Good morning! I'm Paul Manduca, Chair of St. James's Place. Welcome to this briefing, where Andrew and Craig will describe some important changes to our charging structures. We believe these changes will further strengthen our market-leading position in the U.K. financial advice and wealth management landscape and deliver long-term benefits for all our stakeholders. Before I hand over to Andrew and Craig to take you through the detail of the changes and the financial implications, I should like to take this opportunity to pay tribute to Andrew, who will shortly be retiring from St. James's Place after 31 successful years with the business. He will, of course, be hugely missed by the entire SJP community, and on behalf of us all, I wish him the very best for his forthcoming retirement. We announced some weeks ago that Mark FitzPatrick will succeed Andrew as Chief Executive on the 1st of December.
Mark joined the business at the beginning of this month and is immersed in an extensive handover and transition. Mark fully endorses what we are announcing today and is looking forward to taking the business forward. Today's changes complete the review of our charging structure that followed from the work performed to address Consumer Duty. That puts us in good shape for the future, and so I'll now hand over to Andrew, who will explain why that's the case.
Thank you, Paul, and good morning. Earlier today, we announced that we've concluded an evaluation of our charging structures and made a decision to effect changes for the future. I will talk in more detail about what those changes are in due course, but to summarize, we're simplifying our bonds and pension structures, including removing early withdrawal charges or EWCs. We're separating our charges into their component parts, and we're rebalancing our charges across each element of our proposition. I will also talk in more detail about why we've made these changes, touching on shifting consumer trends and how they've been reflected in an evolving regulatory landscape over time. And I'll talk about why I believe this is really positive for the business, setting us up with a sustainable and competitive charging platform for the long term that will see SJP thrive.
I'll start, though, by setting out some background to these changes. We've been in business for over 30 years now, with a model that has delivered strong client outcomes as we've established ourselves as the leading provider of financial advice in the U.K., with GBP 158.6 billion of funds under management and retention rates of over 95%. As we look to the future, we continue to see a fantastic market opportunity ahead. The demand for advice is growing, driven by a very large savings gap in the U.K., the persistent complexity of the U.K. savings, tax, and pensions regimes, and of course, the challenge of managing and optimizing intergenerational wealth transfers. All this at a time when there is already an acknowledged shortfall of qualified financial advisors in the U.K., creating an advice gap which is expected to widen only further.
For an ambitious business with a clear direction of travel, the opportunity is clear. Our industry is always evolving, and in order for us to stay the market leader over the long term, it is important that we continue to adapt to changes in client expectations and the regulatory landscape. In recent years, we've invested heavily in a number of areas, including technology, to improve services for clients and better support partners in our investment proposition and in the evolution of our brand. Consumer Duty puts good client outcomes at the heart of the financial services industry, something that we've always believed to be of the utmost importance. Expectations will continue to evolve with a focus on simplicity and comparability across financial services. Against this background, we have built on our Consumer Duty work and completed a more comprehensive evaluation of our charging structure, an evaluation which has now concluded.
The principal purpose of this work was to reinforce our position as the best place for clients to build strong financial futures. To do this, we looked at our charging structure through three key lenses. First, simplicity: ensuring our charges are easy for clients to understand and easy for our partners to explain. Second, comparability: making it clear what service is provided as part of each charge so that clients can more easily compare across the industry. And finally, and most importantly, value-focused: ensuring our charging structure highlights the good value that SJP provides for clients with our high-quality service. By ensuring that our renewed charging structure meets each of these points, we will be well placed to continue to lead the market into the future. To meet these criteria, we're making three key changes that will come into effect during the second half of 2025.
First, at the point of implementation, we will be removing the EWC mechanism from all future new business. Instead, new bond and pension business will continue to operate with an initial advice charge but no initial product charge. Ongoing product and advice charges will apply from the outset, and there will be no six-year gestation perio d. Existing bond and pension investments will, though, continue to operate with an EWC mechanism, as applicable, until these naturally expire... following which there will be no further EWCs applicable to any business. This change for bonds and pensions will better align our charging structures across our investment wrappers, simplifying our proposition for clients. Second, we will be separating our charges, outlining them in their component parts, being advice, product, and investment management.
This will make it easier for partners to explain charges to clients at the start of their relationship, and in turn, for clients to review and compare as part of their decision-making process, particularly against competitors that do not offer the same fully integrated service that we do. Finally, in separating our charges into their component parts, we will be able to rebalance our charges to better align with where clients receive value across the components of our service proposition, as well as introducing tiering for larger investments on ongoing product charges. What is the outcome of these three key changes? Well, the individual client impact will depend upon the product wrapper and the duration of each investment.
The resulting level of client charges across all wrappers will continue to compare favorably with competitor rates available in the marketplace, representing good value for the high-quality financial planning service that our partners provide. These changes will reduce complexity in our product structure, improving comparability, and will support our brand and reputation, broadening SJP's appeal over time. This will set us up to maintain our market leadership over the long term and future-proof the business as industry dynamics and client expectations change. Moving forward with the sustainable new structure, SJP will be well-placed to capture the significant opportunity ahead for the advice market. I'll now take a moment to illustrate what the new charging structure looks like after the changes that we have announced today.
Starting with our unit trust and ISA wrapper, as you can see from the slide, we have further improved the value that we offer to clients by reducing both our initial and ongoing charges, while moving from a bundled charge to one which clearly separates into the three component parts of our ongoing service. To keep things simple, what we've illustrated here is what the charges would be for a new investment of GBP 100,000 into one of our most popular funds. The wrapper will include an initial advice charge of up to 4.5%, though in practice, this will vary with the size of the investment and the complexity of advice required. After this, an ongoing charge of 1.59% will apply in each year, though there will be some variation based upon the choice of investment funds.
