ANNUAL
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2016
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ST. JAMES’S PLACE
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 S
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ST. JAMES’S PLACE
St. James’s Place is an award winning wealth management
group. A FTSE 100 company with a track record of strong
growth, we believe in the value of face-to-face advice and
building long-term relationships with our clients, delivered
through the St. James’s Place Partnership. We have a
distinctive approach to investment management and a
strong customer service ethos, underpinned by continued
investment in our people and technology.
OUR AWARDS IN 2016
Best Financial
Adviser 2016/17
Annual Report and Accounts 2016
St. James’s Place plc
CONTENTS
ST. JAMES’S PLACE
MANAGES
£75.3 BILLION
OF CLIENT FUNDS
St. James’s Place Foundation
Financial Statements
62
St. James’s Place Foundation
119 Consolidated financial statements on
Strategic Report
1
2
Highlights of The Year
Chief Executive’s Report
6 Market Overview
Governance
8
St. James’s Place Investment Case
68 Board of Directors
10 Our Business Model
12 Our Strategy Explained
14 Clients
15
16
Partners
Funds
18 Our People
22
Our Objectives and Related
Key Performance Indicators
24 Chief Financial Officer’s Report
48 Risk and Risk Management
54 Corporate Social Responsibility Report
60 Approval of the Strategic Report
70 Chair’s Report
72 Corporate Governance Report
80 Report of the Audit Committee
88 Report of the Risk Committee
91 Report of the Nomination Committee
93 Directors’ Remuneration Report
114 Directors’ Report
118 Statement of Directors’ Responsibilities
international financial reporting standards
basis
120
Independent Auditors’ Report to the
Members of St. James’s Place plc
185 Parent Company Financial Statements
under Financial Reporting Standard 101
Other Information
196 Shareholder Information
197 How To Contact Us And Advisers
198 St. James’s Place Partnership Locations
199 Glossary of Alternative Performance
Measures
202 Glossary Of Terms
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 HIGHLIGHTS OF THE YEAR
CLIENTS
Growth in client numbers contributed to the
increase in gross inflows. The quality of
client outcomes, as reflected in client
retention and feedback, as well as investment
returns, continued to be strong.
Number of clients
571,800
2015: 525,800
↑9%
PARTNERS
Our proposition continued to prove
attractive as we broadened our adviser base,
both in the UK and Asia, and via both
traditional recruitment channels and our own
Academy programmes.
Partnership numbers
2,378
2015: 2,264
↑5%
FUNDS
In another successful year, new business from
clients combined with positive growth in
underlying investments, resulting in record
funds under management.
FINANCIAL
Long-term growth in clients and Partners
combined with positive investment
performance to underpin the financial results
and continued growth of the business.
Funds under management
Dividend (pence per share)
£75.3bn
2015: £58.6bn
↑28%
33.0p
2015: 27.96p per share
↑18%
Gross inflow of funds under management
Profit before shareholder tax
£11.35bn
2015: £9.24bn
↑23%
£140.6m
2015: £151.3m
Net inflow of funds under management
EEV operating profit
£6.78bn
2015: £5.78bn
↑17%
£673.6m
2015: £660.2m
↑7%
↑2%
Our website and iPad app contain a full investor
relations section with news, reports, webcasts,
financial calendar and share price information.
www.sjp.co.uk
click on Shareholder Relations
1
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plcAnnual Report and Accounts 2016 CHIEF EXECUTIVE'S REPORT
ST. JAMES’S PLACE ONCE AGAIN
ACHIEVED STRONG GROWTH
ACROSS ALL KEY ASPECTS OF THE
BUSINESS
2016 was an extraordinary year when market participants, most
commentators and the public were surprised by how events unfolded.
First it was the vote to leave the EU in June and then it was the outcome
of the US Presidential election. Both seemed to defy the pollsters’
predictions and both have impacted stock markets in a somewhat
unexpected way.
If they teach us one thing (again) it’s to avoid trying to predict the future!
Despite this political uncertainty St. James’s Place once again achieved
strong growth across all key aspects of the business. Gross inflows were
23% higher at a record £11.4 billion which, together with
characteristically high retention of client funds, resulted in record net
inflows in the twelve months of £6.8 billion. These net inflows, together
with the strong investment returns our clients enjoyed, gave rise to 28%
growth in funds under management to £75.3 billion.
At the heart of our sustained growth is our commitment to achieving good
outcomes for our clients and the importance we place on building long-term
relationships and serving them well. That very nearly 90% of new
investments come from existing clients, referrals and introductions and 99%
of our clients, who responded to our recent survey, feel our proposition offers
value for money, is testament to the fact that we are doing this.
For most people, their finances and wealth are personal and they want
to be treated in a highly personalised way and by someone they trust.
Indeed, we see a growing demand for sound, personal financial planning
advice as individuals begin to fully comprehend, amongst other things,
the financial implication of increased life expectancy whilst being faced
with increasingly complex options in respect of their pension
arrangements, supporting their offspring and other family matters. The
scale and quality of the Company’s relationship based approach to wealth
management, twinned with our distinctive investment management
proposition, which has been positioned to serve this market, is doing so.
We work to offer a consistent service to our Partners, and through them
to their clients who do not have the time, expertise, inclination or
confidence to look after their own affairs and we recognise that, for most
of them, their main priority is to keep their money safe, ensure it is
invested efficiently and at the very least realise a decent return. Our
portfolio approach, which gives access to a globally diversified range of
assets, the holistic advice available from our Partners on everything from
tax to intergenerational planning, is designed with this objective in mind.
David Bellamy
Chief Executive
Gross inflows
£11.35bn 2015: £9.24bn
Funds under management
£75.3bn 2015: £58.6bn
Full year dividend
33.0p 2015: 27.96p per share
2
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415
At the heart of our sustained
growth is our commitment to
achieving good outcomes for
our clients and the importance
we place on building long-term
relationships
FINANCIAL PERFORMANCE
As reported within the Chief Financial Officer’s report on pages 24 and
25 the strong operating performance of the business during the year is
reflected in the financial performance for the year.
As well as paying a growing dividend to shareholders we are continuing
to invest in the business for the future be it the Academy, our growing
operations in Asia, our new investment into Discretionary Fund
Management or our back office infrastructure. Whilst these investments
are consuming capital today we are very pleased with how each initiative
is developing and we expect a good return for shareholders in the future.
DIVIDEND
At the half year, we increased the interim dividend by 15% and
reaffirmed our commitment to continue to grow the dividend in line
with the underlying performance of the business.
Consequently, and supported by the continued strong performance of
the business, the Board has proposed a final dividend of 20.67 pence
per share, up 20%, which brings the full year dividend to 33.0 pence
per share, up 18%.
The final dividend for 2016, subject to approval of shareholders at our
AGM, will be paid on 12 May to shareholders on the register at the close
of business on 7 April. As usual, a Dividend Reinvestment Plan continues
to be available for shareholders.
CLIENTS
Key to our sustained success has been our core commitment to achieving
the best possible outcome for our clients and ensuring that they remain
well served by our long-term, face-to-face approach to wealth
management. While the evolution of the UK wealth management
landscape means that UK savers and investors have an array of options
available to them today, we know that a highly personalised, relationship
driven model is in high demand and we are confident that this will
remain so in the future.
3
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plcAnnual Report and Accounts 2016 CHIEF EXECUTIVE'S REPORT continued
However, we are not complacent and we regularly take the opportunity
to seek feedback directly from all our clients. The most recent research,
carried out in early 2017 following receipt of annual Wealth Account
statements, indicates that overall client satisfaction remains very strong
with 94% of clients who responded telling us that that they are either
satisfied or very satisfied with the overall relationship. This sentiment
is echoed by the fact that more than 97% of clients confirmed that they
would recommend St. James’s Place to others, indeed 56% say they have
already done so. And, as I commented earlier, when asked to indicate
whether they feel our proposition offers value for money, 99% of the
clients who responded, said reasonable, good or excellent, with 82% in
the higher categories.
We will build upon these excellent results and seek further
improvements, to our standards of service and proposition, to ensure
clients continue to receive high quality, face-to-face advice they can trust
and demonstrable value creation for their wealth.
INVESTMENT MANAGEMENT
2016 was a year of strong growth for many major stock markets across the
globe. There were two great political events that dominated much of the
political and economic debate during the year, the UK’s Brexit vote and
election of Donald Trump as US President – but these surprise outcomes
ultimately did little to dent market momentum as both the S&P 500 and
FTSE 100, for example, struck new highs in late 2016.
Meanwhile, our funds performed strongly over the period, and all eight
of our portfolios delivered positive returns, ranging from 5.2% for the
Defensive portfolio to 20.7% for the Adventurous portfolio, net of all charges.
For much of the year, low and negative interest rates created headwinds
for those seeking income, and a summer interest rate cut by the Bank of
England only added to the challenge. By the end of the year, however, the
tide appeared to be turning, as US yields rose following the presidential
election, and the Federal Reserve used its December meeting to raise
interest rates.
It was against this backdrop that we launched our new Worldwide
Income fund in October. The fund aims to obtain an attractive level of
income through investing largely in global equities. Equities are a proven
source of long-term income, and the new fund adds to the diversity of
income sources we can provide our investors. The fund is managed by
Clyde Rossouw of Investec Asset Management based in Cape Town,
demonstrating once again the global nature of our investment manager
selection process.
4
The political surprises of 2016 offer a reminder of the importance of
diversification, whether by geography or asset class. We will continue
to adapt our investment approach to ensure we are responding to the
evolving investment environment. In doing so, we believe we can
continue to help our clients fulfil their long-term financial goals.
THE ST. JAMES’S PLACE PARTNERSHIP
Increasing the number of Partners and advisers, whilst at the same time
providing them with the tools and support to deliver high quality
outcomes for clients remains one of the key drivers to achieving our
long-term growth objectives.
I am therefore pleased to report that through the continued acquisition of
highly established advisers, the integration of new Partners in Asia and
the success of our extended Academy programme, our qualified Adviser
population increased by 10% to 3,415, across the 2,378 Partner
businesses. In many ways, the added momentum in growth in our
qualified adviser population reflects the evolution of Partner businesses,
as they seek to acquire more clients and continue to provide a high level
of service to their existing clients.
As our Partner practices grow and the administration of their clients’
affairs becomes increasingly complex, we will continue to look to find
ways to make it easier for our Partners, advisers and their support staff to
serve their clients well and build even more successful businesses. This is
the driver behind our investment in our back office development and the
extension of our Academy concept to the training of specialist support
staff for our existing Partners.
Alongside the Partnership we completed the acquisition of Rowan
Dartington in the first half of 2016 and we have seen the number of
investment executives increase by 21% from 34 to 41.
THE ST. JAMES’S PLACE FOUNDATION AND COMMUNITY
ENGAGEMENT
Raising funds for those less fortunate has always been at the heart of the
Group’s culture, and the collective efforts of the whole of our community,
including employees, Partners, suppliers and others connected to St. James’s
Place, resulted in total funds raised of £7.6 million (including company
matching). This means the total amount raised to date is now over
£54 million, benefitting the hundreds of causes it has and will continue
to support and quite literally changing people’s lives.
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 On behalf of the Board and
shareholders I thank everyone
connected with St. James’s
Place for their contribution to
these results and for their
continued enthusiasm,
dedication and commitment
To mark our 25th Anniversary year and in keeping with our strong desire
to further support fund raising efforts, the Board, on behalf of
shareholders, has agreed to double the matched funding. It is a special
incentive for 2017 only and subject to an overall cap of £10 million.
In addition to these fund-raising efforts, the cultural driver of ‘doing the
right thing’ runs through the whole organisation, underpinning all our
interactions with our local and extended communities. Our continued
membership of FTSE4GOOD recognises the positive nature of our work
in these areas.
We take a great deal of pride in the significant contribution we make
through the Foundation and other initiatives including our structured
programmes for summer interns and Apprenticeships. We are also
committed to maintaining our Living Wage accreditation, being one of
only 20 FTSE100 companies to achieve this status.
Further details of our CSR activities are set out on pages 54 to 59 and
an update on the Foundation is provided on pages 62 to 65.
OUR COMMUNITY
The strength and continued growth of the business is due to the hard
work and dedication of our Partners, their staff, our management teams
and all our employees and administration support teams.
On behalf of the Board and shareholders I thank everyone connected
with St. James’s Place for their contribution to these results and for their
continued enthusiasm, dedication and commitment.
OUTLOOK
Looking forward, we entered 2017 with a stronger adviser team and a
more diversified investment proposition and a greater need for advice
clients can rely on. We remain committed to relationship based advice
and believe we are better placed than ever to serve our clients well and
for the opportunities that lie ahead.
David Bellamy
Chief Executive
27 February 2017
5
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plcAnnual Report and Accounts 2016 MARKET OVERVIEW
BY 2020 THERE ARE EXPECTED TO
BE 12 MILLION INDIVIDUALS IN THE UK
WITH BETWEEN £50k AND £5m
OF INVESTABLE ASSETS
MARKET TRENDS
UK INDIVIDUALS WITH BETWEEN £50k AND £5m
OF INVESTABLE WEALTH
12,000
10,000
10,546
10,107
9,224
9,617
11,517
11,041
11,997
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0
0
0
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8,000
6,000
4,000
2,000
0
2014
2015
2016 (E)
2017 (F)
2018 (F)
2019 (F)
2020 (F)
E = Estimated F = Forecasts
Source: Verdict Financial, 9 January 2017
AMOUNT HELD BY UK INDIVIDUALS WITH BETWEEN £50k
AND £5m OF INVESTABLE WEALTH
2,500
2,000
1,500
n
b
£
‘
1,000
500
0
£2,096
£2,169
£2,020
£2,242
£2,313
£1,794
£1,872
2014
2015
2016 (E)
2017 (F)
2018 (F)
2019 (F)
2020 (F)
E = Estimated F = Forecasts
Source: Verdict Financial, 9 January 2017
UK AGGREGATE WEALTH
28%
25%
19%
10%
12%
3%
25-34
35-44
45-54
55-64
65-74
75-84
2%
85+
0%
2014
16-24
60%
Source: ONS and Bernstein analysis
30
25
20
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10
5
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THE UK WEALTH MARKET
St. James’s Place’s prime target market is UK
individuals with between £50,000 and
£5 million in investable assets. There were
estimated to be 10 million such individuals at
the end of 2016 and this number is projected to
grow by 4.1% per annum to 12 million by
2020. The investable assets of this group are
projected to grow from £2.0 trillion to
£2.3 trillion in this time.
