As SJP Advisers argue over a £4m Client Portfolio Sale, we reflect on how this impacts client rights.
I have spent many years of my career working with Financial Advisers who are looking to retire or leave the market.
When independent financial advisers retire, they often want to sell their business, much like anyone who has built something over time. They typically have a few options for how to go about this:
- Business Sale
They can sell some or all the shares they own in their business, which includes the company and all the income streams within that company. This could be to other advisers within the business or to somebody external, with the purchaser taking over all the assets, liabilities and clients. - Client Bank Sale
Financial Advisers can also sell their client book, usually made up of pension and investment clients, since these generate recurring annual fees, typically around 0.75%. The buyer is essentially purchasing the goodwill of the client relationships. The adviser’s regulated firm is then closed down, and after a set period (covered by run-off insurance), any future claims become the responsibility of the Financial Services Compensation Scheme (FSCS).
However, when dealing with the two largest financial adviser firms in the UK, St. James’s Place (SJP) and True Potential Wealth Management (TP), both of which are tied, advisers build their client base using only the firm’s own investment platform. This means their clients’ pensions, ISAs, GIAs, and Discretionary Fund Management services are all held exclusively through SJP or TP.
So, when it comes time to retire from financial advice, they already have a buyer – which is St James’s Place itself.
So how does it work?
St. James’s Place works with numerous firms operating under its brand, known as Appointed Representatives (ARs), as well as individual self-employed advisers. When somebody wants to sell up, SJP will find a suitable buyer within their network of AR’s and lend money to that buyer to purchase the client base.
True Potential’s model has evolved significantly in recent years. It was recently reported that independent advisers were encouraged to join TP as self-employed agents, with the aim of moving as many of their existing clients as possible onto the True Potential platform. In return, they were offered a substantial incentive – 8% of the total value transferred. This meant an adviser who moved £10 million of clients’ pensions to TP could earn up to £800,000 for the sale of those client relationships.
So why are we talking about this?
Firstly, it’s worth pointing out that this is not limited to tied agents like TP and SJP, most financial advisers expect to sell their client base. The big question is should they be able to do so without the client’s consent?
Can pension and investment clients be owned by financial institutions?
The short answer on this is no. A client has the right to change their pension provider, financial adviser, bank, building society etc.
SJP for years used redemption penalties on pensions to allow them to tie customers into their services (like mortgage provider redemptions but without an introductory rate).
The reality is that if a client wants to leave, they usually will. However, this doesn’t stop firms from paying two, four, or even six times an adviser’s annual revenue to acquire the goodwill of their client base.
What does this mean for clients?
On the positive side, selling a client book should ensure continuity of service, so no client is left without support. However, the downside is that purchasing firms often prioritise higher-value clients, meaning lower-value clients may be overlooked and miss out on the annual reviews they’ve been paying for.
But the biggest concern is when clients were sold and then moved to a new internal offering such as an Internal Platform, Discretionary Investment Manager, Discretionary Fund Manager or similar as often these moves are or were in the best interests of the firm rather than the client.
What should you look out for?
Annual Reviews – If you have not received annual reviews from your financial adviser, it’s likely you have paid fees for services you have not received.
Change of Adviser – Has the name of your financial adviser recently changed? Is this a change of firm or just a new member of the team who has been assigned your case? Have they been able to demonstrate an understanding of what you need and your financial goals?
Change of Platform – Often (but not always) a red flag is when after years your adviser wants to discuss a new platform or investment offering. Make sure that the decision to move is completely justified for you and does not incur any additional risk, fees or charges.
Financial Advice & Pensions is complex, and it can sometimes be hard to know whether you have grounds for complaint at all. If you have any concerns, our team can undertake a full investigation on your behalf to establish if you have been a victim of mis-selling, overcharging or negligence. If this is the case, we will happily pursue the full redress or compensation you deserve on a no-win no-fee basis.
You can Book a free consultation with one of our experts today.