Going forward, SJP will continue to retain product charges, but will also retain a proportion of the advice and funds charges, reflecting the group's activity across all of these areas. Craig will take you through what this means for the financials shortly. Turning to the structure for our investment, bond, and pension wrapper, where we are implementing more substantial changes, harmonizing with the structure of our unit trust and ISA wrapper. The only difference between the wrappers being a slightly higher product charge here, reflecting the higher administration requirements of these products. This means, from the point of implementation, new investment bond and pension business will no longer operate with an EWC, resulting in a different pattern of contribution to the cash result.
Compared with our current model, initial charges will be lower, while the introduction of ongoing product charges applicable from the outset means that ongoing charges will be higher for the first six years than they are today, but then lower thereafter. Again, the resulting level of client charges will continue to compare favorably with competitor rates available in the marketplace. Finally, the split of charges between components has been rebalanced towards advice charges, reflecting the fact that the advice lies at the heart of the value SJP delivers for clients. The changes that we're announcing today will be completed in the second half of 2025, but our change program will be structured in such a way as to safely deliver improvement and value as the program progresses. Craig will touch on the cost of this implementation program shortly.
So just to recap, we've announced today several key changes to our future charging model. These provide us with a sustainable and competitive charging platform that will help us in our ambitions to maintain our position as a leading financial advice business in the U.K. These changes reflect the fact we can see consumer trends are evolving, as is the regulatory environment, and in completing our evaluation and effecting these changes, we leave ourselves in great shape to remain focused on driving value for all of our stakeholders, from clients, to partners, to employees, and to our shareholders. With that, I'll now hand over to Craig to cover the financial impacts.
Thanks, Andrew, and good morning, everyone. I'm going to cover the financial impact of the changes that Andrew's outlined and the way they'd affect the cash results in the future before providing some guidance on how you might go about modeling them. Finally, and for illustrative purposes, I'll give an overview of what the revised pattern of the cash result might look like in the future. I'll also comment briefly on embedded value, IFRS, and solvency, and then the dividend. So turning to the cash result first, there are four key things coming from the changes we've announced that will impact on the result. These are the removal of initial product charges, the simplification of charges for bonds and pensions, the lowering of ongoing charges, and the costs to implement the changes.
Let's take a moment to illustrate how these changes will affect each of our two main product wrappers, starting with bonds and pensions. The chart shows our retained margin in each policy year, with the current structure shown in blue, comparing to the future structure shown in green. Covering initial product charges first, as this slide shows, and as Andrew has mentioned, new business written in the new charging structure will carry no initial product charges. This will have an immediate effect on the cash result from the point of implementation onwards, serving to eliminate the margin arising from new business. The second item is the simplification of charges on bonds and pensions, which means from the date of implementation, there will be no gestation period for new business, meaning that new bond and pension business written from that point on will immediately start contributing to the cash result.
The benefit will be small initially, but will increase more rapidly as new business accumulates in the new structure, having a significant positive effect on the cash result in the medium to long term. As a reminder to those less familiar, gestation is a feature of our current charge structure, whereby new bonds and pension business does not earn annual management charges in the first six years after it's written, thereby creating a temporary drag on the cash result, but good visibility over future growth and income as it matures beyond six years. As a point of interest, some GBP 47 billion of funds under management was in gestation at the half year, and this stock of funds will continue to mature over time.
As we look ahead, therefore, we'll get the twin benefit of new business contributing from day one, and we'll also get the benefit of existing FUM in gestation maturing over time. The third impact is that we're both reducing and harmonizing the ongoing product charges for mature bonds and pensions that are outside of their gestation period. These reductions in product charges are partially offset by a higher retention of ongoing advice charges, but the net benefit to clients will reduce the margin for net income from FUM. This revised margin will apply to gestation funds as they mature going forwards. Now, turning to our unit trust and ISA wrapper, the changes to the charging structure are much simpler, resulting in the removal of initial product charges and a reduction in ongoing product charges.
The final impact arises from the one-off implementation costs of GBP 140 million-GBP 160 million that Andrew has already referenced. This implementation project will get underway immediately, and I expect costs in 2023 of some GBP 10 million, followed by GBP 95 million in 2024, and GBP 45 million in the first half of 2025. The majority of these costs relate to substantial systems and process changes needed in order to unbundle and forward account for existing investment products, and of course, to be able to run new investments made from the point of implementation onwards. These costs will be disclosed separately within the underlying cash result and will not be considered within our controllable overheads on the basis that they're one-off in nature.
Taking a step back from the detail of these changes, we see that the first and third items will act as an immediate drag on the cash result from the point of implementation. But the second item will act to accelerate growth in the cash result as we gradually move away from the current gestation structure. Putting all of this together, the net effect is that the cash result will be lower in the short term as we transition to the new structure, but is likely to be higher in the medium to long term as we begin to generate income from the outset across all of our product wrappers. I'll now provide some guidance on how you might model the ongoing impact of these changes.
The simplification of our charging structure will not only aid comparison, as Andrew has mentioned, but it'll also present an opportunity to simplify our accounting in the future. For now, though, I'll provide guidance based on our current format of reporting. Starting with the margin arising from new business, we would no longer expect this line to contribute to the cash result from the point of implementation because of the removal of initial product charges. Turning next to the income from funds under management, there are two key drivers that will influence its profile under the new structure. These are the overall margin and the mature FUM balance against which the margin should be applied. The margin range for net income from mature funds under management will reduce going forwards, and the range we're now guiding on from the point of implementation onwards is set out on this slide.
However, as I've mentioned, you should also assume that 100% of gross inflows will contribute immediately to mature funds in the future. The effect of this is that our new margin range will apply to a quickly increasing proportion of funds under management as the gestation balance in existence at the point of change matures. Following this six-year transition period, there'll be no further concept of gestation FUM, and the margin range will apply to all funds under management. Finally, you'll also need to allow for the one-off implementation costs using the phasing profile that I've already described. There are a number of key factors that drive the cash result that have to be subject to key assumptions.