ADVICE LED SECTOR
Based on 2015 funds under management of
£58.6 billion, we ranked first in the 2016
Private Asset and Wealth Managers (PAM)
Directory by Assets under Management, having
grown by £6.6 billion in the previous twelve
months (+13%). This represented the fastest
growth, both in absolute and percentage terms,
of any business in the PAM top 10 rankings,
and around half of the total growth of the top
10 wealth managers in that year.
In addition, with 3,415 qualified advisers at the
end of 2016, we estimate that St. James’s Place
represents in excess of 10% of the UK’s
financial adviser population today.
DEVELOPING COMPETITIVE LANDSCAPE
Given the success of our business over time, it
is unsurprising that others are endeavouring to
build an adviser base of their own, whether
through acquisition or via recruitment. In
addition, Direct-to-Consumer platforms have
acknowledged the importance of personal
advice and so are recruiting advisers, as are
some retail banks seeking to re-enter the
face-to-face advice market after a self imposed,
post Retail Distribution Review (RDR) hiatus.
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415
We welcome such developments, recognising
the importance that a growing adviser market
will play in closing the ‘advice gap’ that remains
in the UK. We note also that the US market has
double the number of advisers per capita than
in the UK, suggesting there is ample scope for
further adviser penetration in the UK market.
It remains to be seen whether record low savings
rates and the impact of the new Personal Savings
Allowance precipitate a greater shift towards
Stocks and Shares ISAs among consumers, but
we are supportive of any steps that encourage
individuals to take more responsibility for their
own long-term financial security.
The pensions market continues to evolve as the
number of open Defined Benefit schemes
continue to dwindle, leading increasing
numbers of individuals to take responsibility for
ensuring they have sufficient funds in
retirement. Meanwhile, the advent of Pensions
Freedoms from 2015/16 has led to greater
flexibility in the use of Defined Contribution
pensions savings. Both of these dynamics
present a very real need for holistic, long-term
financial advice in the UK.
Meanwhile, a number of businesses, including
wealth managers, Direct-to-Consumer
businesses, fund managers and platforms are
looking to develop automated ‘advice’
propositions, typically through offering
portfolios of passive funds. While these
automated low cost solutions will no doubt
appeal to certain sections of the market, it is
important to recognise that they are unable to
replicate the trusted, bespoke and
comprehensive nature of face-to-face wealth
management advice today.
WEALTH SOLUTIONS
Having witnessed unprecedented changes to
the retirement planning market in recent years,
a period of stability would help individuals plan
for their future with confidence. The advent of
the Lifetime ISA and continued uncertainty
over government policy on the future of tax
relief on pension contributions, risk increasing
savers’ confusion over the right course of
action, emphasising once more the importance
of quality financial advice.
Against that backdrop, ISAs have been an
undoubted success in fostering the UK’s savings
habit. The government’s move to increase the
annual allowance to £20,000 from April is a
very welcome one, and a clear statement of the
importance of ISAs in the future personal
savings landscape.
These dynamics
present a very real
need for holistic,
long-term
financial advice in
the UK
7
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plcAnnual Report and Accounts 2016 ST. JAMES’S PLACE INVESTMENT CASE
HAVING ESTABLISHED THE MARKET LEADING POSITION
IN UK WEALTH MANAGEMENT TODAY, WE ARE UNIQUELY
WELL PLACED TO CAPITALISE ON GROWING DEMAND
FOR TRUSTED, FACE-TO-FACE FINANCIAL ADVICE
Targeting a large and
growing market
The market leader in UK
wealth management advice
U N I T I E S
T
R
O
BAR
RIE
R
WTH O P P
O
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ST. JAMES’S PLACE
Focused on delivering trusted
wealth management advice
Offering a distinct investment
management approach
Delivered through the
Partnership
S
T
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E
G
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F
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U
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N
A
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F I
S T
O
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Y
CIA L FLEXIBILIT
Simple and scalable
business model
Highly cash generative
with a strong balance sheet
8
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415
HAVING ESTABLISHED THE MARKET LEADING POSITION
IN UK WEALTH MANAGEMENT TODAY, WE ARE UNIQUELY
WELL PLACED TO CAPITALISE ON GROWING DEMAND
FOR TRUSTED, FACE-TO-FACE FINANCIAL ADVICE
NET INFLOWS £BN
7
6
5
4
3
2
1
0
30
25
20
15
10
5
0
+17%
6.78
+14%
5.78
+20%
5.09
+26%
4.23
+4%
3.35
2012
2013
2014
2015
2016
FUNDS UNDER MANAGEMENT £BN
80
70
60
50
40
30
20
10
0
+28%
75.3
+17%
58.6
+27%
52.0
+22%
44.3
+6%
34.8
2012
2013
2014
2015
2016
UNDERLYING POST-TAX CASH £M
250
200
150
100
50
0
+24%
173.8
+5%
182.1
+10%
199.5
+67%
139.9
+33%
84.0
2012
2013
2014
2015
2016
2016 ACTUAL:
Net inflows
£6.78bn
FUM
£75.3bn
Underlying post-tax cash
£199.5m
Dividends per share
33.00p
DIVIDEND PENCE PER SHARE
35
+18%
33.00
+20%
27.96
+46%
23.30
+50%
15.96
+33%
10.64
2012
2013
2014
2015
2016
Annual Report and Accounts 2016
9
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plc OUR BUSINESS MODEL
OUR BUSINESS SEEKS TO ATTRACT CLIENT WEALTH THROUGH
OFFERING TRUSTED, FACE-TO-FACE FINANCIAL ADVICE TWINNED
WITH A COMPELLING INVESTMENT PROPOSITION
CLIENTS
OBJECTIVES
To deliver positive
outcomes to an
increasing population
of clients
PARTNERS
OBJECTIVES
To continue to grow
and develop the
Partnership
FUNDS
OBJECTIVES
To increase
funds under
management
FINANCIAL
OBJECTIVES
Deliver value
for Clients and
Shareholders
10
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 A simple and
scalable model
that delivers value
Attracting new funds under management is
core to the success of the Group, and growth
in new business arises as a result of both
increasing Partner numbers and also
encouraging further development by existing
Partners. By providing an attractive
proposition, the Group is able to recruit new
members to the Partnership, and the provision
of high quality support enables Partners to
grow both their own businesses and ours.
CONTROLLING EXPENDITURE
Group expenditure is carefully managed with
clear objectives set and with a particular focus
on managing fixed costs. Many activities are
outsourced so we can benefit from industry
specialists and expenses that vary with business
levels. Such expenses include the costs of client
administration and investment administration,
the costs of which can then be met from
margins in our products. Overall, a small
proportion of expenditure is required to
maintain existing funds, but the majority is
invested in supporting and growing the
Partnership and acquiring new funds.
Profits emerge from the business principally as
a result of the annual management income from
funds under management exceeding expenses.
DEVELOPING THE ST. JAMES’S
PLACE PARTNERSHIP
St James’s Place (SJP) is a wealth management
business; the Group’s advisers, the St. James’s
Place Partnership, provide clients with a
financial planning service and face-to-face
advice; clients’ wealth is managed through the
Group’s distinctive Investment Management
Approach (IMA). Almost uniquely within the
UK wealth management market, this vertically
integrated model means that the Group is
directly responsible for the whole offering,
including advice, management of investments
and any related services.
The Partnership is critical to the success of the
business. Partners are able to attract clients
and, through building trust, develop long-term
relationships, supporting clients with their
financial needs over time. This relationship
based approach is greatly valued by the Group’s
clients, no more so than in periods of financial
uncertainty. The Group’s experience is that
there is an increasing demand for trusted advice
from experienced advisers, backed by a strong
brand and an organisation which takes
responsibility for all aspects of the service.
DRIVING GROWTH IN FUNDS
UNDER MANAGEMENT
As a result, the Group is able to attract and
retain retail funds under management from
which it receives an annual management fee.
This is the principal source of income for the
Group, and it grows with additional new
business and also as a result of growth in
markets and the success of our approach to
investment management.
Read more on how our
business model drives
our strategy on page 12
11
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plcAnnual Report and Accounts 2016 OUR STRATEGY EXPLAINED
OUR KEY BUSINESS OBJECTIVE IS GROWTH
IN FUNDS UNDER MANAGEMENT (FUM)
THROUGH OFFERING A HIGH QUALITY
SERVICE TO CLIENTS
Growth in FUM (and Net Inflows) requires growth in
Gross Inflows and retention of FUM.
CLIENTS
Deliver positive
outcomes to clients
GROWTH STRATEGY
Our growth strategy for
delivering increasing
Gross Inflows involves:
SUPPORT STRATEGY
– Growing the size of the
Partnership; and
– Improving Partner productivity.
PARTNERS
Grow and develop
the Partnership
Our support strategy for
delivering sustained retention
of FUM involves:
– Delivering high quality service
to Partners and clients; and
– Driving consistently good
investment performance.
FUNDS
Increase funds
under management
FINANCIAL
Achieve sustainable
growth in profits
12
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 WHAT THIS MEANS:
Through our face-to-face advice service, we aim to help
clients in a way which reflects their personal circumstances.
Our approach is based on development of long-term
relationships, founded on trust. By continually seeking
to enhance our processes and make improvements to the
client experience we achieve client satisfaction, leading
to strong retention and high levels of client advocacy. As
a result, we are able to attract new clients through both
referrals and introductions.
WHAT THIS MEANS:
Through providing an attractive proposition we are able to
recruit new members to the Partnership and, by providing
high quality support, we can help them to grow.
Our Partners play the leading role in delivering our wealth
management service. Expanding their number is central to
our growth aspirations. Our support for them includes
ongoing professional development as well as support
systems and infrastructure, to ensure they are equipped to
deliver a first class service to their clients.
WHAT THIS MEANS:
Management of client funds is at the heart of our business.
They are managed through our distinctive Investment
Management Approach (IMA).
Overall FUM growth is driven by successful Partners
supporting satisfied clients, underpinned by consistent
delivery of the IMA.
Focus on delivering for clients has resulted in doubling of
FUM over the past five years, as well as in the five years
preceding that. Funds under management has historically
increased organically through 15 to 20% growth (over the
longer term) in gross inflows, market leading retention
experience and superior investment returns.
WHAT THIS MEANS:
The principal source of income for the Group is
annual management income from funds under
management. As a result, it grows with new business
and with growth in investments.
Profits, and ultimately dividends, reflect expense
management as well.
Sustainable growth in profits involves effective
management of expenditure, including development
expenditure in order to achieve increasing FUM.
Current year events will inevitably impact the result
in any one year, but focus on building the underlying
fundamentals will lead to growth in profits.
OUR FOCUS FOR 2017:
–
–
–
Ensure the underlying administration of our client
offering meets all expectations;
Fully roll out our Retirement Account, enhancing client
experience of pension planning and pension freedoms;
Expand the Rowan Dartington Discretionary Fund
Management (DFM) offering as part of our holistic
client offering;
– Continue our relationship with Metro Bank and
the services they provide for our clients; and
Further develop our proposition for supporting
clients wanting to make ‘inter-generational’
financial arrangements.
–
OUR FOCUS FOR 2017:
– Continue to attract high quality advisers to join
–
the Partnership;
Support existing Partners in gaining further
qualifications, including Chartered Status;
– Continue our regional academies initiative,
–
including our next generation (succession) and
paraplanning academies;
Support Partners to grow their businesses, as
well as to develop their back office operations,
allowing them to spend more time with clients;
– Continue to develop our Asia operations; and
– Continue to integrate Rowan Dartington into
our Partner proposition.
OUR FOCUS FOR 2017:
– Continue to focus on the IMA proposition in
–
–
–
support of client outcomes, particularly ‘select,
monitor, change’ process;
Broaden the investment proposition;
Further develop our responsible investing
focus; and
Further expand our DFM offering and continue
its integration into our overall approach to
investment management.
For further information;
see our clients on
page 14.
For further information;
see our Partners on
page 15.
For further information;
see our funds on
page 16.
OUR FOCUS FOR 2017:
– Manage expense growth to around 10% p.a.;
–
Focus expenditure on safely delivering our
strategy, including achieving 15 to 20% p.a.
growth in gross inflows; and
Invest in the business to support long-term growth.
–
For further information;
see our financial KPIs
on page 23.
13
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plcAnnual Report and Accounts 2016 CLIENTS
PUTTING CLIENTS AT THE HEART
OF EVERYTHING WE DO IS CORE
TO OUR CULTURE AND ENABLES
US TO WORK TOGETHER TO RUN
A GENUINELY CLIENT FOCUSED
BUSINESS
OUR APPROACH
It is important for clients to have a clear
understanding of the level of service they can
expect from their Partner, so they can be
confident that this will meet their needs.
The level of ongoing service is agreed between
the Partner and the client and, most importantly,
is tailored appropriately to the level of care and
attention they require. Clear and robust systems
and controls are in place to enable us to deliver
the agreed level of service and support the
delivery of positive client outcomes.
Delivering a positive client experience is
integral to any successful and productive
business. It requires an effective business plan,
robust infrastructure and processes that work.
The result is satisfied clients who understand
the ongoing service that they receive and whose
expectations are met, or exceeded.
We achieve this primarily through the activity of
the St. James’s Place Partnership (see page 15).
Our Partners recognise that no one client’s
objectives or circumstances are the same as
another’s, and so tailor the advice and service to
suit them. Clients often continue the working
relationship with their Partner over many years,
appreciating a source of trusted advice as their
financial needs evolve over the years.
