If you’re an adviser with St. James’s Place (SJP), and considering your options in today’s turbulent financial climate, it’s essential to understand the current landscape—and how it might affect your future. With advisers owing significant sums to SJP and associated lenders, the financial dynamics have become increasingly complex. Let’s break it down together.
The Loan Burden: What It Means for You
Recent estimates put the total loan balance owed by SJP advisers at a staggering £756 million. These loans, critical to the growth and succession planning within SJP, are structured as follows:
- 50% owed directly to SJP
- 33% owed to a consortium of banks, with SJP acting as guarantor
- The remainder as securitised loans with SJP (sold to third parties)
The repayment terms require a tenth of the principal to be paid back annually, alongside interest set at 3.5% above the base rate. With the current Bank of England base rate at 4.75%, the total annual repayment rate comes to 18.25%. For the average loan of £160,000, this translates to an average annual repayment of £28,000 per adviser.
This financial commitment is undoubtedly significant, but recent growth in SJP’s stock price might offer some reassurance that there will be a return on your investment. That said, challenges could still emerge, and those within SJP are best placed to evaluate these. For instance, there’s the potential cancellation of ongoing advice fees (OAF) with redress arising from backdated claims added to adviser debts in cases of fee-for-no-service, as well as the possible application of court rulings on undisclosed commissions to Initial Advice Fees under bonds and pensions. Additionally, HMRC’s strict CEST test could see some advisers classified under IR35. These factors could result in advisers carrying loan balances that significantly exceed their annual fee income. In some instances, this imbalance might even lead to business valuations dipping into negative equity.
While this can feel daunting, it’s an opportunity to take control and seek the right support to navigate these challenges. With careful planning and expert guidance, advisers can protect their business value and build a stronger financial foundation for the future.
SJP has mechanisms to facilitate internal succession planning, including providing loans to advisers for purchasing client books from retiring partners. However, rising interest rates and increased debt burdens have made such internal transactions more challenging.
Valuations Under Pressure
Practice valuations are also being squeezed by economic conditions. Historically, SJP’s “My Practice” valuations have been based on six times annual fee income, plus a 25% goodwill premium. However, in the current market, valuations are down to 80% of these levels, with goodwill often excluded altogether.
For many advisers, the equity in their practice represents their retirement nest egg. High loan-to-value ratios are increasing the pressure, making it more important than ever to assess the sustainability of the business.
The Fee-for-No-Service Review: A Potential Tipping Point
SJP’s ongoing fee-for-no-service review has highlighted cases where ongoing advice fees were cancelled due to non-provision of service. See: Post-Growth Objective: Can We Believe Anything the FCA Tells Us About SJP? If the scope of this issue is underestimated, the financial implications could escalate dramatically, further impacting advisers’ fee income and practice valuations.
This raises an important question: how prepared are you for the potential outcomes? If your equity is tied up in a devalued practice, and loan repayments represent a higher proportion of income, it’s time to consider alternative strategies.
What Are Your Options?
Under Financial Conduct Authority (FCA) rules, advisers cannot leave SJP to join another regulated firm without first repaying their loan. However, there is another path: transitioning from potentially disguised employment to a self-employed holistic wealth planner role. This would allow you to continue serving your clients without the constraints of FCA regulation, while potentially unlocking a more sustainable business model.
Former SJP advisers are typically prohibited, for a specified period (often 12 months), from soliciting or contacting clients or employees associated with their former practice. This includes restrictions on encouraging clients to terminate their SJP products or services.
This approach could enable you to:
- Reduce financial pressure: Without the need to repay loans upfront.
- Build a values-driven practice: Align your career with a focus on holistic client outcomes.
- Protect your future: Safeguard your financial well-being while continuing to support your clients.
Planning Ahead: A Supportive Community Awaits
If you’re feeling uncertain, you’re not alone. Many advisers are grappling with these challenges. But there is a way forward. By exploring your options, engaging in proactive planning, and seeking support, you can navigate this period with confidence.
At the Academy of Life Planning, we specialise in helping advisers like you transition to holistic wealth planning. Our community offers guidance, tools, and mentorship to help you build a practice that aligns with your values and secures your future.
Take the Next Step
Your financial future doesn’t have to be tied to the status quo. If you’re ready to explore new possibilities, we’re here to help. Let’s work together to create a sustainable, values-driven practice that puts you—and your clients—on the path to success.
Reach out today to start the conversation. Together, we can build a brighter future for you and your business.
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