These include market performance and the impact of the operating environment on gross and net flows. The impact of what we've set out today, however, will result in a more straightforward financial model, where cash emerges in line with the development of total funds under management. Getting to this point reduces the cash result in the short term, but strengthens it in the medium to long term, given the absence of a gestation balance.
Now, there's always a challenge with forecasting the future, particularly given the assumptions I've just described, but I thought it might be helpful to show you how the combined income components of our cash result, being the net income from funds under management and the margin arising from new business, might have progressed over the last six financial years had we have put in place this structure back in 2016 and kept everything else as actually achieved.
What you can see from this slide is the pattern I've described, with the cash income impacted in the early period of transition, but then recovering rapidly. Next, let me mention embedded value. Now that we've made a decision to change our charges structure, we will perform a full reassessment of embedded value, taking into account all of the changes. Our preliminary reassessment, however, is that embedded value per share, now that the decision has been made, is approximately GBP 13.60 per share. For those of you that model IFRS, income will be impacted by the net changes to ongoing charges. If you take the margin I guided on for net income from FUM in the cash result and gross it up for tax, it will give you the IFRS revised income.
It's worth noting, though, that there will be no further deferral of initial product charges under IFRS, and so there'll be a net positive as the current stock of deferred income amortizes. There's very little to say on solvency because the changes we've announced have very little impact, either now or in our projections. It remains strong, with a ratio that's consistent with the risks of the business. Finally, I'll comment on the dividend. The changes I've outlined and the guidance I've given will result in your model showing a different trajectory for underlying cash than the ones you currently have. Our approach of allocating 70% of the underlying cash result to dividends will remain unchanged, and you should use this to model expected outcomes.
Having said that, the Board is very much aware of the importance of dividends to shareholders and will always take account of the circumstances and the operating environment to decide whether a higher payout ratio or other methods of return are appropriate. I hope that gives a good perspective of what all of this means for our financials. Let me now hand back to Andrew.
Thank you, Craig. I'd now like to spend a few minutes adding some color to the Q3 new business update we also communicated to the market this morning. I'm pleased to announce another robust quarter for St. James's Place, with our advisors attracting GBP 3.7 billion of new client investments to the business. Retention has again remained strong at over 95%, supporting a further GBP 0.9 billion of net inflows and contributing to funds under management closing the period at GBP 158.6 billion. The demand for trusted face-to-face financial advice remains as strong as ever, but client capacity and confidence to commit to long-term investments has been impacted in the near term by an environment characterized by high interest rates, stubbornly high inflation, and short-term alternatives in the form of cash.
Despite a continuation of the challenging operating environment that we saw in the first half of the year, we continue to generate significant levels of net inflows, once again demonstrating the ongoing resilience of our business model. Looking forward, we're beginning to see signs that inflation is moderating and that the current cycle of interest rate increases may be reaching a peak, bringing optimism that this will ease the pressure on clients and will, in due course, increase the confidence to commit to long-term investment. Having taken you through our resilient new business performance and the changes that we're announcing today to simplify our charging structure, I wanted to take a moment to reiterate that there are no changes to our wider strategic priorities or dividend policy.
We will therefore continue to measure ourselves against the targets that we set out in our 2025 business plan ambitions, recognizing that these are challenging in the current market environment. But it is very much business as usual, and we continue to focus on the same six business priorities to deliver for all of our stakeholders. 2023 to date has highlighted the importance of our robust business model as we have navigated challenging external conditions effectively and continued to grow our business. We continue to see an attractive market opportunity, and the review that we have undertaken leaves us well-placed to capitalize on this and lead the advice market into the future, delivering long-term, resilient growth for our clients, partners, and our shareholders. So that's it for our presentation. But before opening up for the live Q&A session, I just wanted to leave you with three key messages.
First and foremost, clients will benefit from the changes we are making to charges, as well as from a simpler and more comparable fee model. Second, there remains a huge opportunity for trusted face-to-face advice in the U.K. The changes we've announced only strengthen my conviction that SJP is well-placed to capitalize on this opportunity by establishing a sustainable and compelling model for the future, supporting growth and enhancing our market leadership. Finally, we have an implementation plan and transition period to navigate, but these changes will present benefits for all of our stakeholders. That's it from us. Thank you for listening, and now over to the Q&A.
Hello, good morning, everyone. Andrew Croft here. Thank you for joining us. Look, I appreciate there's a lot in the two announcements we made this morning. So I think probably to make the best use of your time, should we go straight into questions? So, operator, back to you, please.
Thank you. If you would like to ask a question, I will just remind you again, please press Star, then One on your telephone keypad. We now have the first question from Charles Bendit of Redburn Atlantic. Please go ahead when you're ready.
Thank you for taking my question. Yeah, I just had a couple of questions. One, wondering if you could give us some color on how much of the advice and fund charges you plan to retain in addition to the ongoing product charge. I think advice in the previous model was about 50 basis points, so just trying to reconcile that with the 80 basis points now. And then, as a follow-up on that, just curious as to how you're thinking about low-cost passive products in the context of reducing the overall fee for clients and providing them with more choice. Is this now too difficult on the basis that SJP's 44 basis point net income margin assumes retention of some portion of the fund fee that would no longer be possible with a low-cost passive fund? Thanks.
Thank you, Charles. Now, I'll take the second one first, and then perhaps pass over to Craig to do the first one. Look, I actually think, you know, one of the benefits of doing what we're doing is it's gonna give us great agility in the future. So I actually think it's easier in the future, Charles, to do something with passives than it would be today in the current structure. In terms of the first one, color on retention of fees. Now, clearly, you've got the advice fees, you've got the investment fees, and you've got the platform fees, but at this stage, I'll probably best to hand over to Craig.
Yeah, I'm-- I'll probably give a double-barreled answer to this because what we've obviously presented here is something that's very different from our normal all-inclusive disclosures. But rather than just hone in on one, it's worth me just going through perhaps each of them. So we have the initial charge, which is now exclusively advice, because we've removed the initial product fees. And the way to think about the future for that is that that will behave in exactly the same way as initial advice fees have in the past.
