Will the Lloyds-Schroders tie-up become the next SJP?

Commentators say it could rival SJP for drawing the ire of the advice industry


Lloyds Banking Group’s joint financial advice venture with Schroders could leave the firm drawing the ire of some in the advice industry as has been the case for its rival St James’s Place.

On Wednesday the joint venture announced the business will be called Schroders Personal Wealth and last week it revealed plans to hire more than 700 financial advisers as a part of the launch, as well a target of £25bn in assets under management.

This has led industry commentators to draw comparisons with fellow wealth management giant SJP. Some state that the dislike of many advisers towards that group’s business model could happen to the Lloyds-Schroders joint venture if it followed a similar path. Others meanwhile say IFAs would be a lot less concerned with SJP had it not been so successful.

Evil anachronism

Clive Waller, managing director at CWC Research, says from his understanding the major criticisms of SJP are that it is expensive and lacks transparency, as well as the fact it is not independent and offers only restricted advice.

“It is very, very hard to discover SJP’s total costs,” he says. “They operate segregated mandates, so we do not know how much they are paying. They have initial and exit charges, so time invested is a factor, and they are loath to quote full costs, like many wealth managers.”

Waller adds in his view the major concern with SJP was that it works on what is, in effect, a commission model. “The sales people are paid in a virtually identical way as they were pre-RDR. Moreover, the manufacturer appears to subsidise distribution.”

A spokesman for SJP disputed Waller’s statement saying that SJP was fully RDR compliant and does disclose total costs to clients.

He said: “99% of the 40,000 client respondents to our most recent annual wealth survey believe they receive excellent, good or reasonable value for money from St. James’s Place, and 96% of respondents said they either have or would recommend us.  This reassures us that the service our advisers offer clients is transparent and continues to represent good value.”

Of the proposed Lloyds-Schroders joint venture, the SJP spokesman added: There has never been more demand for advice than there is today, and any new entrant into the market should help to close the significant advice gap that exists in the UK.  This can only be a good thing for consumers.”

Graham Bentley, managing director of investment marketing adviser gbi2, told Portfolio Adviser the dislike of some in the industry towards SJP comes because IFAs “over-emphasise the benefits of their independence”, and consequently sketch SJP representatives as an “evil anachronism”.

An example of this “anachronism” and what IFAs claim, Bentley says: “[Is a] very restricted proposition, high-pressure salespeople not ‘professionals’, not caring about the customer, weak technical expertise, expensive products etc.”

Schroders Personal Wealth could be next

During the launch, the Lloyds-Schroders tie-up said it has a target of £25bn which Waller says is likely to be an estimate based on the industry multiples and around what a typical adviser brings in each year.

Waller says: “The numbers will be relatively speculative, they have an initial target of 700. It seems a lot, but is modest compared to SJP, Openwork etc.”

Gavin Fielding, editorial director at Fundscape, also believes it will be looking to follow in SJP’s footsteps, which he said is the model everybody now wants to be because it’s highly profitable and “seems to have dodged any regulatory bullets”.

But, that is not the only place that Schroders Personal Wealth could follow SJP to.

Bentley says he would be “pleasantly surprised” if Schroders Personal Wealth didn’t face the same ire, but outlined the fact its major partner is a bank has a part to play towards this.

He says: “If they play the Schroders brand and reputation cards well, I can see this venture challenging SJP through the ‘captive’ Lloyd’s customer base. However, independent advisers will feel threatened, and may seek to tar this new venture with an SJP brush, irrespective of Schroders’ efforts to promote higher quality values, service and products.”

Trust issues with banks

Last week, experts in the industry told Portfolio Adviser that the launch is expected to leave IFAs “rattled” as banks attempt to regain trust with consumers and make a splash with advice.

Bentley says: “Bearing in mind the way banks have disgracefully manipulated clients’ to their own advantage through mortgage-linked endowment sales, personal pensions, miners’ redundancy investments, PPI etc, it is entirely understandable that there will be a high level of cynicism about the motivations and priorities of management, and the service levels they will deliver.

“That’s more about banks’ history than SJP ‘guilt by association’”.

Schroders announced on Wednesday that the advice arm has taken the brand of Schroders rather than Lloyds and a spokesperson said: “We undertook the usual independent research with advisers and consumers on a number of options and the end result is the one which resonated the strongest for the business model.”

“The news that Schroders is to be the brand makes a great deal of sense and reflects what I said about banks’ reputations,” Bentley adds. “Furthermore Schroders will be aware of reputational risk associated with potential advice scandals, etc. Their brand values are likely to be at the forefront and they’ll develop that through Lloyds’ higher net worth customers first before extending the service to the wider public.

Waller says: “Banks have a poor record of selling product against target. Not just PPI. SJP are restricted, expensive and lack transparency. Nonetheless, their customers love them and there are loads of them.

“I don’t think Schroders Wealth will be quite like a bank advisory businesses.”

Jealous of the success

While SJP and the Lloyds-Schroders venture may have concerns, the dislike from advisers could be from another cause.

SJP is a hugely successful and profitable business with Q4 2018 results showing £2.6bn of net inflows in the fourth quarter despite challenging market conditions.

Bentley says he doesn’t think the dislike it faces matters. “Clients don’t read the trades; they couldn’t care less about an industry that is totally unfamiliar to them, and in particular sanctimonious opinions about competitors.

“They care about their own money, the products in which those monies are wrapped. Fact is, most of the 26,000 advisers in the UK, let alone customers, couldn’t care less. They’re troops, not crusaders.

“I suspect it’s their ‘industrialised’ success that generates the vitriol; the cottage industry that is independent financial advice cannot believe that the financial services establishment – product providers, asset managers etc – can possibly care as much or deliver the outcomes that they can.”

Elsewhere, Waller argues that IFAs would be a lot less concerned with SJP had they not become so successful.

“The harsh reality that the only two national businesses that are successful year on year are SJP and HL,” he explains. “There is not an IFA they come near. That in itself is not a criticism of IFAs but does say a lot about SJP and HL.

“IFAs would do well to ensure they are transparent in terms of charges; are genuinely independent, and focus on delivering great value to their clients, he explains, “which many already do, rather than throwing stones at SJP. Its an unnecessary distraction. Leave that to the regulator.”

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