisors firms. This might seem rational, but ironically can lead to relative losses, compared to the alternative. For example, if your account is worth EUR 100,000 and you are currently making 4% per year, you could lose up to two millions over a 30 year period, by missing out on 6% yearly returns. Another misconception is that lower volatility, or standard deviation to use the fancy term, automatically means less risk. That is a key mistake. Finally, many expat investors are too reassured by size. Whilst this has changed in recent years, with more people preferring boutique operators, some people still prefer big multinationals. In reality, size usually implies a lack of specialisation and tailoring. The analogy we would make is, you are much more likely to get better service from a boutique legal recruitment company specialising in just one area, than a big recruitment agency. The same thing applies with investing. Those within a niche are much better able to service your needs.

Conclusion

There are much better funds and companies available than St James's Place for expat investors. In other words, much lower cost, more transparent and tailored options exist. For expat clients with existing St James' Place assets, it therefore makes sense to review whether the money can be better deployed elsewhere.

If you have been proposed this option, or are already in and aren't happy, you can contact us: info@expatwealthatwork.com