And the amount retained within the business, which in the past will have gone away to support the margin on new business, still goes to the same line, but the removal of the product fees mean that that is now, I would say either it's negligible or nil. So what I've suggested is that you assume that the margin arising on new business is a nil figure. It could be fractionally above, fractionally below, but for modeling purposes, assume nil. For the ongoing advice, this is a change, and whereas previously, the partnership retained all of the ongoing advice, we now, within the business, retain 25 basis points, and that supports the work that we do as an advice business.
Product charges are corporate charges, so they stay within. And then the ongoing fund charge that, that we've shown has two elements to it. It has the work we do and the work we ask external managers to do. And I think if you think in terms of 17 basis points being retained, it's, it's somewhere, somewhere in that region. But the reason I say I'll give a double-barreled answer is that I, I am aware that this is a very different way of looking at SJP. I think it's a much clearer way, but the guidance that I've offered this morning is intended to make it as easy as possible for everyone to adapt their models at pace.
So what I've done is I've taken a new approach to charging and, and of course, disclosure, and, and kind of back sold that into the margin that you would have to apply to the mature funds under management in order to come up with the answer that we would come up with if we were using the same markets and new business assumptions that you're using in your models. So hopefully, that addresses the, the retention, but also the way we've described that in the onward guidance.
Thank you, Craig. B ack to you operator.
Thank you. We now have David McCann of Numis. Please go ahead.
Yeah, morning, all. Two, two strategic questions on this from me and two of a more technical nature. So on the strategic questions, you've outlined how the client and the shareholder economics, loosely speaking, work under the proposed change. What, what's the kind of advisor-partner economics? How do they look, and, you know, are they better or worse off than they are at the moment? That's the first one. Secondly, can you confirm, I guess, whether the regulators have given explicit blessing to these changes, or are there any risks of any further changes to fees or the structure in some way going forward? That's the first two.
And on the technical questions, you know, in the past, you made the point that there are sort of costs embedded within, you know, both the new business and indeed, the management fee margin. You know, with the product fees going to initial product fees going to zero, going forward, what happened to those stranded costs, if you like, that are currently contra to the revenue, given they'll be in their revenue, particularly for that line? So does that mean that the yeah, the operating costs of the business go up in some way, and if so, what is that number? And then finally, yeah, the implementation cost, you've stated on a pre-tax basis, and conventionally, you normally state all of your numbers post-tax.
Is it just a case of taking the 25% off, so, is there a tax shield on this, or is there something else to take into account for tax purposes on those implementation costs?
So thank you, David. I'll take the two strategic ones and then, well, not probably, I will pass over to Craig. On the regulatory one, David, you know, I think as we all know, that's not quite how it works. The regulator doesn't bless and approve anything, but clearly, we are a big business in the U.K., and therefore, you can assume naturally, excuse me, that we would have involved engagement with our key regulators throughout this process. In terms of the second one, broadly speaking, the overall level of partner income we would expect to be the same, but it will change shape.
It's very difficult to talk about each individual partner because, you know, I think as you know, there's no such thing as an average inside the partnership. It's a very, very broad church. And what we will be doing is working with our advisors, helping them transition through these changes. I'll send to you, Craig.
Yeah, so I think there were two questions there. So what I can say, there are no stranded costs in the model. And I think where your mind is going there is on perhaps the initial advice and some of the pre-existing reporting on margin arising from new business. It's important to remember that there is a retention for the shareholder within the initial advice, and that covers the costs, some of which are fixed, some of which are variable, of getting that new business onto the books. So the cost that I think you're referring to aren't stranded, they're covered by today's retention, which will also be tomorrow's retention. On implementation, you're quite right.
I've quoted a pre-tax figure, and I just felt in the context of full disclosure, it was important to quote the pre-tax figure rather than to net it off to a smaller number post-tax. But absolutely, you should use the same tax assumptions that we've used elsewhere, and when you put that into your model, you should put it into the model on a net of tax basis.
Thank you, Craig. Back to the operator, please.
Thank you. We now have Enrico Bolzoni with JP Morgan. You may proceed.
Hi, good morning. Thanks for taking my questions. So first question, can you give some extra color in terms of how we should think about these additional costs to implement these changes? What are they directed to? And related to that, is it possible that as a result of the investment in the business to transition to the new fee, fee structure, you will have a more scalable business going forward and potentially lower cost growth? My second question relates to the existing targets. You briefly mentioned them in the press release. Can you give us an idea of what do you expect in terms of gross flows? I mean, you're going to have, if anything, an even more competitive pricing structure, so is it possible that if markets recover, you might exceed what was your original guidance?
And then finally, I wanted to ask you, if you can give some color on how you thought about balancing, you know, the interest of existing customers that clearly were onboarded on a different fee structure, with respect to the new one. So how did you ensure that, the existing clients that clearly benefited from the waiver, but arguably they paid higher initial charges, are satisfied with, with the fact that new customers actually will be onboarded on different terms and conditions? Thank you.
Look, I think I will probably ask Craig to talk about the two cost questions. I think in respect of the gross flows, Enrico, look, I think what we're doing here is we're making our charging structure more transparent. We're making it more comparable, we're making it simpler. Therefore, I would expect that we will have a broader client offering going forward, and therefore be attractive to a larger market. In terms of specific points on gross flows, clearly we've always got to reflect on the external environment, but what we've seen this year is that clearly there's a cost-of-living crisis.
People's capacity to invest has been impacted, but also there is the, or has been the emergence of a cash alternative that we've not had for many, many years. So I think the actual gross flows will always be dependent upon those conditions. I think really importantly, that is sort of short-term stuff. I will always come back to, in the long term, the dynamics for this business are very, very positive, as they are for any advice business, because as you heard me say at the end of the video, the market is large, it's continuing to grow. The need for advice is continuing to grow, intergenerational transfer, not enough advice, advisors out there.