In order to ensure that our business continues
to be client focused, we monitor all areas of the
business which can affect the client experience.
Monitoring covers all stages of the client life
cycle, including the suitability of advice,
administration, investment experience,
client feedback and client complaints.
Our annual Wealth Account survey, which we
have now been running for six years, continues
to be an invaluable opportunity to obtain
feedback from clients, with over 33,000
responses to the 2016 questionnaire received
to date. Highlights include:
14
• 94% are either very satisfied or satisfied
with their overall relationship with
St. James’s Place;
• 82% rated the proposition as either good or
excellent value for money, with a further
17% describing it as reasonable; and
• 97% of clients would recommend
St. James’s Place to others, with an
increased proportion of 56% already having
done so.
launched an intergenerational mortgage range
in association with Metro Bank, allowing
clients to use their St. James’s Place
investments as the collateral for a relative’s
mortgage application and helping them to
access lower rates. We also broadened our
capabilities following the completion of our
acquisition of Rowan Dartington early in the
year, as well as launched the initial roll out of
our new retirement account proposition.
DEVELOPING INTERGENERATIONAL
PROPOSITION
Despite receiving much positive feedback from
clients, we are never complacent and in 2016
we continued to evolve our client proposition.
Recognising that a key area of concern for many
clients is the ‘intergenerational’ challenge, we
In 2017 we look forward to making further
improvements in both our client proposition
and the service experienced by our clients,
with a particular focus on extending our
intergenerational initiatives and ensuring the
very highest standards in the underlying
administration of our client offering.
CLIENT GEOGRAPHIC DISTRIBUTION
As of 31 December 2016
Overseas Clients currently account
for 2% of our business
6%
2%
24%
14%
3%
4%
22%
10%
13%
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415
PARTNERS
MEMBERS OF THE ST. JAMES’S
PLACE PARTNERSHIP PLAY THE
LEADING ROLE IN DELIVERING OUR
WEALTH MANAGEMENT SERVICE
OUR APPROACH
Our Partners, so called because of the way they
work in partnership with both their clients and
their colleagues, are some of the most
experienced and able professionals working in
wealth management today. St. James’s Place has
chosen to promote our services exclusively
through the Partnership, reflecting the
confidence we have in Partners’ ability to build
and maintain long-term working relationships
with their clients, and so be able to provide
sound financial advice. The exclusive
arrangement also provides clients with clarity
of responsibility in relation to their financial
dealings. St. James’s Place works hard to
support these client Partner relationships,
placing them at the heart of all we do.
Establishing long-term relationships is key.
Clients need to be able to place a high degree of
reliance on financial advice and so being able to
call upon the services of long-term advisers
who understand their individual personal
circumstances is important. But it is also
important that clients are dealt with in the ‘way
they would choose’ and not simply in a single,
prescribed way. Long-term relationships clearly
work for clients but are also good for business,
with 90% of our new business estimated to
come from existing clients and their referrals.
DEVELOPING PARTNERS
New Partners are provided with a document
entitled ‘What it means to be a member’. This
sets out a philosophy and some principles. We
believe the shared commitment to living up to
these principles is what gives the Partnership
its competitive edge and makes it a group of
professionals that other advisers aspire to join.
Our principles emphasise integrity, trust,
openness, partnership and teamwork and are
designed to guide individual and corporate
actions, decisions and standards across our
community.
Given the importance of our Partners, we are
committed to providing ongoing professional
development to ensure they remain
appropriately qualified, technically able and
equipped to deliver a first class service. We also
encourage and provide support for Partners
who choose to pursue further qualifications,
with many Partners having already progressed
to Chartered Status. As a result of the
professionalism of our Partners, we are happy
to guarantee the suitability of the advice that
they give when recommending any of the
wealth management products and services
provided by companies in the Group.
GROWING THE PARTNERSHIP
Growth in the Partnership remains a crucial
long-term objective. In addition to our existing
successful recruitment proposition, we continue
to develop the St. James’s Place Academy. This
provides an opportunity for suitable second
careerists to receive training and assistance to
build a Partner business with us. We now have
four regional centres in the UK, with the
opening of our Edinburgh Academy in
February 2016 complementing our existing
centres in London, Manchester and Solihull.
During 2016 we enrolled nearly 150 new
students onto our Academies and expect a
similar number in 2017. Also in 2016, we
graduated around 70 Academy Partners
following the two year programme and expect
this to rise in 2017 in line with our regional
expansion. Around half of our new students are
from non financial backgrounds and the average
age, at 38, is ten years younger than the average
Partner.
In addition, our next generation Academy
(initially aimed at bringing sons and daughters
of existing Partners into their businesses) also
supports growth and builds succession for our
existing successful businesses. So far we have
enrolled over 150 new students onto this
programme – now widened to include non
family, with an average age of 29.
A new initiative in 2016 has been our
Paraplanning Academy, aimed at training
Partners’ support staff to plan and prepare
business to our high standards across two
locations. We expect 25 students to graduate
in 2017, whilst enrolling a further 90 new
students in stages during the year.
Our presence in Asia, with St. James’s Place
offices in Hong Kong, Shanghai and Singapore,
continues to grow as we invest behind the
business for the long-term. Our brand and
strong investment proposition is proving
compelling as we make progress in attracting
advisers and clients to the business. We are also
pleased to have established a life insurance
company in Hong Kong and launched
St. James’s Place products in all three regions.
15
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plcAnnual Report and Accounts 2016 FUNDS
AT THE HEART OF THE PROPOSITION
TO OUR CLIENTS IS OUR INVESTMENT
MANAGEMENT APPROACH
INDEPENDENT
EXPERTISE
INVESTMENT
COMMITTEE
INVESTMENT
CONSULTANTS
MANAGE THE
MANAGERS
Appoints the fund managers
Sets performance objectives
Risk management and strategy
Decisions: Change firm? Change manager? No change?
OUR APPROACH
This past year has been full of surprises, from
shock referendum and election results, to
commodity price crashes and interest rate
changes. The pound weakened, the dollar
strengthened, and US $13.4 trillion of bonds in
issue traded on negative yields. Despite all of
this, we have seen both the FTSE 100 and S&P
500 reaching record highs in October and
December respectively. These are
unprecedented times.
Against such a backdrop of unpredictability
it has never been more important to have a
reliable framework against which to make
investment decisions. At St. James’s Place, we
have a very simple but effective process that has
remained consistent throughout our history,
and can be described in three words: Select,
Monitor and Change.
The basis of our Investment Management
Approach (IMA) is our strongly held view that
it is not possible for us, nor any business, to
employ best ‘in house’ investment managers
across multiple asset classes at any given time,
so we do not attempt to. Our IMA is based on a
process of selecting the best managers from
companies across the globe, in a manner that is
well structured and avoids conflicts of interests
to the benefit of our clients. The responsibility
of selecting the range of funds and fund
managers that are made available to the clients
of St. James’s Place at any one time falls upon
Funds
36
16
Fund houses
36
Lead fund managers
69
Exclusive to UK
retail investors
17
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 As well as maintaining our existing investment
offering, we continually strive to offer
appropriate breadth of choice for clients, and in
2016 we launched a new Worldwide Income
fund (equity income) to meet the client demand
for diversifying income solutions. This followed
the extensive development to our fixed income
proposition in 2015, which is continuing to
serve clients well.
Looking to the future, the only certainty is
that there is continued uncertainty in financial
markets. Rather than be confused by the
plethora of information and options available,
our Investment Management Approach offers
clients a process that has consistently
demonstrated success over the years through a
number of different market environments.
Our Investment
Management
Approach offers
clients a process
that has
consistently
demonstrated
success over the
years
the Investment Committee. The committee is
made up of a small group of executives and four
‘independent’ investment experts, and is
advised by respected independent investment
research consultancies, including Stamford
Associates, Redington and AON Consulting.
Once a manager has been selected, they are
then carefully monitored to ensure they
continue to apply their investment process in
a manner which is consistent with what is
expected of them, to ensure they retain the
best possible chance of delivering positive real
returns for our clients over the medium to
long-term. This is a process that involves our
consultants, our in-house investment team, and
our Investment Committee, which provides
reassuring depth of analysis to ensure we have
visibility on whether our managers continue to
operate in a manner we expect.
2016 DEVELOPMENTS
However, there are always instances where
circumstances dictate that a change is
necessary, such as a manager leaving to join
another investment firm, or something that
causes a manager’s approach to change for
the worse. In such instances, after careful
consideration, our Investment Committee
may take the decision to change that manager.
2016 presented us with a number of these
circumstances, each one different from the
other, but which led to six fund manager
changes. To emphasise that our approach is
truly global, the location of our appointments
ranged from Hong Kong, Cape Town,
California and Copenhagen – and many of the
managers are not otherwise available in the
UK wealth market, unless you are a client of
St. James’s Place. All of this occurred within
the SJP funds without our clients being
disrupted, which is the true essence of our IMA.
17
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plcAnnual Report and Accounts 2016 OUR PEOPLE
WE ARE A RELATIONSHIP
BUSINESS WHERE PEOPLE ARE
OUR MOST IMPORTANT ASSET
EMPLOYEE GENDER BREAKDOWN
2015-2016
Board Directors
2
7
2
7
Managers and decision makers
92
418
71
303
Total employees
885
943
665
697
Key: Female
Male
2016
2015
2016
2015
2016
2015
OUR APPROACH
This statement is a core cultural belief and a
fundamental element of the success of
St. James’s Place. Members of our community
tend to share core values that are highly
compatible with the values that are central to the
business and established at the outset –
expertise, integrity and discretion. They are
passionate about our business and believe in hard
work and dedication. Age, race, colour, creed,
sexuality, disability and gender are irrelevant:
merit and experience are of greatest importance.
They treat each other with mutual respect,
openness and fairness and are driven by a desire
to ‘do the right thing’ by all our stakeholders.
18
This is our culture, which is central to our
success. We are therefore proactive in building
and reinforcing it. For this most important of
business differentiators it is the Board that
provides both ‘tone at the top’ and oversight.
The Board is committed to being consistent
and clear sighted in its leadership and support
of the culture, and in particular the principle
that ‘St. James’s Place will seek to do the right
thing for its clients and for all its stakeholders’.
In a world where the reputation of the financial
services industry is constantly under pressure,
we aspire to create an authentic alternative
which clients and suppliers can trust, and which
the communities we are part of can appreciate
and respect. However, we recognise that we
will not always get everything right, and so we
also believe in acknowledging mistakes made,
rectifying them and learning from them.
Our people are a sustainable competitive
advantage, so we aim to attract the best and help
them fulfil their potential. We secure their
commitment by providing them with an
interesting and challenging career within a first
class working environment. We reward them
competitively, as well as encourage equity
ownership, including in the Partnership. We are
a living wage employer and have committed to
meeting the living wage for all our employees
and suppliers. Following recent acquisitions in
the UK and overseas, we are committed to
implementing the same or, where appropriate,
similar principles across the Group.
We recognise that as our business grows we
will have to take care of and protect our
culture. Our employee numbers within the SJP
Group are 1,671 in the UK (1,828 worldwide)
and the number of Partners is nearly 2,400
(over 3,400 advisers) with over 4,500 support
staff, and these numbers will continue to grow
in future years.
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415
We are especially
pleased with
survey scores
that suggest
employees are
proud to work for
St. James’s Place
was significantly higher than the financial
services benchmark of 77%. We are especially
pleased with survey scores that suggest
employees are proud to work for St. James’s
Place, are committed to staying with the
business, and feel that we are an employer
that encourages them to strive for greater
achievement. This strong engagement
contributes to low levels of staff turnover and
underpins the quality and sustainability of our
proposition to Partners and clients alike.
In 2016 we held a Board level review of our
People Strategy. This considered our current
approaches to resourcing and development,
including Early Careers programmes for
Apprentices and Graduates as well as
experienced hires. To meet the ongoing needs
of our growing business, we intend to continue
with and develop our existing programmes to
ensure we have a strong pipeline of future
talent at all levels.
CONTINUITY
To ensure continuity of our culture, we ensure
that all employees and Partners joining the
business are selected for their fit with our
corporate values, as well as their competency,
and that they are given a full induction as the
first step in their career with our business. This
is set out in a booklet entitled ‘Our Approach’,
which gives guidance on the culture and values
of St. James’s Place, and the employee
handbook includes a statement about our Code
of Ethics. Whilst many of the original
principles on which our business was founded
remain paramount, in 2016 we reviewed and
recommunicated Our Approach to ensure that
it is appropriately adapted for the modern
workplace. We believe it is important that
our community knows and understands our
objectives, including the ethos behind the
St. James’s Place brand and how its integrity
and values should be maintained. We also
encourage shared commitment to the
St. James’s Place Foundation.
We renew our commitment to our culture
through a variety of both formal and informal
activities, including an Annual Company
Meeting, employee and Partner Surveys,
regular Partner meetings, feedback
opportunities for employees with Directors,
and a Leadership Conference for senior
management. They all provide opportunities to
renew our joint understanding and encourage
commitment to our shared culture, as well as
ensuring a common awareness of the
operational, financial and economic factors that
contribute to the Company’s performance.
Our regular employee survey, which we
conduct every other year, provides important
insights, crucially on employee engagement.
The most recent survey was in 2016 and we
received a strong survey response rate of 87%.
Our overall engagement score was 86%, which
19
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plcAnnual Report and Accounts 2016 20
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 OUR
PERFORMANCE
The strong operating performance of the business
during the year is reflected in the financial performance
for the year.
CONTENTS
– Our Objectives and Related Key Performance Indicators
– Chief Financial Officer’s Report
– Financial Review
– Risk and Risk Management
– Corporate Social Responsibility Report
– Statement of Directors’ Responsibilities
Annual Report and Accounts 2016
21
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plc OUR OBJECTIVES AND RELATED
KEY PERFORMANCE INDICATORS
CLIENTS
TO DELIVER POSITIVE OUTCOMES TO AN
INCREASING POPULATION OF CLIENTS
PARTNERS
TO CONTINUE TO GROW AND
DEVELOP THE PARTNERSHIP
PROGRESS DURING 2016
2016 was another successful year as the business continued to grow.
