Wealth manager St James’s Place Capital has set aside £426m to deal with client claims about historic ongoing advice after a surge in complaints in late 2023.

The company also warned today that its dividends may be halved to deal with the cost of the claims.

The total dividend for 2023 has already been halved to 23.83p compared to the previous year.

Despite the huge provision for historic advice claims, in its results for 2023 today the firm asserted that it had produced a “robust” financial performance in 2023. It said it did this against the backdrop of a difficult year but it was right now to make provision for the rise in complaints.

The firm says it may have to refund some client ongoing fees charged historically.

In early trading today the SJP share price was down by over 50% at one point to 422p. The share price in December 2021 was over 1680p.

The firm, one of the biggest wealth advisers in the UK with around 5,000 partners, is making a provision of £426m pre-tax (£323.7m post-tax) for, “potential client refunds linked to the historic evidencing and delivery of ongoing servicing.”

The company said it had seen a string of complaints, many from complaints handling companies, that ongoing advice which should have been given to clients had not been provided to the level expected.

Despite the challenges, the firm showed a pre-tax underlying cash result of £483.0 million (2022: £485.5 million) which was in line with the prior year, as average FUM grew and costs were kept under control. However, the company stated an IFRS (internationally agreed accounting standard) loss after tax £(9.9) million (2022: £407.2 million profit).

New CEO Mark FitzPatrick said: “The (post tax) cash result for the year of £68.7 million (2022: £410.1 million) has been significantly impacted by an assessment into the evidencing and delivery of historic ongoing servicing and the provision we have established for potential client refunds.

“This work was undertaken following a significant increase in complaints, particularly in the latter part of 2023, mostly linked to the delivery of ongoing servicing. The assessment revealed that our evidence of ongoing client servicing was less complete in the years preceding investment into our Salesforce CRM system in 2021, and we have therefore made a provision for potential client refunds to address this. Looking forward, the investment we've made into Salesforce means we are confident this is a historic issue.”

“Overall, 2023 was a difficult year for SJP but we've faced into our challenges. We've raised our standards around both the delivery and evidencing of ongoing client servicing and we've announced changes across our business, including our charges structure, so that we're in good shape for the future.

“In the near-term, we expect the industry outlook to remain challenging given the pressures that clients continue to face. The near-term environment notwithstanding, the longer-term structural opportunity for the financial advice industry is hugely attractive. With scale advantage, a strong partnership of advisers, and an investment approach that delivers for clients, we are very well placed to capture this opportunity and deliver value for all our stakeholders."

At year end, SJP group FUM increased 13% to a record £168.2 billion (2022: £148.4 billion). The firm also achieved  3% net growth in qualified adviser numbers to 4,834.

A final dividend of 8 pence per share was declared (2022: 37.19 pence per share), resulting in full year dividend of 23.83 pence per share (2022: 52.78 pence per share).

However, the company says that in future 'total annual shareholder distributions' will be set at 50% of the full year underlying cash result. The annual distributions are expected to be comprised of a fixed full year dividend of 18 pence per share declared for each of FY2024, FY2025 and FY2026, with the balance of distributions delivered through share repurchases. The company expects earnings to improve during FY2027 and beyond with the 'capacity' then to grow dividend proportion of total shareholder distributions.

Last year the firm announced, in October, that it had concluded a "comprehensive review" of its client charging model and announced plans for a simpler and more comparable charging structure. 

SJP's autonomous Financial Planning operation Rowan Dartington Group recorded FUM of £3.43 billion at 31 December 2023 (31 December 2022: £3.29 billion) with gross inflows of £0.36 billion for the year (2022: £0.44 billion) and outflows of £0.18 billion (2022: £0.14 billion);

Financial Planning Today Analysis: The shock announcement by SJP of a near half billion pound potential bill for client refunds shook the wealth management sector today. The firm has been forced to make the provision for potential client refunds due to a spate of complaints from historic clients, some submitted by claims management companies. The company's share price dived by over 50% at one stage this morning, later picking up but still down 30%. SJP will take years to deal with the historic issue of whether some clients did or did not receive ongoing advice and support in exchange for ongoing fees and charges. The company has warned that dividends may be much lower to help meet the provision. There is no getting away from this bad news which otherwise mar some positive elements. FUM is up strongly and its number of adviser continue to grow. SJP will remain a major force in the UK wealth management sector but the next few years will be focused on 'resetting' its model at some cost.