So long term, we remain incredibly confident, and by putting this new charging structure in place, we believe we will have a wider appeal to more customers. So hopefully, that does the flows. In terms of the cost, I think I'm passing over to Craig. Yeah.
Yeah. So if I go through what I said this morning, as we covered on the last question, there's GBP 150 million assumed for the cost to change. Let's perhaps think about what's in that. The lion's share of that will be systems changes, because while clearly we've made every effort to try and simplify the presentation of what a simpler charging structure will look like, when you get into the plumbing of a system that supports over 900,000 clients, it becomes very complicated because you're having to split each individual investment into the various component parts that will support all of the future accounting, future disclosure, and future conversations.
So we're having to make some significant changes to our core systems of record in order to achieve that. And that takes time, and it takes investment. We've engaged with a third party to help us along the way on this to make sure that we're being realistic in terms of the timeframe. And the sort of timeframe that we've announced this morning reflects both our view, but also the input we've had from other parties. We have, if you like, the benefit of what you might regard as corporate muscle memory on this because we've been through a major systems implementation in moving all of our business onto Bluedoor.
And for that reason, while this will present different and new challenges, I'm sure, we're working with the same parties, and we're in discussion with the same parties to get this additional piece of work done. So we feel as confident as we can be that we've assessed this in the right way, both in terms of scale and timing. It sort of moves on to what I think you were also asking, which is: is there an opportunity for us to look at the remainder of our cost base? And I think in time, I would hope it does. But again, we have to be realistic. This is a project that will deliver its final elements of change.
There'll be change along the path as well, I'm sure, but the change to the systems and the changes that we're discussing this morning will be in 2025. But then I suppose the final point I would make is that we're realistic. You know, we're very conscious that this is using a significant amount of resource in the business over the next 18-20 months. Work starts today, and we will be as keen as ever to be as realistic as we possibly can be on our ongoing controllable overheads. And there is a question of striking that balance.
We've got to make sure that we are realistic in setting budgets and forecasts, but we've also got to make sure we continue to invest in the business, and that means having the best people, retaining the best people, and continuing to invest in future growth. So hopefully, I've picked up on everything that that question suggested. And I think your final question was on new and existing clients, and I think I understood the question. But I think let's just take a step back for a moment and how did we set the sort of fee for each of the components that are being separated in the future? Well, first and foremost, actually, we were using Consumer Duty sort of lenses on it.
First and foremost, looking at price versus value to the client. We also looked at the cost to deliver that service to clients. And then thirdly, we looked at sort of comparable market rates. So we've got very comfortable, the Board's got very comfortable with the individual components. Now, those ongoing charges will apply to both existing and new business at the point of implementation, and it builds on the fee cap that we put in place at the beginning of August. For existing clients who are currently in that gestation period , in the early withdrawal charge s, they will remain in that early withdrawal charge period until the period naturally expires. Because at this point in time, there are no sort of product fees being applied there.
So I think the other part of your question, I think, was something around initial advice. And I wasn't sure I quite answered it, because new clients will continue to pay initial advice, 'cause that's a separate service. Obviously, existing clients have already paid that, so that is factored in. But the ongoing charges for existing clients and for new clients will be the same, subject to a little bit of variability around the portfolio that they're investing in, 'cause some funds will carry a higher or lower charge just depending upon the nature of the investment. So I hope that I picked up that fourth question. Operator, could we take the next question?
Yes, thank you.
Absolutely. We now have Andrew Crean from Autonomous.
Good morning, all. Can I have three questions, please? Firstly, what is the reduction in yield calculation versus the 2.3%, which you used to present? Secondly, could you talk a little bit about your expectations for surrenders on life and pensions-
Yep.
- products now that the early withdrawal charge has been withdrawn? And then thirdly, I just wanted to look at what you were saying in July, where I think you said that we've looked at every part of our business through the Consumer Duty lens, and where changes needed to be made, we've made them. Now, that doesn't really square with the fact that you've announced these charges, or all these changes to charges now, and that even back in July it was under review.
Yeah. Thank you. Let me take the final one first, and I'll probably also talk about your question around expectations on surrenders before perhaps asking Craig to talk about the Reduction in Yield. But, Andrew, I think what we said at the half year, and we were quite clear, is that Consumer Duty, we had completed the Consumer Duty project. But that work actually sort of triggered an opportunity to continue to evaluate the business, and enhance the long-term sustainable value for clients. And, that's exactly what we've done. So Consumer Duty was done, and that triggered this review, looking at ensuring we had a sustainable and competitive charging platform for the long term.
And that's the point about simplicity, the point about comparability, but also, very importantly, a continual focus on value for clients. Hopefully, that answers that one. In terms of the... Sorry.
To be clear. Sorry, just to be clear on that, you're saying there was a two-stage process. There was a reaction to Consumer Duty, and then that led, post-July, to a second body of work, which is what you're reporting now.
Yeah, in effect, and I just wonder if it's worthwhile actually reading out what was said just to help answer the question. So now that Consumer Duty is coming into effect, we are treating the completion, I emphasize the word completion, of the specific work that was required as an opportunity to continue to evaluate our business and enhance long-term and sustainable value for clients, the partnership, shareholders, and all other stakeholders. So Consumer Duty done-
Thank you.
- and then that. Okay, thank you. In terms of the early withdrawal charge, I wouldn't really expect to see any significant change. You know, whenever we-- so we, obviously, we're very comfortable with the early withdrawal charge mechanism. It's difficult to compare, and it can be difficult to explain. But if you looked at outflows from the early withdrawal charge mechanism, there isn't a significant real difference between that and ISAs and unit trust, particularly at the end of the six-year period. So we don't see a huge spike as people are taking redemptions at the end of the early withdrawal charge period. So personally, I wouldn't expect there to be any real change. And then in terms of the Reduction in Yield, if I can perhaps pass that over, over to Craig.
