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St James’s Place customers risk paying thousands more for specialist pension advice compared to its rivals, according to an investigation by The Telegraph.
The country’s biggest wealth manager recently announced a major overhaul to its fees after caving into pressure from the financial watchdog.
Following the arrival of new consumer rules in the summer which require firms to offer fair value, St James’s Place has scrapped its exit fees as well as capping advice and fund charges.
The FTSE 100 company – which has more than 900,000 clients – says its total fees are below average for the service it provides and will remain so when the new pricing structure is introduced in 2025.
Yet it continues to charge clients substantially more than its rivals when it comes to a particularly niche aspect of personal finance: defined benefit (DB) pension transfers.
In a Telegraph analysis of six of the biggest and best-known firms, St James’s Place charged more than twice as much as some of its rivals for savers with large pots looking to transfer out of DB schemes. Those in this position could pay a £36,000 premium for choosing the firm over some of its competitors.
Why would someone transfer out of a DB pension scheme?
Transferring out of a DB scheme is largely considered one of the riskiest financial decisions a saver can ever make.
DB schemes provide a guaranteed income in retirement. This usually increases every year to protect you from inflation and it may also continue at a reduced level to your partner upon death. It is because of these generous benefits that DB schemes are often referred to as “gold plated”.
By giving up your DB scheme in exchange for a “cash equivalent transfer value” – then moved into a defined contribution (DC) scheme – you lose this guaranteed income. Steven Cameron, of pension firm Aegon, said: “Instead, you have a pot of money which you then need to invest and can take a flexible income from. This involves many risks around investment performance, taking a sustainable income, and also potentially running out of money before you die.”
In most cases, a transfer will not be in the pension holder’s best interests. However, Mr Cameron said, “for a minority of people, the benefits of greater flexibility can outweigh the downside risks”.
For example, someone with a shorter life expectancy due to a health condition might benefit from transferring into a DC scheme so they can take a higher income now.
However, if their DB scheme was one that would pay their dependents an income after they passed away, then a transfer could still prove unwise.
Given the risks involved, the regulator requires savers to take advice if they want to transfer out of a DB pension worth more than £30,000. It also requires advisers to assume it is unsuitable when clients approach them about a potential transfer.
“Because of the complexity and heavy regulatory scrutiny, the costs of such advice are also higher than for other types of advice,” said Mr Cameron.
Liam Mayne, of consultancy Barnett Waddingham, said: “Getting DB transfer advice wrong can lead to tens – or even hundreds - of thousands of pounds of redress compensation needing to be paid to put things right. As such, it’s right that savers are charged a fee commensurate with the risk of giving this advice. A good financial adviser will spend a lot of time preparing DB transfer advice and it is appropriate that their time is charged for.”
However, he continued: “There is still a wide range of fees charged in the market and, in our view, some fee levels are disproportionate. These tend to be fees charged as a percentage of the transfer value, rather than a fixed pound amount.”
£14,500 in charges
According to financial advice platform Unbiased, savers can expect to pay £2,500 for advice on DB pension transfer, based on a transfer value of £100,000.
Lee Goggin, of the comparison website findawealthmanager.com, estimates that around 1pc of the transfer value is typical, although he said some firms will charge a flat fee of between £5,000 and £15,000, which can work out as more cost-effective for savers with larger pots.
A wealth manager will sometimes offer “abridged advice” to determine whether or not a transfer is a good idea. Some will offer this for free but others will apply a separate fee, with another fee if the transfer goes ahead.
St James’s Place charges up to £1,000 for this first assessment, and then up to 4.5pc for the transfer. This means a saver with a transfer value of around £100,000 could expect to pay up to £5,500 in fees, which is broadly in line with what other wealth managers charge.
However, when it comes to bigger pots, St James’s Place can be significantly more expensive. For a £300,000 transfer, a client could pay up to £14,500 in charges, compared to as little as £5,000 at other firms - equating to almost three times more. Someone with a £1m transfer could pay up to £46,000 in fees, whereas other firms would cap the charge at around £10,000.
St James’s Place said it is important to consider that its pricing structure differs from other firms. Because its 4.5pc fee is recouped over time, no money is taken upfront which the wealth manager said allows for investment growth on the whole pot.
Mr Cameron said: “Advisers are required to show that the amount they charge for a service represents good value under a new regulation called the Consumer Duty. This is likely to mean that if an adviser is charging a percentage of the transfer value, it will be a lower percentage for particularly high transfer values than for lower transfer values.”
Mr Goggin said prospective clients should consider fees carefully when choosing a wealth manager. “Make sure you get comparisons from two or three providers before going with the first one that you meet.”
Those who could benefit from a DB pension transfer have a smaller pool to choose from than they used to. Due to increased scrutiny by the FCA, the number of advisers with permissions to advise on DB transfers has fallen from around 3,000 to 1,000 in four years, according to a freedom of information request by pension consultancy LCP.
Some firms will only offer advice on DB transfers to existing clients. James Gladstone, of Cazenove Capital, said the firm “will not generally provide defined benefit pension transfer advice in isolation to a new client, as we view this advice service as ancillary to our core Wealth Management proposition”.
Faye Church, of Investec Wealth & Investment, said: “We believe that DB transfers are generally not suitable for our clients. In the rare cases where DB transfers are appropriate, we will charge a fee of £10,000 plus VAT per scheme.”
A spokesman for St James’s Place said: “We maintain a very cautious approach to DB transfers and all recommendations to transfer out of a DB scheme are checked by qualified pensions transfer specialists who operate independently of our Partners and whose sole responsibility is to make sure the advice is suitable to the client.
“Given the complexity of the advice and the high level of regulatory risk associated with DB transfer advice, we feel our charges reflect the costs of providing this advice and are good value for those minority of clients for whom a DB pension transfer significantly improves their long term financial position.”