An internal document from Schroders Personal Wealth has revealed it is attempting to undercut St James’s Place on price, although the investment industry questions whether the price war will be met with apathy by price insensitive consumers.
Details of the charging structure revealed that first-year client fees, inclusive of all account set up costs, administrative and trading charges, run at an average of 7.9% at SJP and 4.7% at Brewin Dolphin, versus Schroders pricing at 3.6%.
A spokesperson confirmed the fees will be tiered, initial advice fees will be charged at 1.75% on investments up to £1m ($1.25m, €1.13m), compared to an industry average of 1.9%.
On investments between £1m and £2m, there will be fees of 0.75%, and there will be no additional advice fee on amounts over £2m.
An ongoing advice fee will be charged at 0.65%, versus an industry average of 0.8% on investments up to £1m.
Those with investments between £1m and £2m will be charged 0.4%, while investors with between £2m and £5m will pay 0.35%.
This falls to 0.15% for clients with investible asset of more than £5m.
A Schroders Personal Wealth (SPW) spokesperson said: “Our pricing is transparent and competitive. We know from experience and numerous studies have shown that professional financial advice generates value.
“We can play an important role in helping more people plan for the future and manage their finances with a professional service.”
Clients aren’t price sensitive
Langcat director Mike Barrett said Schroders’ cheaper fees comes despite the fact market leaders with their notoriously high charges.
“From a supply side perspective it makes sense for a new entrant to look to undercut existing providers, however I’m not sure it will automatically mean they are a success,” Barrett said.
“If you look at the demand side, clients have conclusively proven they are not price sensitive, with SJP and [Hargreaves Lansdown] being the market leaders in the advised and direct channels.”
Fundscape chief executive Bella Caridade-Ferreira argued distribution is where Schroders will have its competitive advantage.
“Lloyds already has a vast army of captive clients so it doesn’t need to spend money finding new clients, it can data mine its own client base to find thousands clients with significant assets or large pots of money languishing in deposit accounts,” she said.
That provides them the scale to “signficantly undercut rivals”, she added. “SPW is a game changer. I expect the cost is far lower so in theory SPW could go a lot lower than that.”
IFAs still cheaper
Red Circle Financial Planning’s Darren Cooke argued while 3.6% in year one and 1.9% a year “looks cheap compared to the other two”, in reality, it is still expensive compared to many IFAs.
“That said, there are also many IFAs or other vertically-integrated firms using DFMs or multi-asset funds at 1% or more (1.65% for one VI firm) plus platform costs circa 0.3%, plus adviser ongoing fees of say another 0.75%, but could be 1%.
“All that can stack up to well over 2% and can be over 2.5%.”
CWC Research founder Clive Waller said: “1.9% ongoing is competitive with wealth managers and IFAs. That said, there are those who offer a lower cost proposition, primarily using passives or ETFs.
“Any price war is good for the consumer and is much needed in this space.”
However, GBI2 managing director Graham Bentley said this is “merely declaration of relative value”.
“It’s only a war if the other side fights back, and if I were they I would,” he said.
Where do the figures come from?
Others in the industry queried the figures Schroders referred to in the internal document leaked.
Cooke said there is “some dispute to say the least” about the figures Schroders Personal Wealth are quoting for SJP and Brewin. “It would seem they are only basing that on the unit trust investments and not pensions.”
Bentley added: “I don’t recognise the numbers, especially for SJP. I think Schroders should share the methodology they used to come up with their estimates, given SJP’s charges are pretty clear – 5% initial and 1.68% pa for their most popular portfolio; there is no fee earmarked for advice.
“If I was SJP or Brewin, I’d be asking SPW for their assumptions and illustration of charges so they can be verified.”
‘Moving in’ on SJP’s bad press
Schroders Personal Wealth has been accused of benefitting from SJP’s bad press.
Cooke said: “It would seem they are moving in on the SJP stories in the press but then the stories about SJP being expensive are nothing new, it doesn’t seem to stop them gaining new clients though.
“This is all born of a poor regulator not fully defining how costs should be disclosed and then enforcing it as one rule that every fund manager, every DFM and every advice firm must abide by.”
Caridade-Ferreira doubted SPW deliberately targeted SJP clients. “But who wouldn’t take advantage of an expensive, mediocre provider getting a kicking in the press? They would be mad not to.”
In June, Schroders Personal Wealth, led by James Rainbow launched to a number of existing Lloyds customers in June with 500 staff.
Last month, it was reported to have faced widespread staff complaints over IT problems.
For more insight on UK wealth management, please click on www.portfolio-adviser.com