Yeah, and I think there are two ways of looking at that. If you imagine in the case of unit trusts and ISAs, we tend to look at a 10-year reduction in yield, and that's what we ask external organizations to challenge us with in terms of where we sit compared to others that can provide the full range of services we provide. The changes to unit trusts and ISAs is far more straightforward, and I think the reduction in ongoing charges and the removal of initial charges will tell you that if you imagine that graph we've used in the past, showing where we sit amongst various of our competitors, we don't know yet where we sit because that work will need to be revised.
But I think if you had that in front of you, you can probably expect that we'll be moving to the left, and that's probably the sort of direction in terms of consumer client value you want to be going in. For bonds and pensions, it's clearly a more complicated picture because of the way in which the charging structures currently work, where you have a period where there is no ongoing charge, followed by a period with a slightly higher charge, and then you take into account the change that we announced at December.
That all becomes much clearer under the new structure, and although I haven't got all the data in front of me, I think if you take all of the decisions we've made, including the one that we announced in July, you will see that any bond and pension investors going, it needs to be new investors in the new charging structure, will be better off after about 17 or 18 years. And it's worth having in mind that these are generally very long-term investors.
Okay. Thank you. Back to the operator, please.
Thank you. We will now move on to the next questioner. We now have Ashik Musaddi. Please go ahead when you're ready.
Thank you, and good morning, Andy. Good morning, Craig. Just a couple of questions I have is, first of all, just to be clear, all these changes that we are talking about will only happen in second half 2025 and not before that? And if it is not happening before that, then how do we think about customers, I mean, new, new flows for next one and a half to two years, because why would a lot of customers come in and lock in their business for six years or lock in their AUM for six years? How will the advisors react ahead of that change? So, any color on that? Have you thought about it, have you discussed this with any, advisors, et cetera? So some color on that would be very helpful. And secondly is on dividend now.
Given that this one-off cost is now part of the underlying cash—I mean, it would mean that dividend will go up and then down, and go up and then down. So, is this okay with you to have that much volatility on dividend? Or would you say that, okay, because you still have MSB, et cetera, you would try to maintain the current dividend level and then move to a payout ratio of 70% once it reaches that 70% level. But for next two, three years, you'd be okay to pay a higher dividend. I guess you mentioned that you—this would be discussed with the Board at a later stage, but any additional color on that would be great, just because this extra cost is now added into underlying cost. Yeah. Thank you.
Thank you, Ashik, and good morning to you, too. Look, I'll take the flow question and then pass the dividend over to Craig. And look, let's just take a step back for a moment as well. There are clearly a lot of changes which we've announced that will be completed sort of middle or second half of 2025. But this is really important. We remain very comfortable with the current charges and the current structures. This is all about looking forward to, you know, do we have that sustainable competitive model as the requirements of consumers, the requirements of regulators, change to make things more comparable and more simple. This is very much a future-looking change.
If we think t o come and sort of answer your specific question, it's worth again taking that step back. We are an advice business, so clients are receiving holistic advice, and they will be using their tax allowances as part of that advice. So for instance, if you have an IHT liability, you're not going to wait until second half of 2025, you will continue to do the advice. And remember, charges will go down for existing clients as well when it's implemented. So our business is more about advice than it is timing, so not expecting to see any real impact there.
And, you know, I said that we're comfortable with our existing structures, and we're confident that we offer value now. The changes will enhance that value that we're offering. So hopefully that answers your question.
I'll pick up the d ividend question. Hi, hi, hi, Ashik. Yeah, the changes we've outlined and the guidance that you've seen in the slide deck, once you put those into the models, I think you're right, the underlying cash result will show a different trajectory to the one that you might have had before the announcement this morning. The approach of allocating 70% is unchanged, will remain unchanged, and the point I made this morning is that you should use that to model expected outcomes. But I can only really repeat what I said in the presentation, and that is that the Board is acutely aware of the importance of dividends to shareholders.
We'll always take account of the circumstances and the operating environment prevailing at the point at which any decision is made, to decide whether a higher payout ratio is appropriate. What I'm not in a position to do now, though, is to call what I think the outlook and the operating environment will be when those decisions are made.
You commented on a couple of years there, and I think you're right, there'll be an implementation cost in 2024 that you'll include in your models. And then the tail of that implementation cost and the transition will be in 2025 and 2026 before you see that accelerated recovery in 2027 onwards. That, that should be the sort of shape you're seeing in your revised model. Okay. Thank you. operator-
That's very clear. Thank you. Thank you.
Thanks, Ashik.
Thank you.
Thank you. We now have Nasib Ahmed of UBS.
Hi, thanks for taking my question. So I guess first question on client, from the client's perspective. Is the client paying more or less under the current structure? So Craig, you said post 17-18 years, the client actually benefits more, but over the first six years, you're the client's paying around 8% versus 1.5%, excluding the fund charges. But when I run the math on your 75 basis points that you're retaining, it seems like it's 30 years when you kind of get to the same place. So just trying to work out whether the client's paying more or less under the new charging structure. And then second question on...
So if you do the math, you're kind of retaining 77 basis points, based on what you've said, versus 100 basis points on an ongoing basis. But your margin is 43-45. So what's the delta between the 77 and the 43-45? It seems to be more than tax. Thanks.
Yeah. No, thank you. A couple of questions in there. I'm gonna pass the mic over to Craig, I think.
Yeah, I might need some clarity on the second one, but I'll come back to that. So I think if you've got your calculator out and you come up with 30, what—what I—when I answered the previous question, what I was also taking into account was the change we made at the half year.
So what I said that the effects of the change that we've made today, together with the change that we made at the half year, I think if you take account of that, you should come somewhere close to where I am. And the thing about charges is you have to ask the question, over what period? Because when charges are levered in other than a straight line pattern, you always have to think about, is it one year, you mean five years, ten years? And the reason we go for a longer period on bonds and pensions is that they are long-term products, hence the approach to that question previously.
