The news that Sir Mark Weinberg, the serial creator of commission-driven life assurance companies, has endorsed the demise of “polarisation” – the rule that obliges banks to sell only their own products, or only the products of other firms – will tickle those who see him (rightly or wrongly) as one of the principal architects of it in the first place. Polarisation was invented way back in the mid-1980s, when Weinberg was deputy chairman of the Securities and Investments Board (SIB), the foreunner of an out-of-control juggernaut driven by lawyers known as the Financial Services Authority (and which recently proposed an end to polarisation). As Nigel Lawson, then Chancellor of the Exchequer, recorded in his memoirs:
“The dominant figure on the … SIB…was … Mark Weinberg, a South African lawyer who had come to London and made a fortune by building up an innovative and highly successful life assurance business. When he was asked to take on the role of poacher-turned-gamekeeper the lawyer in him came very much to the fore, and played a large part in framing the excessively legalistic rule book that emerged.”
The predictable effect of polarisation was to limit consumer choice without improving transparency – in particular, disclosure of the commissions paid to life assurance salesmen – for them either. “No doubt,” as Lawson continued, “the life assurance industry has made powerful representations to the SIB against transparency; since the massive hidden commissions buried away in the price of most life policies might, if known, have led to considerable sales resistance.”
Transparency was later improved, especially in the wake of the great pensions misselling scandal of 1988-92. And Weinberg himself chose the announcement of the annual results of his latest vehicle – St James’s Place Capital – to declare that the death of polaraisation is greatly to be welcomed:
“The proposals put forward by the Financial Services Authority in its recent consultation paper on Polarisation were more radical than had been expected in most quarters. While a great deal will depend on the results of the consultation and on the detailed wording of the rules that emerge, the broad lines of the new regime appear clear: that polarisation (the division of financial advisers into those tied to a single provider and “independents” who are free to sell the products of all providers) will be abolished, leaving it to improved disclosure requirements to accompany the provision to consumers of a range of choices. The paper also recommends that advisers should only be able to describe themselves as “independent” if they are remunerated by fees rather than commission. We have long argued that allowing product providers such as us to make products of other companies available through their advisers would lead to a better service for consumers. We have indeed already followed this approach in areas not covered by the polarisation rules, such as the offering of Group Employee Benefits through Swiss Life, and this change in the regime will enable us to provide a significantly better service to our clients. We also believe that experienced financial advisers who decide to join a company will be all the more likely to choose to join the Partnership when St. James’s Place is able to provide an even wider range of products and services.”
St. James’s Place Capital is of course a different sort of sales machine to the life companies Weinberg established before. It employs no investment managers of its own, relying instead on external find mangers chosen with the help of Stamford Associates. They have performed relatively well, as has St James’s Place Capital as a whole. The company now has 6.3 billion under management and 1,121 partners. Pre-tax profits were up 16 per cent to 92.4 million last year. Unit trust business pre-tax profits grew much faster: by 55 percent from 6.7 million to 10.4 million.
On top of its core pensions and life and term assurance business, the company has in the last year entered joint ventures to launch a bank and a range of other private banking (or “wealth management”) initiatives in the expectation of making cross-sales to existing clients.
St. James’s Place Bank, launched in June last year, offers a white-labeled version of the Intelligent Finance suite of products created by Halifax/Bank of Scotland. services. It has attracted 4,590 clients, and sells bank accounts and mortgages. The Portfolio Management Service, launched in March with Laing and Cruickshank and Morgan Stanley Quilters, is now managing 67.6 million, while the Trust and Estates Planning Service, launched with two leading firms of solicitors, resulted in 221 completed cases, of which 21 involved properties exceeding 1 million. Group Employee Benefits, launched in May through Swiss Life, produced life sums assured of 10.2 million, critical illness cover of 5 million and permanent health insurance of 2.2 million per annum. Gross fees generated from these services before payments to Partners were 5 million, which enabled “wealth management” to break even in 2001.
“We are particularly pleased that we have exceeded both our initial sales and financial targets in our entry into wealth management,” says Weinberg. “This contrasts with the experience of many large financial groups that had announced ambitious plans in this field, involving the expenditure of large amounts of money, and then abandoned or cut back their operations during the course of the year. The experience of these groups has led to a belief in some quarters that the concept of catering for the needs of the “mass affluent” is flawed. We believe, however, that our experience has validated [the concept] … Rather than, as the banks do, starting with a mere transactional relationship and expecting the customer either to develop a personal advisory relationship or to sort out his or her needs on the internet, we start with a trusting personal relationship between the client and the Partner, who then makes the much less difficult introduction to the banking and other services.” A number of additional services will be added to the wealth management portfolio this year, including general insurance broking, medical insurance and corporate banking.
Weinberg says he is reluctant to allow clients too much access to information on-line, fearing it will jeopardise the advice process, but the company is sinking 6 million over the next year into an automated new business processing and reporting system. “We are aware that many of our competitors, including new entrants to the wealth management arena, have invested huge amounts in their support systems with little likelihood of a return on their investments within a reasonable timescale,” says Weinberg. “We believe that our approach of realistic yet cautious investment in our systems and infrastructure, with a clear return on capital deployed, is the right strategy to adopt.”
In keeping with this prudent approach, St James’s Place renegotiated the fees it pays to its third party fund administrators, and transferred its Dublin staff to the newly established Italian joint venture, Nascent, in which the company has a 20 percent stake. Both initiatives realised substantial reductions in costs: 10.9 million pre-tax. This is one example fund administrators will be hoping Weinberg’s rivals ignore.