It can still get worse for St James’s Place

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Financial adviser St James’s Place could use some guidance itself — of the legal variety.

Otherwise unexceptional full-year results included yet another blow for its shareholders. SJP, already forced to overhaul its business model thanks to a regulatory crackdown, announced a £426mn pre-tax provision for potential refunds to its clients. This relates to claims that clients did not receive sufficient services to justify the fees paid to financial advisers under the SJP umbrella.

This is the company’s third negative earnings warning, for different reasons, since the summer. In the clubby, comfortable world of dishing out advice to the wealthy, SJP has lost the trust of the market — and potentially its clients.

Legal challenges will come and seem likely to only grow in number. A big cut in the full-year dividend did not help on Wednesday. An 8 per cent estimated yield earlier this week is now 5 per cent. But the market lopped nearly a third from its share price at one stage, in anticipation of more trouble ahead.

SJP is already changing a charging structure, based on upfront fees and rebates, that was viewed as complicated and unfair. Its governance and basic record-keeping were also clearly lacking. Most of the refund claims date to before 2021, when SJP introduced standard software to manage and record its customer relationships. The sense is that top management, before that, did not care deeply how their advisers were handling clients, as long as the fees rolled in.

The market reaction owes something, thinks Numis, to a sharp reassessment of whether SJP can now take advantage of opportunities to capture UK defined contribution pension money, as peer AJ Bell has successfully done. Its share price is flat over the past year, compared with a 63 per cent fall for SJP. The latter’s charging overhaul means earnings will not trough until 2026, UBS estimates.

Meanwhile, cutting the dividend and the provision makes some sense in terms of responsible financial management. But it raises questions over the need for cash flow preservation and what could follow should more customers submit claims or seek redress through other routes.

Only the hardiest investor — not a hallmark of SJP’s investing clients in the past — would want to back the company now.