So when you have a charging structure like ours, which involves upfront charges and then a period where there is no charge, inevitably, you're gonna get some very, very funny comparisons if you look at, say, year six. Now, that's not a problem within the business because the reality is, these investments are on the books for a long time. So when we think about value and when we think about pricing, we think about each product specifically. Your second question, I'm afraid we had a little bit of interference on the line, but I have a feeling that the answer might lie somewhere within tax. But would you mind repeating that?
Yeah, yeah, sure. So, I get to the 75, 77 basis points by adding the 35 + 25 of retained advice charge and 17 basis points of retained fund charge. And then, I'm just comparing the 77 to the guidance of 43-45 basis points, and it seems to be more than tax.
I think the difference probably lies within tax and administration expenses. I'm struggling to follow the... Can we take that one offline?
Yeah, sure.
There, there-
I guess, one other question that... Sorry, one thing that might give a bit more clarity is the, the admin expenses that were previously in the new business margin. You're indicating that the new business, or margin rising from new business is zero, and you've given some comments. Does that go into the 43-45 as well?
I, I, I-
The initial expenses that aren't being offset by the 1.5, yeah.
No. To the extent that there are expenses involved in the new business margin, I mentioned earlier, those, those expenses still remain in the new business margin, but they're covered by a shareholder retention of the new business income, and there's no change there. So the only substantive change on that line is the removal of initial product charges. But, but, there, there's an invitation-
Okay.
-which you should have received later on this afternoon. If we can help further, it might be easier with a piece of paper in front of us.
Perfect. Thank you.
Uh, operator.
Thank you.
Thank you. Thank you.
We now have Ben Bathurst of RBC. Your line is now open.
Morning, everyone. Thanks for taking my questions. I'm just going to start with asking, to what extent have you had the opportunity to consult with partners about the changes, and what has their response been to the proposals? And then maybe just following up to David's question, Andrew, you said that partner remuneration will change shape. Can I just ask, in what way? Do you think it will mean less upfront remuneration and more recurring remuneration, potentially? And then thirdly, on the split of the ongoing charges into advice, fund, and product, it's pretty clear, to me at least, on what the advice and fund charges are for, but I'm just curious what you anticipate the answer will be when a client asks the partner, "What is the product charge for?" Thank you.
Sorry, could you just do the first one again? I didn't quite get that one. I got, how much have we consulted with the partnership, wasn't it?
Yeah.
Okay. Sorry. Well, let me pick that one-
Yeah.
Pick that one up then, firstly. Look, I mean, first and foremost, you know, we engage with our partnership on multiple, multiple topics. And you wouldn't be surprised to hear, but they're not actually that shy in coming forward with views either. But as I think I've already said once this morning that there is no such thing as an average in the partnership. It's a very broad church, and there will be lots of, lots of different views. We, in terms of specifically what we've announced this morning, we weren't able to consult exhaustively with partners, because obviously there are market abuses around that. This was a regulatory announcement. But we, as I say, engage with them all the time. There's also been increasing speculation about change, what this could look like in recent months.
And of course, there was the Financial Times article on Friday as well. And I would say the partners, being entrepreneurial, they will be pleased that the uncertainty has been lifted, and I think they will be pleased that they are part of a business that is sustainable and competitive for the future. And I think the answer to your how does the partner remuneration change, I think it and again, it's—I'm gonna sound a bit boring here, but there is no such thing as an average. We've got individual partner businesses that are starting on the journey. We have partner businesses that are mature. We've got, you know, partner businesses that are scattered across the whole of the U.K. and Northern Ireland.
And you've got some small businesses, some medium-sized businesses, some larger businesses. So to give a specific answer to what you're saying is actually quite difficult, which is why I'm saying, broadly speaking, excuse me, obviously, got a croak in my throat this morning. Broadly speaking, we would see partner remuneration staying the same but changing shape slightly.
I think it will depend very much, yeah, on the individual partner business that you're looking at, and clearly, what we would do is engage with the partnership, as we always do through change and transition through, because it's actually in the interest of us, in the interest of our partners, but most importantly, in the interest of our clients, to help our advisors through the transition. So I hope that helps. I think the third one was, what the platform fee is gonna be useful.
Yeah. I think a simple articulation of that would be perhaps wrapper, platform, and administration. So as a group, we manufacture regulated product wrappers, including bonds, pensions, unit trusts, and ISAs. They are manufactured in a regulated environment. So if you take, for example, the life company, you have the cost of running a sizable life company with all of the features that you would expect within that life company.
We are not a platform business, but we have the equivalent, so I would say, of something that looks like an internal platform, and that's where Bluedoor comes into play, where those client investments are accessible. And then behind that platform, you have all of the administration taking place, and that, that's the sort of activity that's included underneath that heading.
Okay. If we could,
Thank you.
Have the next set of questions, please, operator.
Thank you. Your next question comes from the line of Steven Haywood of HSBC.
Good morning. Thank you very much. Just three questions here. It's probably a moot question, but is there a risk of having to repay any previous charges to customers, considering the changes you make today? I think by the sounds of it, it sounds like everything you're happy with in the current model, so you see limited risk, but I'd like clarification on that. Secondly, was the regulator actually putting pressure on St. James's Place to make changes or to update its structure for the future? Was there any sort of outside influences? Or is this sort of whole process just a consequence of the Consumer Duty Act and current sort of business practices?
And then thirdly, on 2023, controllable expenses growth, actually, could you provide an update of what you sort of see, the full year 2023 controllable expenses growing at for this year, considering inflation has been a bit higher than we would have anticipated at the beginning of this year? Thank you.
