St. James’s Place Plc is a FTSE 100 financial services group that provides high quality wealth management services to businesses and individuals across the UK. With around 500,000 clients and £71.4bn in client funds under management, St. James’s Place is well established as one of the UK’s leading wealth managers. The strength of the Group’s adviser-led approach to wealth management, twinned with a proven investment management proposition, leaves St. James’s Place uniquely positioned to benefit from favourable long-term demographic and market opportunities in wealth management. St. James’s Place recently released its fund flows and funds under management for the six months to 30 June 2016, reporting a 20% increase in gross inflows, and a 15% increase in net inflows for the period.
The market place
There are more than 9 million individuals in the UK with between £50,000 and £5m in liquid assets. This segment is forecast to control over £2 trillion investable assets by 2018.1 The UK population is ageing while the state and corporate sectors are shifting the burden of retirement onto individuals. These favourable demographics, twinned with an ever-increasing tax burden, will create further demand for high quality wealth management services over the longer term.
Proprietary distribution model
Key to the success of St. James’s Place is the Group’s own dedicated distribution network, known as the Partnership, which benefits from the strength of the St. James’s Place brand. With 2,320 high-quality and experienced Partner businesses, working through over 3,259 qualified Advisers who are focused on establishing long term client relationships, the Group has been able to consistently achieve predictable and high quality new business flows, as well as sustainable asset accumulation through exceptional fund retention and strong client advocacy.
The drivers of growth in new business sales are two-fold: increasing the scale and the productivity of the Partnership. The Partnership has grown in size for eleven successive years and new business per Partner has increased steadily over time. Whilst the demand for high quality face-to-face advice is rising, the number of qualified financial advisers in the UK has reduced. This provides St. James’s Place with a compelling competitive advantage.
St. James’s Place aims to grow its Partnership by 5-7% per annum, through its core recruitment efforts and newer initiatives such as the expansion into Asia, the Academy and most recently the acquisition of Rowan Dartington.
Distinct investment management approach
St. James’s Place has a distinctive approach to investment management. The Group has no in-house team of investment managers, believing that no single investment house can have a monopoly of investment expertise. Instead St. James’s Place selects a number of leading external managers from around the world to manage its broad range of funds.
The cornerstone of this approach is the Investment Committee, which manages the fund managers on behalf of clients. In addition, St. James’s Place retains a number of independent investment consulting firms, including Stamford Associates and Redington, and they play a crucial role in the selection and monitoring of managers. This approach provides St. James’s Place with both the flexibility to respond to market conditions as they change and also the confidence that it is employing the best fund managers for its clients.
Reflecting confidence in the cash earnings of the business as the in-force book continues to mature, St. James’s Place announced with its 2016 interim results a 15% increase in the interim dividend. This follows ten successive years of dividend increases in which the annual payout has grown at a compound rate of 24% per annum. Going forward, the Group intends to continue with a progressive dividend policy, growing the future dividend in line with the underlying performance of the business.
Funds under management
The combination of strong gross inflows, positive investment returns and consistently strong fund retention rates has seen St. James’s Place grow funds under management by 17% per annum over the past ten years, rising to £65.6bn at 30 June 2016.
Strong capital position
The Group operates with a robust balance sheet. St. James’s Place has regulatory capital well in excess of solvency requirements. The Group has a prudent investment policy for managing solvency assets - being predominantly in cash, AAA rated money market funds and UK government securities. The Group does not offer options or guarantees on its investment products, is not exposed to longevity risk through an annuity book and uses a prudent reassurance programme to manage the mortality and morbidity risks.
St. James’s Place reports its financial results twice yearly at the half and full year stage. In addition the company updates its new business sales and funds under management quarterly.
In addition to presenting the financial performance on the IFRS and EEV basis, we provide two additional measures: an analysis of the post-tax sources of cash emergence in the year which we refer to as the cash result and the IFRS underlying profit.
The cash result is based on the IFRS result, but removes non-cash items such as DAC, DIR and deferred tax. It is also adjusted to reflect a level of regulatory solvency constraint on profits emerging from regulated companies such as our insurance businesses in line with that required by UK regulators. The effect is to create a measure that better reflects the cash generated by the business. Since the cash result can be impacted by timing variances and capitalised impacts of changes in solvency requirements, management believes it is also useful to present an underlying cash result excluding these effects, which the Board reviews in determining the proposed dividend payments to shareholders.
To further aid investors’ understanding we have added a new measure called underlying profit, which is based on the IFRS result but adjusted to exclude the impact of the DAC, DIR and PVIF intangibles.
Experienced management team
St. James’s Place is led by a very experienced executive management team, which comprises David Bellamy (Chief Executive), Andrew Croft (Chief Financial Officer), Ian Gascoigne (Managing Director) and David Lamb (Managing Director).
1 Source : Datamonitor, 23 January 2015:estimates