Client numbers grew by 9% contributing to the increase in
investment of new funds. The quality of the client outcome, as
reflected in client retention and feedback, continued to be as
strong as ever.
PROGRESS DURING 2016
Our proposition continued to be attractive to advisers in the year
which, alongside development of the existing community, led to
improvements in quality both in terms of business credentials and
qualifications. The Partnership also welcomed graduates from the
Academy initiative and new recruits in Asia.
+7%
408
+9%
444
CLIENT NUMBERS 000’S
550
500
450
400
350
300
250
200
150
100
50
0
2013
2012
+9%
526
+9%
484
+9%
572
2014
2015
2016
Our business model is based on managing client wealth and so the number of
clients is a key measure of the health of the business. As well as reflecting past
performance, it also indicates future opportunity, as our experience suggests
that over 90% of new business comes from existing clients or their referrals. In
2016, we were pleased that client numbers increased from 525,800 to 571,800.
CLIENT RETENTION %
100
96%
97%
96%
96%
96%
95
90
85
80
75
2012
2013
2014
2015
2016
+5%
2,378
+6%
2,264
+9%
2,132
NUMBER OF PARTNERS
2400
+10%
1,958
+8%
1,788
2200
2000
1800
1600
1400
1200
2012
2013
2014
2015
2016
1000
Without our Partners, we would have no clients. We were therefore pleased to
deliver growth ahead of our long-term aspirations, supported by Academy
Partners and recruitment in Asia. Partner numbers grew from 2,264 in 2015 to
2,378 this year.
PARTNER RETENTION %
100
90
80
70
60
50
94%
96%
96%
95%
90%
2012
2013
2014
2015
2016
2015
Our business is long-term and client retention feeds directly into the financial
result. However, it is also an indication of minimum standards having been
met. We are therefore delighted that retention was again above 95%,
continuing the trend in recent years.
Partner retention reflects Partners’ continuing satisfaction with our
proposition but also the maintenance of their quality against the standards
we require. We are therefore pleased to note that retention has remained at
the high level of 95% when compared with the prior year.
97%
97%
95%
94%
CLIENT ADVOCACY % THAT WOULD RECOMMEND SJP
100
95
90
85
80
75
70
65
60
55
50
2016
2014
2015
2013
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
GROSS INFLOWS PER PARTNER £M
+9%
4.2
+6%
3.9
+11%
3.6
+1%
3.3
+12%
4.7
Our reputation is vitally important to our business model and this is best
expressed through the experience of our clients. Our Wealth Account survey
provides an excellent snap shot of client experience. In recent years we have
monitored the trend of responses to the question ‘Would you recommend
St. James’s Place to anyone else?’
Productivity of Partners is a measure of their success as business people, but
also feeds into success for the Company. We are pleased that in 2016
individual adviser productivity continued to increase, leading to an overall
increase in gross inflows per Partner from £4.2 million to £4.7 million.
22
2012
2013
2014
2015
2016
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 FUNDS
TO INCREASE FUNDS UNDER
MANAGEMENT (FUM)
PROGRESS DURING 2016
In another successful year, new business from clients combined
with positive growth in underlying investments resulted in an
increase in total FUM to £75.3 billion, growth of 28% over the
year. This growth feeds through directly to the financial
performance in the year.
FINANCIAL
TO ACHIEVE SUSTAINABLE GROWTH IN REPORTED
PROFIT ON ALL MEASURES
PROGRESS DURING 2016
Our business model is simple and is aligned with the needs of both
our clients and our Partners. Strong performance in those areas
combined with positive investment performance to underpin the
financial results. We are pleased to report a continuation of the trend
of recent years.
FUNDS UNDER MANAGEMENT £BN
80
+28%
75.3
EEV OPERATING PROFIT BEFORE TAX £M
700
+11%
660.2
+2%
673.4
+17%
58.6
+27%
52.0
+22%
44.3
+6%
34.8
+29%
596.4
+26%
462.7
-2%
365.9
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
The profitability measures of the Group are ultimately driven by the income
we earn from FUM. The FUM have exhibited compound annual growth of 18%
over the last ten years.
The EEV reporting basis assesses the full value of the emergence of shareholder
cash returns over the long-term. New business (Gross Inflows) is the most
significant underlying driver of EEV Operating Profit, which was up 23% as noted
above, however, particularly strong positive experience variances and operating
assumption changes in the prior year limited growth to 2% year on year.
GROSS INFLOWS £BN
12
+16%
7.9
+21%
6.8
+8%
5.6
+23%
11.35
+17%
9.24
2012
2013
2014
2015
2016
-4%
182.9
+23%
134.6
PROFIT BEFORE SHAREHOLDER TAX £M
+42%
200
180
190.7
160
140
120
100
80
60
40
20
0
-17%
151.3
2013
2014
2015
2012
-7%
140.7
2016
Gross inflows are the gross new investment and pensions business
(principally single premium) received during the year. We aim to grow Gross
Inflows by 15 to 20% per annum over the long-term, which we surpassed in
2016.
Despite strong growth in the fundamentals of the business during 2016 the
continuing negative contribution from unwinding of historic DAC/DIR/PVIF
intangibles resulted in a reduction in profit before shareholder tax. Further
detail is provided on page 36.
NET INFLOWS £BN
7
+26%
4.23
+4%
3.35
+17%
6.78
+14%
5.78
+20%
5.09
DIVIDEND PENCE PER SHARE
35
+18%
33.00
+20%
27.96
+46%
23.30
+50%
15.96
+33%
10.64
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Retention of funds is a result of satisfied clients and is essential if the FUM is to
continue to grow. Growth of 17% in the year was higher than we had expected
and reflected lower levels of withdrawal, particularly due to pension clients
extending retirement and investment clients remaining invested through
volatile markets.
Growth in profit measures, particularly cash, means the Company is able
to increase the level of dividend. We are pleased to confirm an increase of
18% in dividend in the year, bringing the total increase over the last five years
to 312%.
23
600
500
400
300
200
100
0
30
25
20
15
10
5
0
70
60
50
40
30
20
10
0
10
8
6
4
2
0
6
5
4
3
2
1
0
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plcAnnual Report and Accounts 2016 CHIEF FINANCIAL OFFICER’S REPORT
DESPITE THE UNCERTAINTIES
CAUSED BY POLITICAL EVENTS
DURING THE YEAR, OUR BUSINESS
HAS PERFORMED STRONGLY, WITH
GROWTH IN ALL THE BUSINESS
FUNDAMENTALS
Andrew Croft
Chief Financial
Officer
24
As already covered in the Chief Executive’s Report the growth in gross and
net inflows, together with the investment return in our funds, gave rise to
a 28% growth in our funds under management to £75.3 billion.
Shareholders will be aware that our financial model is to attract and retain
funds under management on which we will receive an annual management
fee, and consequently this strong growth in funds under management is
reflected in our financial results.
At the same time we are investing in the business for the future. The
increase in costs of these initiatives is also reflected in the results, but with
an expectation of future returns for the business.
FINANCIAL RESULTS
As shareholders will be aware from previous periods, we report our results
on both IFRS and EEV bases, as well as providing further detail on the cash
emergence from the business. Detailed explanation and analysis of the
results on these measures is provided in the Financial Review on pages 26
to 47.
Overall, the results reflect the underlying strong business performance
over the year, but there are a number of particular factors which have also
impacted the results:
i. Our required contribution to the Financial Services
Compensation Scheme (FSCS) was again at an elevated level,
negatively impacting the results by £17.2 million pre-tax
(£13.7 million post-tax) compared with a £20.1 million pre-tax
(£15.9 million post-tax) for the prior year.
ii. During the year we have continued to invest strongly in our
future with a current year impact of £34.0 million pre-tax
(2015: £17.2 million pre-tax). We are very pleased with the
success of our Academy, and both the Asia operations and our new
DFM offering, Rowan Dartington, are developing well.
iii. The continuation of our back office infrastructure investment cost
£20.9 million pre-tax for the year compared with £18.1 million
for the prior year.
iv. As noted at the half year we have been voluntarily reviewing
charges on two small cohorts of business: waiving exit charges at
the minimum retirement age where they existed on some older
pension contracts (written before July 1999); and reassessing risk
charges on a reviewable protection contract. The combined
impact of these actions is a negative one-off £8.2 million pre-tax
in the cash and IFRS results, which rises to £13.6 million pre-tax
in the EEV result when the reduction in future charges is also fully
capitalised.
Also, at the end of the year, we have reassessed the value of the investment
contract unit liability to better reflect recent experience and to match the
encashment value of client investments. This reassessment reduces the
liability by £267 million, with an offsetting increase in the Deferred
Income liability in the IFRS consolidated statement of financial position.
There is no impact on IFRS net assets or profit, nor will there be any
impact on the emergence of profit in future years. This change better
reflects our business and we believe it will simplify reporting in future.
Where this change has any presentation impact on each of the reporting
metrics, it is commented on in the relevant sections of the Financial
Review.
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415
IFRS Result
The IFRS profit after tax was £111.7 million (2015: £202.0 million).
The principle reason for the reduction in the current year was that the prior
year result was enhanced by recognition of £74.8 million of deferred tax
asset on historic capital losses. The 2016 result is also impacted by the
continuing unwind of intangible DAC/DIR/PVIF balances.
The Underlying profit before shareholder tax was £163.5 million
(2015: £163.7 million) reflecting an increase in the income from funds
under management, offset by the higher expenses, the cost of investment
and the other items noted at the start of this statement.
The Profit before shareholder tax, which takes account of the
amortisation of intangible assets and liabilities, was £140.6 million (2015:
£151.3 million). As previously indicated, the amortisation of the intangible
assets and liabilities will for a number of years exceed the establishment of
new intangibles and be a negative to both the Profit before shareholder tax
and the IFRS profit after tax results.
Cash Result (presented post-tax)
The Operating cash result for the year was £226.0 million
(2015: £195.6 million), growth of 16%, reflecting the increased annual
management fees from the higher funds under management offset by
higher expenses.
Some of this operating cash is then expensed through investment in the
Academy, the Asian operations, our new DFM offering and other strategic
investments. The total post-tax investment during the year was
£26.5 million (2015: £13.5 million) resulting in the Underlying cash
result of £199.5 million (2015: £182.1 million), growth of 10%.
The Cash result was £175.4 million (2015: £171.5 million) reflecting the
underlying cash result adjusted for the cost of the back office infrastructure
investment and a number of one-off items detailed in the Financial Review
on page 41.
The reassessment of the investment contract unit liability will change the
emergence of cash in future years (detailed in the Financial Review on page
42). Had the change been implemented at the start of 2016 then the cash
results noted above would have been some £25 million higher.
Note that the cash, operating cash and underlying cash results should not
be confused with the IFRS consolidated statement of cash flows which is
prepared in accordance with IAS 7 and disclosed on page 130.
EEV Result
In line with our previous guidance, we have reduced the level of EEV
reporting and now only provide summarised disclosure in the Financial
Review rather than full supplementary information.
The EEV new business contribution for the year was £520.2 million
(2015: £440.7 million) growth of 18%. The growth was slightly lower than
the new business growth (+23%) due to higher expenses associated with
the strong adviser growth and a change in business mix.
The EEV operating profit for the year was £673.6 million (2015:
£660.2 million), growth of 2%, however, the prior year benefitted from a
significantly higher experience variance and operating assumption changes.
Excluding these items in both years, together with the 2016 benefit from
the inclusion of Rowan Dartington, the growth in the operating profit
would have been 18%, in line with the growth in the new business
contribution.
The rise in global stock markets during the second half of the year, partly
arising out of the currency impact from the depreciation of Sterling, has
contributed to a very strong investment return for our funds. This gave rise
to a positive investment variance of £537.2 million compared to a small
negative variance of £24.4 million for the prior year.
Total EEV profit before tax for the period was therefore £1,198.4
million with the positive investment variance explaining most of the
significant increase compared with £636.7 million for the prior year. The
net asset value per share on an EEV basis at the end of the year was 900.7
pence (31 December 2015: 737.3 pence).
The EEV result is unaffected by the reassessment of the investment
contract unit liability.
DIVIDEND
At the half year we increased the interim dividend by 15% to 12.33 pence
and reiterated our intention to continue to grow the dividend in line with
the underlying performance of the business. Given the continued strong
performance of the business during the second half of 2016, the Board has
recommended a final dividend of 20.67 pence per share, an increase of
20% which will consume £109 million. This will provide for a full year
dividend of 33 pence, growth of 18%.
Over the last ten years we have progressively grown the dividend, even
during 2008/09, with compound growth of some 25% per annum.
CAPITAL AND SOLVENCY II
We continue to manage the balance sheet prudently to ensure the Group’s
solvency is maintained safely through the economic cycle. This is important
not only for the safeguarding of our clients’ assets, but also to ensure we
can maintain returns to shareholders.
We assess our solvency against a management solvency buffer (see page 43)
and with management free assets considerably in excess of the buffer, our
solvency position remains strong. We also provide an estimate of our
Solvency II free assets position which, at £952.2 million before the dividend
(2015: £899.7 million), provides a solvency ratio of 147% (2015: 156%)
also demonstrating the financial strength of the business.
CONCLUDING REMARKS
The business, financials and lead indicators are in very good shape. The
cash emergence is expected to continue to grow as business matures from
the gestation period and starts to contribute to the cash earnings.
In addition to increasing the dividend to shareholders, we are continuing to
invest in the business for the future
Finally, as noted in the Chief Executive’s Report, the proven strength of
our business model and good momentum in our business gives us
confidence in our ability to deliver continued growth in line with our
objectives.