Yeah, thank you, Steven. I think I'll probably take the first two questions and then pass on to Craig to talk about the 2023 controllable expenses. In terms of, is there a risk of repaying? No, we've always been comfortable with our charges. So, no, we don't see a risk there. You know, there could be a supplementary question. If that's the case, then why are you doing what you're doing? And I think we probably covered that in the call this morning. It's all about the future-looking sustainability and making ourselves even more competitive and establishing a platform for the long term. So that, that's what the changes are there for.
I think you then went on to regulatory pressure. But I think, as we sort of say, in the announcement, as we've said earlier, there is regulatory change. There is no doubt there's regulatory change. You know, there is Consumer Duty, but there's also the value assessment work that's required, for investment funds.
So there is regulatory pressure to be more simple, be more comparable. There is also a growing consumer demand for that. And indeed, as younger clients are joining us, we have more and more younger clients joining us. You know, they are most definitely more interested in simple, comparable stuff. So hopefully that answers that one as well. And then, Craig, on the 2023 controllable expenses.
Yes, probably quite a quick answer, actually, 'cause there's no change to the guidance which we gave them for 2023 which is controllable expenses up by 8%. But please do remember that's on a pre-tax basis because we had a change in the tax rate, so we guided 8% pre-tax. So if you net that down in your model, that's probably what you've already got.
Okay. Thank you.
Thank you, Steven.
Thank you. Your next question comes from Greg Simpson of BNP Paribas. Your line's open.
Hi. Morning. Yeah, a few questions on my end. The first one is the latest retail intermediary market data from the FCA suggests average initial advice fees in the U.K. market are in the region of 1%-3%, and so your up to 4.5% still potentially sounds quite high. So could you give an update on what your, you know, average advice charges are on the unit trust business today after any discounting? That would be the first question. The second one would be, with the charges now clearly separated, could a client now switch off their advice fees if they wanted to and just pay the product and fund fees? Any thoughts there?
And then thirdly, on the trend of usage of cash and deposits in this higher rate environment, can you just confirm if SJP makes any revenue on assets in the cash savings service? I think you use Flagstone. Thank you.
Yeah, look, I think I'll take the client switch off and the use of cash if Greg's happy. I don't know if you've got the data on the current average.
I can get it, yeah. No, I was gonna do the Flagstone. It's the current IAF after discounting that you've got percentage in, in your head. Sorry, just, just on, on Flagstone, no, we don't generate any income on, on Flagstone. But we have seen a significant increase in the amount that is placed with, with Flagstone. And, you know, that money is sort of parked there for client use at some point in the future. In terms of client switch off, I think, Greg, clients have always been... well, I say always, since finally, I've been able to turn off the ongoing advice fee, and nothing changes there. So I don't think there's any change in that.
In terms of the initial advice fee, but we say it's up to 4.5. It will very much depend upon the complexity of the advice. It will very much depend upon the size of the investment, and you know, also product, et cetera, et cetera. I'm being told we don't disclose a current average, so I'm not going to give you one, Chris.
Thank you.
Thank you. We now have a follow-up question from David McCann of Numis. Please go ahead when you are ready.
Yeah, thanks for that. I really just wanted to clarify that question from three or four ago, just about the unbundling of those charges. So yeah, as the questioner said then, you add 35 to 17 to 25, that gets you to 77. If you were to take off the 25% tax, that gets you to 58. So yeah, can you square 58 with the 43-45 guidance? I think that was the question, if that wasn't clear from the question before, but I think that is a very relevant question to be asked. So if you could square 58 to 43-45, that'd be great. Thank you.
Yeah. David, I think we can cover this later, but I suspect the answer lies within maintenance expenses that are charged to that line. But I think it might be easier if we cover that in the session we have this afternoon, but that's where the answer lies. Because in the income that we've reported and the way it reports at the moment, there's almost a kind of sales and cost of sales approach. So there are core expenses of getting business onto the books and running business on the platform that are included before that margin is struck. So I suspect that's where the answer lies, but I think it might be easier to cover that with each other later on this afternoon.
Okay. Thank you. I think that may actually partly answer that question I asked you about the stranded cost, but it sounds like, yeah, I might be calling it stranded cost, you might be calling it something else, but there's clearly this gap, there. But yeah, let's cover it this afternoon. Thank you.
Yeah. But thank you for your interpretation of that. Okay, operator?
Thank you. Thank you. If you would like to ask any more questions, please press star then one on your telephone keypad. We currently have had no further questions registered, so I'd like to hand it back to you, Andrew, for any final remarks. Oh, I apologize.
Okay, uh-
We do have a question on the line.
Okay.
We now have Vinayak Muralidharan of Antipodes. You may go ahead with your question.
Sorry, just a quick clarification. All these pricing changes go into effect second half of 2025 and nothing from today? So until 2025, we'll still be working on a 100 basis points product charge from year 7 to 10 and 85 basis points from year 10 onwards, and it's only from the second half of 2025 that the new pricing goes into effect? Just wanted to confirm that. Thank you.
Yeah, so you're absolutely right. 2020, mid-2025 onward, which is the timetable we've announced this morning. At the risk of stating the obvious, the one proviso to that is the cost change, which obviously starts now and over the next few months. So if you use the existing guidance we've given on the net income from fund, that will do its job until the point of change, absent any other changes in tax rates or-
Sure.
-or anything like that.
Okay, thank you.
So, look, if I could just say, thank you very much, everyone. Look, if I just look, sort of closing remark before saying a final thank you. But this is a great company. It's got a great history, and whilst I know I'm retiring shortly, I am very confident it has a great future. The changes that we've announced from sort of 2025, if you like, will make our fees simpler and more comparable, and I think it will increase our sort of... Can't think of the word now, but it, I think it will make clients more willing to embrace us. So I just want to say a final thank you. There's a lot to get to grips with here.
I appreciate that. But of course, we, we are available, as always, if you want to give us a call, and there is the session this afternoon. I look forward to seeing those of you that are able to come back later on this afternoon. Thank you very much.
Thank you all for joining. I can confirm this does conclude today's call. Please have a lovely rest of your day, and you may now disconnect your line.