SJP says advice charges not 'major' profit driver as stock drops 2%

In its annual results for 2019 published this morning (27 February), the advice giant explained that most of the initial advice charges received are "offset by corresponding remuneration for partners". On the news of its results its share price dropped by 3% before recovering slightly to a 2.3% drop by 11am.

Therefore, an "increase in these revenue streams will correspond with an increase in the associated expense and vice versa". It also said initial product charges are not on top of the profit list. This is because "they are spread out over the expected life of the investment".

Rather than advice charges, SJP said, the primary source of its profit is the income it receives from annual product management charges on funds under management. While growth in FUM is a positive indicator of future growth in profits, it said, most of the investment and pension products are structured so that annual product management charges are not taken for the first six years after the business is written.

Elsewhere in its results, SJP reported that its pre-tax profits dropped to £187.1m in 2019, compared to £211.9m in 2018. Meanwhile, at the end of 2019 funds under management (FUM) were at £117bn, an increase in £22.6bn from 2018 (£95.6bn). 

SJP chief executive officer Andrew Croft said: "The fundamentals underlying the business remain strong and over time, increasing funds under management will generate increased returns.

"However, in the short term, our profit has been impacted by the more modest gross flows relative to the planned investment in the business for future growth."

Croft added that given the progression of FUM and its "confidence for the future," the SJP board has proposed to increase the final dividend by 5% (31.22p per share). This would result in a full-year dividend of 49.71p per share (2018: 48.22p per share) - a growth of 3%.

Business practices

Throughout the autumn last year, The Sunday Times repeatedly ran articles criticising the firm's business practices, most prominently its remuneration structure, which saw its top-performing advisers enjoy lavish holidays and meals for bringing money into the firm.

However, in September 2019, the adviser firm did say it would be reviewing its rewards structure for its advisers in an effort to modernise its business. Then earlier this month, the advice giant vowed to put pressure on staff perks, telling employees that bonus structures and job titles will be changed to reward "the right behaviours".

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