Andrew Croft
Chief Financial Officer
27 February 2017
25
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plcAnnual Report and Accounts 2016 FINANCIAL REVIEW
THE FINANCIAL MODEL
The Group’s strategy is to attract and retain retail Funds under Management (FUM) on which we receive an annual management fee for as long as the
clients remain invested. This is the principal source of income for the Group out of which we meet the overheads of the business, invest in growing the
Partnership and invest in acquiring new FUM.
The level of income is dependent on the level of client funds and the level of asset values. In addition, since around half of our business does not
generate net income in the first six years, the level of income will increase as a result of new business from six years ago becoming cash generative.
This deferral of cash generation means the business always has six years’ worth of funds in the ‘gestation’ period. More information about our fees on
Funds under Management can be found in Section 1 on page 30.
Group expenditure is carefully managed with clear targets set for growth in establishment expenses in the year. Many other expenses increase with
business levels and are met from margins in the products. The Group also invests in ensuring the quality of our proposition for clients and Partners
through investment in new client services and existing IT systems. Finally, we are also looking to the future, with investment in strategic initiatives,
including the Academy, Asia, DFM and our back office infrastructure programme. More information about our expenses can be found in Section 2 on
page 32.
A small proportion of Group expenditure is required to support management of existing funds, but the majority of expenditure is investment in
growing the Partnership and acquiring new funds. The resulting new business is expected to generate income for an average of 14 years, and is
expected to provide a good return on the investment (see page 30).
Given the importance of FUM to profit generation by the business, we provide an analysis of the FUM make up and development in Section 1.
Section 2 covers expenses, which is the other significant driver of profits, with Sections 3-5 reporting on the performance of the business on the IFRS,
cash and EEV result bases, and providing commentary on solvency and liquidity.
PERFORMANCE MEASUREMENT
In line with statutory reporting requirements, we report profits assessed on an International Financial Reporting Standards (IFRS) basis. However,
given the long-term nature of the business and the high level of investment in new business generation each year, we believe the IFRS result does not
provide an easy guide to the cash likely to emerge in future years, nor does it reflect the total economic value of the business. Therefore, consistent
with last year, we complement IFRS reporting with additional disclosure on various alternative performance measures (APMs).
APMs are not defined by the relevant financial reporting framework (which for the Group is IFRS), but we use them to provide greater insight to the
financial performance, financial position and cash flows of the Group and the way it is managed. Summary information about the key APMs used in
our Financial Review is provided in the following table, and we also provide a complete Glossary of Alternative Performance Measures on page 199, in
which we define each APM and explain why it is used and, if applicable, how the measure can be reconciled to the IFRS financial statements.
Reconciliation to the
financial statements
Refer to page 39.
APM
Definition
Why is this measure used?
Solvency II
net assets
Based on IFRS Net Assets, but with the following
adjustments:
1. Reflection of the recognition requirements of the
Solvency II regulations for assets and liabilities. In
particular this removes, DAC, DIR, PVIF, other
intangibles and some other small items which are
treated as inadmissible from a regulatory perspective;
and
2. Adjustment to remove the matching client assets and
the liabilities as these do not represent shareholder
assets.
No adjustment is made to deferred tax as this is treated as
an allowable asset in the Solvency II regulation.
Our ability to satisfy our liabilities to clients, and
consequently our solvency, is central to our
business. By removing the liabilities which are
fully matched by assets, this presentation allows
the reader to focus on the business operation. It
also provides a simpler comparison with other
wealth management companies.
26
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Reconciliation to the
financial statements
Refer to page 34
and also see Note 3
– Segment Profit.
APM
Definition
Why is this measure used?
IFRS methodology recognises non cash items such
as deferred tax and share options. By contrast,
dividends can only be paid to shareholders from
appropriately fungible assets. The Board therefore
uses the cash results to monitor the level of cash
generated by the business.
While the Cash result gives an absolute measure of
the cash generated in the year, the Underlying and
Operating cash results are particularly useful for
monitoring the expected long-term rate of cash
emergence, which is particularly useful in
considering the supportability of dividends and
sustainable dividend growth.
Cash result,
Underlying
cash result and
Operating cash
result
The Cash result is defined as the movement between the
opening and closing Solvency II net assets adjusted for the
following items:
1. The movement in deferred tax is removed to reflect
just the cash realisation from the deferred tax
position;
2. The movements in goodwill and other intangibles are
included; and
3. Other changes in equity, such as dividends paid in the
year and share option costs, are excluded.
The Operating cash result reflects the regular emergence
of cash from the business operations.
The Underlying cash results additionally reflects the cash
impact of the strategic investments we are making.
Finally, the Cash result reflects all other cash items,
including those whose emergence is volatile, varying over
time and often influenced by markets, together with the
short term costs associated with the back office
infrastructure project.
Neither the Cash result nor the Underlying cash result
should be confused with the IFRS consolidated statement
of cash flows which is prepared in accordance with IAS 7.
Policyholder
and
Shareholder tax
Shareholder tax is estimated by making an assessment of
the effective rate of tax that is applicable to the
shareholders on the profits attributable to shareholders.
This is calculated by applying the appropriate effective
corporate tax rates to the shareholder profits.
In effect, the shareholder tax is assessed by calculating the
expected level of shareholder tax implied by the post-tax
result, but with explicit adjustment in the calculation for
any significant one-off tax adjustments.
The remainder of the tax charge represents tax on
policyholder’s investment returns.
This calculation method is consistent with the legislation
relating to the calculation of tax on shareholder profits.
The UK tax regime facilitates the collection of tax
from life insurance policyholders by making an
equivalent charge within the corporate tax of the
Company. The total tax charge for the insurance
companies therefore comprises both this element
and an element more closely related to normal
corporation tax.
Disclosed as separate
line items in the
statement of
comprehensive
income on page 127.
Life insurance business impacted by this tax
typically includes policy charges which align with
the tax liability, to mitigate the impact on the
corporate. As a result when policyholder tax
increases, the charges also increase. Given these
offsetting items can be large, and typically don’t
perform in line with the business, it is beneficial to
be able to identify the two elements separately. We
therefore refer to that part of the overall tax
charge, which is deemed attributable to
policyholders, as policyholder tax, and the rest as
shareholder tax.
Annual Report and Accounts 2016
27
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation FINANCIAL REVIEW continued
Reconciliation to the
financial statements
Disclosed as a
separate line item
in the statement of
comprehensive
income on page 127.
Refer to page 34.
APM
Definition
Why is this measure used?
Profit before
shareholder tax
A profit measure which reflects the IFRS result adjusted
for policyholder tax, but before deduction of shareholder
tax. Within the consolidated statement of comprehensive
income the full title of this measure is ‘Profit before tax
attributable to shareholders’ returns’.
Underlying
profit
A profit measure which reflects the IFRS result adjusted
to remove the DAC, DIR and PVIF intangibles.
The IFRS methodology requires that the tax
recognised in the financial statements should
include the tax incurred on behalf of policyholders
in our UK life assurance company. Since the
policyholder tax charge is unrelated to the
performance of the business, we believe it is useful
to separately identify the profit before shareholder
tax, which reflects the IFRS profit before tax,
adjusted for tax paid on behalf of policyholders.
The IFRS methodology promotes recognition of
profits in line with the provision of services and
so, for long-term business, some of the initial cash
flows are spread over the life of the contract
through the use of intangible assets and liabilities
(known as DAC – Deferred Acquisition Costs and
DIR – Deferred Income). Due to the retail
distribution review (RDR) regulation change in
2013, there was a step change in the progression of
these items in our financial statements, which
resulted in significant accounting presentation
changes despite the fundamentals of our vertically
integrated business remaining unchanged. We
therefore believe it is useful to consider the IFRS
result, having removed the impact of movements
in these intangibles, as it better reflects the
underlying performance of the business.
EEV operating
profit
A discounted cash flow valuation methodology, assessing
the long-term economic value of the business.
Our embedded value is determined in line with the EEV
principles, originally set out by the Chief Financial Officers
(CFO) Forum in 2004, and amended for subsequent
changes to the principles, including those published in
April 2016, following the implementation of Solvency II.
Both the IFRS and cash results reflect only the cash
flows in the year. However, our business is
long-term, and activity in the year can generate
business with a long-term value. We therefore
believe it is helpful to understand the full economic
impact of activity in the year, which is the aim of the
EEV methodology.
See Note 3 –
Segment Profit.
The EEV operating profit reflects the total EEV result with
an adjustment to strip out the impact of stock market and
other economic effects during the year.
Within the EEV, many of the future cash flows
derive from fund charges, which change with
movements in stock markets. Since the impact of
these changes is typically unrelated to the
performance of the business, we believe that the
EEV operating profit (reflecting the EEV profit,
adjusted to reflect only the expected investment
performance and no change in economic basis)
provides the most useful measure of embedded
value performance in the year.
28
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 SECTION 1: FUNDS UNDER MANAGEMENT
This section starts with analysis of the movement in the funds under management of the Group. This is followed by information about the income the
Group earns from managing these funds, together with the profile of these earnings, and finally a geographical and segmental analysis of the funds
under management.
Movement in Funds Under Management
During 2016 we have seen gross new funds of £11.35 billion (2015: £9.24 billion), growth of 23% and a net inflow of funds under management of
£6.78 billion (2015: £5.78 billion), growth of 17%. The investment return contributed £8.7 billion (2015: £0.8 billion contribution) to funds under
management during the year with this contribution reflecting both the higher stock markets but also the positive impact of the deprecation of Sterling
on the overseas assets. Given the strong net inflow, and the positive investment performance, funds under management increased to £75.31 billion
(2015: £58.61 billion).
Analysis of the development of the funds under management is provided in the following tables:
Year Ended 31 December 2016
Opening funds under management
Rowan Dartington acquisition
Gross inflows
Net investment return
Regular income withdrawals and maturities
Surrenders and part surrenders
Rowan Dartington – Ardan International disposal
Closing funds under management
Net inflows
Implied surrender rate as a percentage of average funds under management
Note
Investment
£’Billion
Pension
£’Billion
UT/ISA
& DFM
Total
£’Billion
£’Billion
1
2
22.52
–
2.28
2.12
(0.52)
(0.90)
–
25.50
0.86
3.7%
20.86
–
5.12
4.40
(0.84)
(0.91)
–
28.63
3.37
3.7%
15.23
1.26
3.95
2.19
(0.11)
(1.29)
(0.05)
21.18
2.55
6.8%
58.61
1.26
11.35
8.71
(1.47)
(3.10)
(0.05)
75.31
6.78
4.6%
Included within ‘UT/ISA & DFM' are gross inflows of £0.42 billion and outflows of £0.16 billion relating to Rowan Dartington. Also included is the
£0.05 billion reduction in funds under management relating to the disposal of Rowan Dartington’s non core international platform business, Ardan
International, in December 2016.
A further £466 million of investments is managed in third party funds within our Asia business.
Year Ended 31 December 2015
Opening funds under management
Gross inflows
Net investment return
Regular income withdrawals and maturities
Surrenders and part surrenders
Closing funds under management
Net inflows
Implied surrender rate as a percentage of average funds under management
Note
Investment
£’Billion
Pension
£’Billion
UT/ISA
£’Billion
Total
£’Billion
1
2
21.14
2.45
0.19
(0.48)
(0.78)
22.52
1.19
3.6%
18.08
3.66
0.38
(0.62)
(0.64)
20.86
2.40
3.3%
12.79
3.13
0.25
–
(0.94)
15.23
2.19
6.7%
52.01
9.24
0.82
(1.10)
(2.36)
58.61
5.78
4.3%
A further £430 million of investments is managed in third party funds within our Asia business.
Notes
1. Regular income withdrawals are those amounts, pre selected by clients, which are paid out by way of periodic income. Maturities are those sums paid out where the plan has reached the intended, pre
selected, maturity event (e.g. retirement).
2. Surrenders and part surrenders are those amounts where clients have chosen to withdraw money from their plan which were not pre selected regular income withdrawals or maturities.
Annual Report and Accounts 2016
29
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation FINANCIAL REVIEW continued
Fees on Funds Under Management
As noted at the start of this Financial Review, our financial model is to attract and retain retail funds under management (FUM) on which we receive
an annual management fee.
The net annual management fee retained by the Group is c.0.77% post-tax. However, due to our product structure, investment and pension business
does not generate net cash in the first six years. Consequently, the level of income we are receiving today is not fully representative of the expected
earnings from the funds we are managing, and these earnings will increase as a result of the new business from six years ago becoming cash generative.
This deferral of cash generation means there is always six years’ worth of business in the ‘gestation’ period.
The table below provides an estimated current value of the funds under management in the gestation period:
Year
2010
2011
2012
2013
2014
2015
2016
Total
Total
£’Billion
Total
£’Billion
–
2.4
2.9
4.0
4.4
5.3
6.1
2.0
2.4
2.7
3.7
3.9
4.5
–
25.1
19.2
This £25.1 billion of funds under management in the gestation period represents approximately a third of the total funds under management which, if
all the business reached the end of the gestation period, would contribute some £195 million to the annual post-tax cash result.
The Business Case for New Funds Under Management
The Group incurs costs associated with attracting new funds. We believe it is useful to provide details of the economic return we expect will be
generated from the new business; in other words, the business case for the investment in attracting new clients and funds under management.
As detailed later in this review on page 41, a net cost of £106.7 million (2015: £84.2 million) has been incurred to attract the £11.35 billion of gross
new funds (2015: £9.24 billion).
We regard this as an investment in new business which we expect to generate income in the future, significantly exceeding this cost and therefore
provide positive returns for shareholders. The table below provides details of the new business added during the reporting periods and different
measures of valuing the investment:
Year Ended
31 December
2016
Year Ended
31 December
2015
11.35
9.24
(80.2)
(26.5)
(106.7)
427.8
1.0%
4.6%
5
21.7%
(70.7)
(13.5)
(84.2)
358.9
0.9%
4.8%
5
22.1%
Gross inflows (£’Billion)
Post-tax investment in new business (£’Million)
–Operating costs
–Investment costs
–Total costs
Post-tax present value of expected profit from investment (£’Million)
Cost of new business (% of new money invested)*
New business margin (% of new money invested)
Cash payback period (years)
Internal rate of return (net of tax)
* The investment as a percentage of net inflow of funds under management was 1.6% compared with 1.5% for 2015.
