John’s phone rang.
He picked it up. There was a polite British gentleman on the other line. “We would like to offer you significant savings with the new and revamped SJP [St. James’s Place] investment platform,” he said.
John is a savvy investor. But he was curious.
Expatriate focused financial firms usually charge Everest-sized fees. “This firm promised to be different,” John said. “I wanted to see if they were giving me smoke and mirrors.”
John agreed to meet the fellow. “But it was exactly what I expected,” he said.
To understand John’s disappointment, we need to look at the average costs charged by firms that offer full service financial management and advice.
Advisory HQ publishes average fees for a variety of UK and U.S. full service financial planning firms.
Average Full Service Financial Advisory Fees (not including fund expense ratio costs)
Source: Advisory HQ
The average investor with a $50,000 portfolio pays advisory fees of 1.35 percent per year. The typical investor with a $500,000 portfolio pays 1.06 percent per year. That includes financial planning advice and portfolio management.
Fees for St. James’s Place International are higher than the industry average.
Management fees (not including the hidden fees for the funds’ expense ratios) total 1.5 percent per year. Including mutual fund fees, investors could pay 3 percent or more each year.
The firm outlines its charges in its International Investment Account Product Summary. On page 5, it reads:
“There is an annual management charge of 1.5% of the value of your investment each year… We will also provide you with ongoing advice to review your investments to ensure it remains appropriate. The cost of this each year is 0.5% of your total investment… If you invest a lump sum with us, the cost of the initial advice and our services will be 4.5% of the amount you invest.”
John listened to the advisor’s sales pitch. It upset him. “The 4.5 percent upfront fee is like a kick to the teeth. It might as well say, ‘here’s your first penalty for giving us your money.’”
But Andy Sumner, the Principal Officer of St. James Place International (Singapore) emailed me to say that this 4.5 percent fee is already included in the 1.5 percent annual charges. It does sound confusing, based on the following statement on page 5 in the St. James Place International Investment Account Product Summary. Pasted from the prospectus it says:
To quote the company’s prospectus again, it reads, “If you invest £100,000, the cost will be £4,500.”
Investors who decide that the fees are too much then get kicked in the groin. If they want their money back before a six year period, the firm charges them a penalty.
Investors who leave after just two years, for example, pay a fee that’s equivalent to 4 percent of their portfolio’s value. This could hurt. An investor with $1 million invested would pay a $40,000 penalty.
St. James’s Place International’s Early Redemption Penalties
Source: St. James’s Place International: International Investment Product Summary
This isn’t the most expensive expatriate financial advisory firm. But its fees are described in a murky way.
If we include fund expense ratio charges (which aren’t included in the 1.5%) investors could pay more than 3 percent per year in annual fees. Mike Alfred, a chief executive at Brightscope, a financial information firm in San Diego, was quoted in the Wall Street Journal suggesting that when total investment costs are 2 percent or more, “It’s really going to be hard to accumulate assets.”
“There’s a moral to this story,” says John. “Great investments are bought, not sold.”
Nobody, it seems, cold calls the public to offer a great investment opportunity.
Andrew Hallam is the author of The Global Expatriate’s Guide To Investing