30
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Geographical and Segmental Analysis
The table below provides a geographical and segmental analysis of funds under management at the end of each year:
North American Equities
UK Equities
Fixed Interest
European Equities
Asia and Pacific Equities
Cash
Property
Alternative Investments
Other
Total
31 December
2016
31 December
2015
£’Billion
% of total
£’Billion
% of total
17.5
17.3
12.8
8.2
6.2
6.0
2.4
1.9
3.0
75.3
23%
23%
17%
11%
8%
8%
3%
3%
4%
100%
13.1
15.6
8.8
6.2
4.9
4.6
2.2
1.3
1.9
58.6
22%
27%
15%
11%
8%
8%
4%
2%
3%
100%
Annual Report and Accounts 2016
31
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation FINANCIAL REVIEW continued
SECTION 2: EXPENSES
Management Expenses
The table below provides a breakdown of the management expenditure (before tax):
Establishment costs
Other performance related costs
Operational development costs
Strategic development costs
Academy costs
Asia costs
DFM costs
Back office infrastructure development
Regulatory fees
FSCS levy
Year Ended
31 December
2016
Year Ended
31 December
2015
Note
£’Million
£’Million
1
2
3
4
5
6
7
8
9
9
160.7
104.0
17.0
6.6
7.2
13.8
12.9
20.9
8.3
17.2
368.6
139.4
94.3
17.3
1.9
5.5
7.9
1.6
18.1
7.5
20.1
313.6
Notes
1. Establishment costs are the running costs of the Group’s infrastructure and are relatively fixed in nature in the short term, although they are subject to inflationary increases. These costs will increase
as the infrastructure expands to manage the higher number of existing clients, the growing number of advisers and increasing business volumes.
The growth in the establishment expenses during the year was higher than our targeted growth due to the very strong new business result together with above target growth in new advisers, a primary
driver to the infrastructure costs.
We expect the growth in the establishment costs for 2017 to be more in line with our medium term business targets.
2. Other performance related costs, for both Partners and employees, vary with the level of new business and operating profit performance of the business.
3. Operational development costs represent business as usual expenditure to support the business, such as the on-going development of our investment proposition and our technology, including focus on
cyber security.
We expect costs in 2017 to be at a similar level.
4. As a growth business we are constantly looking to new opportunities and expect to incur a small level of ongoing expense associated with pursuing other strategic developments.
We will continue to explore opportunities and undertake appropriate initiatives.
5. The Academy is an important strategic investment for the future and we are continuing to grow our investment in this programme. Costs have increased in recent years as we have increased the
number of students within the programme and launched more regional academies.
Our investment in the Academy will continue in 2017 with expected costs of some £8.0 million.
6. Our expansion into Asia through operations in Singapore, Hong Kong and Shanghai is intended to provide diversification of our growth model through exporting our successful wealth management
proposition to new markets, starting with the UK expat market. Costs reflect both the ongoing operational costs, but also the development costs associated with growing these businesses to achieve
sustainable scale. We have also seen these costs increase due to the depreciation of Sterling.
Our investment will continue in 2017 and we expect this investment cost to increase by £3-4 million.
7. Completion of the purchase of Rowan Dartington in March 2016 facilitated a new DFM operation within the SJP proposition. We expect this business will grow quickly, requiring investment to
support these ambitions.
8. Our back office infrastructure programme is a multi-year initiative to upgrade our administration so it can support our future business goals. Having achieved the migration of our ISA and Unit Trust
proposition to our new Bluedoor system in 2015, the focus in 2016 has been the launch of a new retirement account with the eventual aim being to migrate pension and drawdown business onto the
new system. The costs in 2017 will be at a similar level to 2016.
9. The costs of operating in a regulated sector include fees charged by the regulators and our contribution to the Financial Services Compensation Scheme. Our position as a market leading provider of
advice, means we make a very substantial contribution to supporting the industry compensation scheme, the FSCS, thereby providing protection for clients of other sector businesses that fail. In the
last couple of years, the levy has been at an elevated level and we remain hopeful that it will return to a more normalised level in future, albeit we now expect a third year of an elevated contribution in
the 2017/18 funding year. The FSCS levy is met by our various regulated companies and is split £16.5 million (2015: £19.8 million) via the Distribution business and £0.7 million (2015: £0.3 million)
via the Life and Unit Trust regulated business.
32
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415
Group Expenses
The table below provides a reconciliation from the management expenses above to the total Group expenses included in the consolidated statement of
comprehensive income on page 127:
Expenses per table above
Payments to Partners
Investment expenses
Third party administration
Acquired IFA operating costs
Amortisation and revaluation of DAC and PVIF
Share option costs
Share option NI
Interest expense and bank charges
Charitable donations
Other
Year Ended
31 December
2016
Year Ended
31 December
2015
Note
£’Million
£’Million
10
10, 11
10, 12
368.6
599.7
67.9
74.2
3.1
63.4
23.9
1.9
6.2
3.4
12.8
856.5
313.6
518.5
143.5
56.6
3.0
76.0
15.7
3.4
6.0
3.5
10.3
836.5
Total expenses
1,225.1
1,150.1
Notes
10. These costs are met from corresponding margins and any variation in them from changes in the volumes of new business or the level of the stock markets does not directly impact the profitability of the Group.
11. As noted in the 2015 Annual Report and Accounts, in preparation for migration of business to the Bluedoor platform, we restructured our funds so that Investment expenses of all unit trusts are
charged directly to the trust rather than some being settled by the manager or life company. As a result, the Investment expenses for most funds are no longer consolidated in the financial statements,
but neither is the equal and offsetting fee, resulting in a neutral profit impact overall (and a neutral impact on clients).
12. Also as noted in the 2015 Annual Report and Accounts, as a result of the migration of business to a new back office platform, a new administration tariff with our outsourced provider now applies to
business transacted. Consequently, some administration costs which were previously charged to the trusts are now being treated as expenses, with a corresponding offsetting increase in fee income,
again resulting in a neutral impact overall. As a result, the Third Party Administration costs reported in 2016 increased by c.10% in addition to the growth in business.
Annual Report and Accounts 2016
33
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation FINANCIAL REVIEW continued
SECTION 3: INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
As noted at the start of this review, two key measures based on IFRS are Profit before shareholder tax, which removes the impact of policyholder
tax, and Underlying profit result, which removes the impact of changes in certain intangibles (DAC/DIR/PVIF). Of these two, we believe
Underlying profit provides the more useful measure, based on IFRS, for assessing operating performance.
As noted in the Chief Financial Officer’s report, the results reflect the underlying strong business performance, but also a number of other drivers, most
notably including the FSCS levy and the continued investment in our business (not least our back office infrastructure, the Academy, and recent acquisitions).
Underlying cash
Share options
Deferred tax impacts
Insurance reserves
Back office infrastructure
Variance
Underlying profit
DAC/DIR/PVIF
IFRS profit
IFRS basic earnings per share
IFRS diluted earnings per share
Underlying cash basic earnings per share
Underlying cash diluted earnings per share
2016
2015
Before
shareholder
tax
£’Million
221.3
(23.9)
–
(1.6)
(20.9)
(11.4)
163.5
(22.9)
140.6
Before
shareholder
tax
£’Million
197.0
(15.7)
–
(1.8)
(18.1)
2.3
163.7
(12.4)
151.3
After tax
£’Million
199.5
(23.9)
(21.1)
(1.6)
(16.7)
(7.7)
128.5
(16.8)
111.7
After tax
£’Million
182.1
(15.0)
52.1
(1.8)
(14.4)
3.8
206.8
(4.8)
202.0
Year Ended
31 December
2016
Year Ended
31 December
2015
Pence
21.5
21.3
38.2
37.9
Pence
38.9
38.5
34.6
34.2
Underlying Profit before Shareholder tax
The result for the year was £163.5 million, in line with the result of £163.7 million in 2015. A breakdown by segment is provided in the following table:
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
165.8
92.3
258.1
(25.9)
(20.9)
(47.8)
163.5
174.2
70.7
244.9
(21.2)
(18.1)
(41.9)
163.7
Life business
Unit Trust and DFM business
Funds management business
Distribution business
Back office infrastructure development
Other
Underlying profit before shareholder tax
34
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Funds management
The profit for the year to 31 December 2016 was £258.1 million (2015: £244.9 million) which was 5% higher than the prior year. Higher income
from funds under management was partially offset by higher expenses and some one-off costs from reviewing charges in two small cohorts of legacy
business. The investment in the infrastructure of Rowan Dartington for future growth reduced profit by £5.1 million. Finally, a reallocation of
expenses between Life and Unit Trust business has impacted the respective results of each business.
Distribution business
St. James’s Place is a vertically integrated firm, allowing it to benefit from the synergies of combining funds management with distribution. Therefore,
as well as the income generated on the funds under management, there is a further margin from the distribution activity, which depends principally on
the levels of new business, expenses and investment.
The 2016 result has been negatively impacted by a continued, albeit slightly reduced year-on-year, high contribution to the FSCS, which for the year
was £16.5 million (2015: £19.8 million). The Asian business also made a loss in the year of £13.2 million (2015: £7.0 million) reflecting the corporate
investment in securing this business. After adjusting for these costs in both years, there was a trading profit of £3.8 million in the current year which
was similar to the trading profit of £5.6 million in 2015.
Back office development
As noted on page 32 our investment in our back office development project (known as Bluedoor) during the year was £20.9 million
(2015: £18.1 million).
Other
Other operations made a negative contribution of £47.8 million (2015: negative contribution of £41.9 million). The largest contributors to the result
were the costs of share options and the impact of strategic investment (other than the back office development identified separately above).
The higher share option cost of £23.9 million in the current year (2015: £15.7 million) principally reflected a full year expense of the new Partner
share scheme which was launched in the second half of 2015. Additionally, National Insurance associated with share options cost £1.9 million in the
year (2015: £3.4 million).
In 2016 investment in RD and Asia have been allocated above, but other strategic development costs, including the Academy, were £15.7 million
compared to £10.2 million in 2015 (see Section 2 on page32 for more detail on the associated expenses).
Finally, our maturity grant and other contributions to the Foundation totalled £3.7 million in 2016 (2015: £3.8 million).
Annual Report and Accounts 2016
35
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation FINANCIAL REVIEW continued
DAC, DIR and PVIF
The net movement in the DAC, DIR and PVIF intangibles has a negative contribution to profit as summarised in the table below. Additional analysis is
included in Note 8 on page 147.
Amortisation
Tax rate change
Arising on new business
Movement in year
Year Ended
31 December 2016
Before
shareholder
tax
After tax
Year Ended
31 December 2015
Before
shareholder
tax
After tax
£’Million
£’Million
£’Million
£’Million
(4.5)
–
(18.4)
(22.9)
(3.4)
2.1
(15.5)
(16.8)
12.4
–
(24.8)
(12.4)
9.9
5.9
(20.6)
(4.8)
The net impact of amortisation of the accumulated balances of DAC and PVIF assets, and DIR liability has, as expected, reduced again during the
period, turning negative compared with the prior year.
The amortisation pattern of DAC and DIR is different, with the DAC balance amortising steadily over 14 years while a substantial proportion of the
DIR balance will amortise over six years. Historically this has resulted in faster deferred income recognition than acquisition expense accrual, and a
positive impact overall from amortisation.
However, since the implementation of RDR in 2013 the level of new DAC and DIR has reduced significantly and the large historic balances have been
unwinding down towards the new normal. The faster amortisation of DIR means that its trend towards a new lower rate has been quicker, causing the
net amortisation level to reduce and ultimately turn negative, which developing effect can also be seen in Note 8.
Previous guidance stated this reducing trend would continue until the pre RDR DIR balance had unwound (over six years, say 2020), at which point
the net amortisation level would stabilise before starting to increase back towards a new long-term level as the pre RDR DAC balance unwinds (by 14
years, say 2028). However, the reassessment of £267 million of investment contract liability at the end of 2016 has re-established a significant DIR
balance, which will amortise over the next six years. We therefore expect a change in the overall amortisation in 2017 to a positive £30-35 million
before shareholder tax. The equivalent in 2016 would have been c.£50 million before shareholder tax and c.£40 million after tax, which reflect an
increase of c.£55 million before shareholder tax and c.£45 million after tax. (For clarity, there is no change in expected pattern of DAC amortisation.)
At the same time, the revised assessment of investment contact liability results in a change in the income deferred from future new business. If the
revised approach was applied to business in 2016 the impact would have been an increase in new DIR of c.£90 million (c.£70 million after tax), taking
the total negative impact from new business to around £110 million before shareholder tax and c. £90 million after tax. In future years we would
expect this negative contribution to move in line with new business growth albeit reflecting business mix impacts.
Overall, and since our business has been growing, we expect that the negative impact of deferring more income from new business will exceed the
positive impact of amortising the historic balances, meaning the DAC/DIR/PVIF adjustment will be more negative in future. But of course this will
simply offset the equal and opposite positive impact we are expecting in the Cash result (see page 41).
Tax rate changes in both years impacted the post-tax movements.
Finally, it is important to note the intangible and deferred nature of these items, meaning that they do not reflect the operating performance of the
business. This is why we believe the Underlying profit measure, which is adjusted from IFRS to remove these impacts, provides a useful measure of
operating performance.
36
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Shareholder Tax
The actual tax rate in each of the periods may be impacted by significant one-off items and events such as a change in corporation tax rate. The table
below provides a high level analysis of shareholder tax, and a more detailed analysis is included in Note 7.
Expected shareholder tax
Recognition of capital losses
Other tax adjustments
Corporation tax rate change
Actual shareholder tax
Expected shareholder tax rate
Actual shareholder tax rate
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
(27.2)
2.2
(2.6)
(1.3)
(28.9)
19.3%
20.6%
(29.2)
74.8
0.6
4.5
50.7
19.3%
(33.5%)
The expected shareholder tax principally reflects the current UK corporation tax and overseas rates applicable and will vary from year to year
depending upon the emergence of profit between the different tax regimes which apply to the St. James’s Place Group companies.
There has been a small reassessment in the recognition of capital losses adding £2.2 million to profit (negative tax impact) in the year (2015:
£74.8 million negative tax impact, positive profit) and the combined impact of a number of other small tax adjustments was £2.6 million negative
impact on profit, or increase to tax (2015: £0.6 million negative impact on tax, positive on profit).
The reduction in the rate of corporation tax to 17% from 1 April 2020 was enacted in the Finance Act 2016. The impact of this reduction on the net
deferred tax assets and liabilities results in a negative impact of £1.3 million due to the level of deferred tax assets being greater than the level of deferred
tax liabilities (2015: £4.5 million positive impact).
The overall impact of these effects was to increase the tax charge on an IFRS basis to £28.9 million (2015: negative impact on tax of £50.7 million).
Annual Report and Accounts 2016
37
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation FINANCIAL REVIEW continued
IFRS Profit
Analysis of the IFRS profit before tax, Profit before shareholder tax and IFRS profit after tax is presented in the table below, which also shows the
impact of the tax incurred on behalf of policyholders:
IFRS profit before tax
Policyholder tax
Profit before shareholder tax
Shareholder tax
IFRS profit after tax
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
486.3
(345.7)
140.6
(28.9)
111.7
174.1
(22.8)
151.3
50.7
202.0
The Profit before shareholder tax for the year was £140.6 million (31 December 2015: £151.3 million). The impact of the increasingly negative
contribution from the net movement in DAC/DIR/PVIF intangibles was a major contributor to the lower Profit before shareholder tax result in the
current period.
The IFRS profit after tax result similarly reflected the impact of the negative net movement in DAC/DIR/PVIF in the current period, but the
prior period result also benefitted significantly from recognition of £74.8 million of capital losses. These two factors more than reversed the
underlying growth in the business and resulted in a significant reduction in profit between the years.
By contrast the IFRS profit before tax increased significantly to £486.3 million (31 December 2015: £174.1 million). This significant increase
reflects the underlying positive investment performance in client policies, which generates higher policy charges intended to meet the Policyholder tax
element of the corporate tax charge (as described in the definition of Policyholder tax provided on page 27). In practice, the very substantial increase
in IFRS profit before tax is offset by the equivalent increase in Policyholder tax, and it is the Profit before shareholder tax which provides a better
indication of the underlying performance of the business.
Analysis of IFRS Assets and Net Assets per Share
The table below provides a summarised breakdown of the IFRS position at the reporting dates:
2016
£’Million
25.0
587.0
(607.9)
1.5
1,070.0
1,075.6
2015
£’Million
27.4
627.2
(368.3)
7.7
801.1
1,095.1
2016
Pence
203.9
2015
Pence
208.7
Purchased value of in-force*
Deferred acquisition costs*
Deferred income*
Other IFRS net assets
Solvency II net assets
Total IFRS net assets
* net of deferred tax
Net asset value per share
38
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 SECTION 4: SOLVENCY, LIQUIDITY AND CASH RESULTS
This section brings together our reporting on the Solvency II net assets and liquidity, together with our reporting of the Cash results and solvency.
Solvency II Net Assets
In addition to presenting an IFRS statement of financial position (on page 129), we believe it is beneficial to provide a balance sheet reflecting our
approach to managing solvency. Solvency II net assets are based on the IFRS statement of financial position, but with adjustments made to accounting
assets and liabilities to reflect the Solvency II regulations. In addition, provision for insurance liabilities is set equal to the associated unit liabilities.
The following table sets out the adjustments to move from IFRS to Solvency II net assets.
31 December 2016
Assets
Goodwill
Deferred acquisition costs
Acquired value of in-force business
Developments
Property and equipment
Investment property
Equities
Fixed income securities
Investment in Collective Investment Schemes
Derivative financial instruments
Reinsurance assets
Cash and cash equivalents
Other receivables
Deferred tax assets
Total assets
Liabilities
Insurance contract liabilities
Borrowings
Investment contract benefits
Derivative financial instruments
Net asset value attributable to unit holders
Other provisions
Other payables
Income tax liabilities
Deferred tax liabilities
Deferred income
Preference shares
Total liabilities
Net Assets
IFRS
Balance
Sheet
Adjustment1
Adjustment2
Solvency II
Net Assets
Balance
Sheet
£’Million
£’Million
£’Million
£’Million
13.8
684.8
30.4
3.0
23.1
1,462.4
46,598.7
12,445.5
3,864.8
729.1
80.5
7,413.1
1,473.0
199.9
–
–
–
–
–
(1,462.4)
(46,598.7)
(12,397.8)
(2,997.4)
(729.1)
–
(7,067.2)
(187.2)
–
(13.8)
(684.8)
(30.4)
(3.0)
–
–
–
–
–
–
(80.5)
–
(63.0)
(42.2)
–
–
–
–
23.1
–
–
47.7
867.4
–
–
345.9
1,222.8
157.7
2015
£’Million
–
–
–
–
8.0
–
–
83.1
531.0
–
–
233.5
500.1
179.2
75,022.1
(71,439.8)
(917.7)
2,664.6
1,534.9
518.2
281.4
53,307.1
281.9
17,032.0
17.1
1,173.6
72.7
614.8
647.6
0.1
(435.3)
–
(53,307.1)
(281.9)
(17,032.0)
–
(383.5)
–
–
–
–
(82.9)
–
–
–
–
–
(1.1)
–
(180.5)
(647.6)
–
–
281.4
–
–
–
17.1
789.0
72.7
434.3
–
0.1
73,946.5
(71,439.8)
(912.1)
1,594.6
1,075.6
–
(5.6)
1,070.0
–
181.8
–
–
–
15.4
300.7
29.6
206.2
–
0.1
733.8
801.1
Adjustments:
1. Nets out the policyholder interest in unit linked assets and liabilities.
2. Adjustments to the IFRS statement of financial position in line with Solvency II requirements, including removal of DAC, DIR, PVIF, deferred tax, goodwill and other intangibles.
Annual Report and Accounts 2016
39
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation
FINANCIAL REVIEW continued
Liquidity
Included in the previous table are holdings in Fixed Interest Securities, Collective Investment Schemes and other cash and cash equivalents. It is our
policy to always hold such assets in high credit quality liquid assets. An analysis of these holdings is provided below:
Holding Name
Fixed Interest Securities
1% UK Treasury 07/09/2017
1.75% UK Treasury 22/01/2017
1.375% Singapore Government Bonds 01/10/2017
Collective Investment Schemes (AAA rated money market funds)
Aberdeen
BlackRock
Goldman Sachs
HSBC
Insight
JP Morgan
Legal & General
Cash and cash equivalents (bank balances)
Bank of Scotland
Barclays
HSBC
Lloyds TSB
Metro
NatWest
Santander
Others
Total
£’Million
£’Million
42.3
0.6
4.8
54.3
178.0
154.4
28.6
153.3
151.0
147.8
31.8
93.5
55.8
47.0
23.0
37.9
35.1
21.8
47.7
867.4
345.9
1,261.0
In the normal course of business, the Company is expected to generate regular, positive cash flow from annual management income exceeding
expenses. As noted previously, future growth in cash flow is driven by new business, but in the short term, growth will reflect the transition as new
business from six years ago becomes cash generative.
The key calls on liquidity will be investment to support the business and payment of the Group dividend. As noted previously, our policy is to increase
the dividend in line with the underlying performance of the business. We believe this will also enable us to continue to invest in the business to
support our growth aspirations.
Movement in Solvency II Net Assets
The table below details the movement in the Solvency II net assets over the year which, after adjusting for changes in non cash items such as deferred
tax assets, goodwill and intangibles, as well as changes in equity such as dividends paid in the year (see also page 128 – consolidated statement of
changes in equity) provides the net cash result for the period.
Opening Solvency II Net Assets
Dividend paid in period
Issue of share capital and exercise of options
Consideration paid for own shares
Movement in other reserves
Change in deferred tax
Change in goodwill and intangibles
Unit liability reassessment
Cash result
Closing Solvency II Net Assets
* The Solvency II net assets disclosed at 31 December 2015 were adjusted for submission to the regulator.
40
Year Ended
31 December
2016
Year Ended
31 December
2015*
£’Million
£’Million
801.1
(155.2)
6.6
(5.5)
0.2
(17.2)
(2.4)
267.0
175.4
1,070.0
708.7
(130.8)
11.8
(12.8)
–
52.7
–
–
171.5
801.1
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 The closing Solvency II Net Assets reflects an increase of £267 million as a result of unit liability reassessment (impacting Adjustment 2 in the table
on page 39). This increase in net assets does not reflect a change in the underlying business and so, when considering solvency, management offsets
the positive increase in Solvency II Net Assets by increasing the capital requirement (the Management Solvency Buffer) by a similar amount (see also
page 43).
Cash Results
As noted above, the change in the Solvency II Net Assets, after adjusting for changes in non cash items such as deferred tax assets, goodwill and
intangibles, as well as changes in equity such as dividends paid in the year (see also page 128 – consolidated statement of changes in equity) provides
the Cash result for the period. The Cash result provides an alternative view of the cash generation of the Group during a reporting period. The Cash
result should not be confused with the IFRS consolidated statement of cash flows which is prepared in accordance with IAS 7 and disclosed on
page 130.
The following tables below show: an Operating cash result – reflecting the regular emergence of cash from the business operations; and an Underlying
cash result which additionally reflects the cash impact of our strategic investments. The reconciliation of the Underlying cash result to the Underlying
profit measure is presented on page 34.
There are also some cash items whose emergence is volatile, varying over time, and which are influenced by market movements. These impacts,
together with the short term costs associated with the back office infrastructure project, are shown after the Underlying cash result.
The Cash results are presented after tax and can be analysed as a combination of the cash emerging from the business in-force at the start of the year,
less the investment made to acquire new business during the year. The following tables and commentary provide an indicative analysis of the Cash
result into these two elements.
The Cash results are the principal measures the Board considers when determining the dividend payment to shareholders.
Year Ended 31 December 2016
Operational
Net annual management fee
Reduction in fees in gestation period
Net income from funds under management
Margin arising from new business
Establishment expenses
Operational development expenses
Regulatory fees
FSCS levy
Shareholder interest
Tax relief from capital losses
Miscellaneous
Operating cash result
Investment
Academy
Asia
DFM
Strategic development costs
Underlying cash result
Back office infrastructure development
Variance
Cash result
Note
In-force New Business
Total
£’Million
£’Million
£’Million
468.5
(165.6)
302.9
–
(12.9)
–
(0.4)
(1.4)
9.8
12.6
(4.4)
306.2
–
–
–
–
40.4
(24.3)
16.1
49.0
(115.7)
(13.9)
(3.4)
(12.3)
–
–
–
(80.2)
(5.8)
(12.2)
(3.2)
(5.3)
306.2
(106.7)
1
1
1
2
3
3
3
3
4
5
6
7
7
7
7
7
8
508.9
(189.9)
319.0
49.0
(128.6)
(13.9)
(3.8)
(13.7)
9.8
12.6
(4.4)
226.0
(5.8)
(12.2)
(3.2)
(5.3)
199.5
(16.7)
(7.4)
175.4
Annual Report and Accounts 2016
41
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation
FINANCIAL REVIEW continued
Year Ended 31 December 2015*
Operational
Net annual management fee
Reduction in fees in gestation period
Net income from funds under management
Margin arising from new business
Establishment expenses
Operational development expenses
Regulatory fees
FSCS levy
Shareholder interest
Tax relief from capital losses
Miscellaneous
Operating cash result
Investment
Academy
Asia
DFM
Strategic development costs
Underlying cash result
Back office infrastructure development
Variance
Cash result
Note
In-force New Business
Total
£’Million
£’Million
£’Million
406.7
(143.1)
263.6
–
(11.1)
–
(0.6)
(1.6)
8.6
12.1
(4.7)
266.3
–
–
–
–
33.5
(18.5)
15.0
47.8
(100.2)
(13.8)
(5.2)
(14.3)
–
–
–
(70.7)
(4.4)
(6.3)
(1.3)
(1.5)
266.3
(84.2)
1
1
1
2
3
3
3
3
4
5
6
7
7
7
7
7
8
440.2
(161.6)
278.6
47.8
(111.3)
(13.8)
(5.8)
(15.9)
8.6
12.1
(4.7)
195.6
(4.4)
(6.3)
(1.3)
(1.5)
182.1
(14.4)
3.8
171.5
*The Cash result for 2015 reflected the movement in certain Solvency I reserves as that was the regulatory regime at the time.
Notes
All numbers are expressed after tax at the prevailing tax rate for each year.
1. The net annual management fee is the manufacturing margin the Group retains from funds under management after payment of the associated costs (e.g. investment advisory fees and payments to
Partners). Broadly speaking the Group receives an average net annual management fee of 0.77% (post-tax) of funds under management (2015: 0.77% post-tax).
However, as noted in Section 1 on page 30, due to our product structure, investment and pension business does not generate cash in the first six years (known as the ‘gestation period’). This is
reflected in an adjustment which is the reduction in fees in gestation period.
The overall result is the net income from funds under management which was some 15% higher than 2015, reflecting higher average funds under management during the year.
The reassessment of the level of the investment contract liability has resulted in an increase in Solvency II Net Assets of £267 million at the year end, but this amount will gradually unwind during the
next six years through a higher reduction in fees in the gestation period. If the approach had been implemented at the start of the year, the impact would have been an increase in the negative amount by
some £45 million.
2. Margin arising from new business: This is the cash impact of new business in the year, reflecting growth in new business, production related expenses and mix of new business.
The revised assessment of investment contact liabilities results in an increase in the level of initial margin recognised in the Cash result through the margin arising from new business. If this approach
had been adopted at the start of 2016 the margin would have been some £70 million higher. In future years, this additional margin will move in line with new businesses volumes, albeit adjusted for any
business mix effects.
3. Expenses: These reflect the expenses of running the Group and more detail is provided in the table on page 32 in Section 2. In line with the rest of the table they are presented after allowance for tax.
4. Shareholder interest: This is the assumed income accruing on the investments and cash held for regulatory purposes together with the interest received on the surplus capital held by the Group.
5. Tax relief from capital losses: In recent years, a deferred tax asset has been established for historic capital losses which are now regarded as being capable of utilisation over the medium term.
Utilisation during the year of £12.6 million tax value (2015: £12.1 million) was slightly ahead of our expected rate of c. £8-10 million benefit in a year.
6. Miscellaneous: This represents the cash flow of the business not covered in any of the other categories, including ongoing administration expenses and associated policy charges, together with
utilisation of the deferred tax asset in respect of prior years’ unrelieved expenses (due to structural timing differences in the life company tax computation).
7. Strategic investments, including back office infrastructure: These reflect significant investments in developing our business for the future. Further analysis of the expenses associated with these
initiatives is presented in Section 2 on page 32, but all are expected to result in either additional funds (Academy, Asia and DFM) or expense savings (Back office infrastructure) in the future. Advice
margin generated in Asia and all fees generated by DFM are reflected in the relevant line.
8. Variance: This reflects variances in the settlement of tax related liabilities between the policyholders (unit linked funds), the shareholder and HMRC. It also reflects a £6.6 million negative one-off
cost of reviewing charges in two small cohorts of legacy business and a number of other small positive and negative one-off items.
42
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415
Solvency
St. James’s Place is a simple wealth management group offering mainly investment products. Our strategy is to attract and administer retail funds
under management, from which we receive an annual management fee; we are a fee based business. Our clients can access their investments on
demand but, because we match the encashment value on the unit linked business, movements in equity markets, interest rates, mortality, morbidity,
longevity and currency rates have little impact on our ability to meet liabilities (although they can impact emergence of profit). We also have a prudent
capital management approach and invest surplus assets in cash, AAA rated money market funds and UK government securities. The overall effect is
assurance that we can meet liabilities, and a resilient solvency position that is dependable even through adverse market conditions.
We manage solvency of our business on the basis of holding assets in excess of the client unit linked liabilities plus a Management Solvency Buffer
(MSB). This ensures we are able not only to meet client liabilities at all times, but the prudence of the MSB acts as protection against other risks.
At 2015 year end we assessed the MSB for our life businesses as £150 million, having taken into account a wide range of factors and information, not
least the results from stress and scenario testing carried out as part of our annual ORSA (Own Risk and Solvency Assessment). At the 2016 year end,
on the same basis, we assessed the MSB for our life businesses as £170 million, increasing slightly as a result of economic conditions.
However, as a result of our reassessing the unit liability in line with the encashment value the Solvency II net assets have increased by £267 million,
with no change in our risk profile. We therefore believe it is appropriate to increase our MSB to £437 million at the year end (equal to £170 million
plus £267 million).
During H1 2017, we are undertaking an asset liability matching exercise which will reduce our corporate exposure to market risk and result in a
reduction in risk capital requirement. Following this exercise, we will review the MSB and we expect it will reduce. We will report on the outcome
of that review at half year.
We continue to hold capital within the Group in respect of the other regulated (but non insurance) companies, based on holding excess capital
significantly above the regulatory requirement.
31 December 2016
Solvency II net assets*
Management Solvency Buffer (MSB)
Management solvency ratio
Life
Other
Regulated
Other
£’Million
£’Million
£’Million
530.0
437.0
121%
145.3
90.0
161%
394.7
–
Total
£’Million
1,070.0
527.0
2015
Total
£’Million
812.9
202.3
*After payment of year end intragroup dividend, but before Group final dividend
Solvency II net assets reflect the assets of the Group in excess of those matching the client’s (unit-linked) liabilities. It includes a £149.9 million
deferred tax asset which is not immediately fungible, although we expect it will be utilised over the next ten years. The actual rate of utilisation will
depend on business growth and external factors, particularly investment market conditions.
Annual Report and Accounts 2016
43
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation FINANCIAL REVIEW continued
Solvency II Balance Sheet
Whilst we focus on Solvency II net assets and the MSB to manage solvency, we provide additional information about the Solvency II free asset position
for information. The presentation starts from the same Solvency II net assets, but includes recognition of an asset in respect of the expected Value of
In-force cash flows (VIF) and a Risk Margin (RM) reflecting the potential cost to secure the transfer of the business to a third party. The Solvency II
net assets, VIF and RM comprise the ‘Own Funds’, which is assessed against a Solvency Capital Requirement (SCR), reflecting the capital required to
protect against a range of ‘1 in 200' stresses. The SCR is calculated on the Standard Formula approach. No allowance has been made for transitional
provisions in the calculation of technical provisions or SCR.
An analysis of the Solvency II position for our Group, split by regulated and non regulated entities at the year end is presented in the table below:
31 December 2016
Solvency II net assets
Value of in-force (VIF)
Risk Margin
Own Funds (A)
Solvency capital requirement (B)
Solvency II free assets
Solvency ratio (A/B)
Life
Other
Regulated
Other
Total
£’Million
£’Million
£’Million
£’Million
530.0
2,707.9
(779.2)
2,458.7
(1,991.0)
467.7
123%
145.3
–
–
145.3
(55.5)
89.8
262%
2015
Total
£’Million
812.9
2,306.6
(624.0)
2,495.5
394.7
–
–
394.7
1,070.0
2,707.9
(779.2)
2,998.7
–
(2,046.5)
(1,595.8)
394.7
–
952.2
147%
899.7
156%
* After payment of year and intragroup dividend but before Group final dividend.
The solvency ratio after taking account of the final dividend is 141% at the year end (2015: 151%)
As noted in our commentary on the Solvency II result last year, the nature of our business is that much of the Own Funds value reflects future profits,
but the SCR similarly reflects loss of future profits. As a result, the solvency ratio is not very sensitive to changes in experience or assumptions, and
can move counter intuitively depending on circumstances. For example, the relative reduction in Solvency ratio from 2015 to 2016, is partly due to
changes in economic assumptions, particularly lower interest rates and higher future inflation expectations. However, it has also been impacted by the
positive impact of investment performance on FUM, which has resulted in an increase in SCR by over 25%. Since Solvency II Net Assets (typically
cash or fixed interest) have not increased in line with markets, the ratio has fallen. So despite the positive impact on our business of strong investment
performance, our solvency ratio has reduced.
More generally, since our business profile has not changed significantly from last year end, the sensitivity analysis presented at that stage remains relevant.
44
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 SECTION 5: EMBEDDED VALUE (EV)
Life business and wealth management business differ from most other businesses, in that the expected shareholder income from the sale of a product
emerges over a long period in the future. We therefore complement the IFRS and cash results by providing additional disclosure on an EV basis, which
brings into account the net present value of the expected future cash flows. We believe that a measure of total economic value of the Group’s operating
performance is useful to investors.
As in previous reporting, our EV continues to be calculated on a basis determined in accordance with the EEV principles originally issued in May
2004 by the Chief Financial Officers Forum (CFO Forum) and supplemented in October 2005. Following the introduction of Solvency II, the CFO
Forum published an amended set of principles in April 2016. The key change implemented in our results for December 2016 is to reflect a reduction
in the cost of holding a revised level of solvency capital, moving from assuming 100% of Solvency I capital requirement to reflecting our new approach
to capital management for the Group based on holding a Management Solvency Buffer over the unit linked liabilities for our Life businesses.
The table below and accompanying notes summarise the profit before tax of the combined business:
Life business
Unit Trust and DFM business
Funds management business
Distribution business
Back office infrastructure development
Other
EEV operating profit
Investment return variance
Economic assumption changes
EEV profit before tax
Tax
Corporation tax rate change
EEV profit after tax
EEV operating profit basic earnings per share
EEV operating profit diluted earnings per share
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
501.4
266.8
768.2
(25.9)
(20.9)
(47.8)
673.6
537.2
(12.4)
1,198.4
(212.9)
28.6
1,014.1
467.0
274.4
741.4
(21.2)
(18.1)
(41.9)
660.2
(24.4)
0.9
636.7
(116.5)
47.8
568.0
Year Ended
31 December
2016
Year Ended
31 December
2015
Pence
105.9
105.2
Pence
103.9
102.8
EEV Operating Profit
Funds management business
The funds management business operating profit has increased to £768.2 million (2015: £741.4 million) and a full analysis of the result is shown below:
New business contribution
Profit from existing business
– unwind of the discount rate
– experience variance
– operating assumption change
Addition of Rowan Dartington
Investment income
Fund management business EEV operating profit
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
520.2
£’Million
440.7
199.6
1.4
18.6
21.0
7.4
768.2
172.4
78.1
44.1
–
6.1
741.4
45
Annual Report and Accounts 2016
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation FINANCIAL REVIEW continued
The new business contribution for the year at £520.2 million (2015: £440.7 million) was some 18% higher than the prior year, reflecting the
strong gross inflows (up 23%) and the mix of business.
The unwind of the discount rate for the year was £199.6 million (2015: £172.4 million). The unwind is calculated by multiplying the opening VIF
by the discount rate but adjusting to reflect emergence of profits into cash during the year. The result in the current year reflects both a slightly higher
discount rate than 2015 and the higher start year opening VIF balance.
The discount rate is based on the risk free rate, which is set by reference to the yield on a UK 10 year gilt at the start of the year. The unwind for the
current year is based on a discount rate of 5.2% compared with 5.0% for the prior year. Had the discount rate been consistent with 2015, the unwind
and operating profit would have been £8.0 million lower.
There was a small positive experience variance during the year of £1.4 million. The strong positive variance of £78.1 million in the prior year
principally reflected the value ascribed to significant capital losses within the historic Group companies identified in the year.
As in the prior year, the positive operating assumption change in the year of £18.6 million (2015: £44.1 million) reflected improvements in the
retention assumptions on pension business (Drawdown business in 2016) and adjustment to the maintenance expense assumption.
The addition of Rowan Dartington within the embedded value calculation has contributed £21.0 million.
The investment income for the year was little changed at £7.4 million (2015: £6.1 million).
Distribution business, back office development and other
These items have already been commented on in the IFRS section on page 35.
Investment Return Variance
The investment return variance reflects the capitalised impact on the future annual management fees resulting from the difference between the actual
and assumed investment returns. Given the size of our funds under management, a small difference can result in a large positive or negative variance.
The rise in global stock markets during the second half of the year, together with the currency impact from the depreciation of Sterling, has significantly
contributed to a strong investment return for our funds. Average growth in our funds of 14% to 18% funds (net of charges) compares with an assumed
investment return of 2.5% (net of charges) which gives rise to a significant positive investment variance of £537.2 million for the year. For the prior year
there was a negative investment return of £24.4 million, reflecting the slightly lower actual investment return compared with the assumed return.
Economic Assumption Changes
The negative variance of £12.4 million arising in the year principally reflects the increase in the implied inflation rate (2015: £0.9 million positive).
EEV Profit before Tax
The total profit before tax for the year was £1,198.4 million, compared with £636.7 million, although the significant improvement is principally
reflecting the difference in the investment return variance between the two years.
Tax
The tax charge at £212.9 million (2015: £116.5 million) reflects the underlying result.
A further reduction in the corporation tax rate from 18% to 17% effective 1 April 2020 was enacted in the Finance Act 2016. The capitalised effect of
this change has been included as a reduction in tax of £28.6 million. Those tax cuts previously announced have already been reflected in the valuation.
EEV Profit after Tax
The EEV profit after tax was £1,014.1 million (2015: £568.0 million) reflecting the movement in EEV profit before tax, but also the positive impact of
the tax rate change.
46
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415
New Business Margin
The largest single element of the EEV operating profit (analysed in the previous section) is the new business contribution. The level of new business
contribution generally moves in line with new business levels. To demonstrate this link, and aid understanding of the results, we provide additional
analysis of the new business margin (‘Margin’). This is calculated as the new business contribution divided by the new money invested, and is
expressed as a percentage.
The table below presents the margin before tax from our manufactured business based on gross fund flows:
Investment
New business contribution (£’Million)
New money invested (£’Billion)
Margin (%)
Pension
New business contribution (£’Million)
New money invested (£’Billion)
Margin (%)
Unit Trust and DFM business
New business contribution (£’Million)
New money invested (£’Billion)
Margin (%)
Total business
New business contribution (£’Million)
New money invested (£’Billion)
Margin (%)
Post-tax margin (%)
Year Ended
31 December
2016
Year Ended
31 December
2015
108.3
2.28
4.8
207.9
5.12
4.1
204.0
3.95
5.2
520.2
11.35
4.6
3.8
124.9
2.45
5.1
140.6
3.66
3.8
175.2
3.13
5.6
440.7
9.24
4.8
3.9
The slight fall in the total margin from 4.8% to 4.6% reflects both a positive impact from an increased level of new business together with a negative
impact from a change in business mix, with a greater proportion of pension business in the current year.
Analysis of the EEV Result and Net Assets per Share
The table below provides a summarised breakdown of the embedded value position at the reporting dates:
Value of in-force
– Life
– Unit Trust and DFM
Solvency II net assets
Total embedded value
Net asset value per share
2016
£’Million
2,636.2
1,044.9
1,070.0
4,751.1
2015
£’Million
2,279.5
787.6
801.1
3,868.2
2016
Pence
900.7
2015
Pence
737.3
Annual Report and Accounts 2016
47
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation RISK AND RISK MANAGEMENT
OVERVIEW AND CULTURE
The St. James’s Place Group is exposed to a wide variety of risks as a
result of its business activities and the industry in which it operates, as
well as a number of external factors and threats. Under the leadership,
direction and oversight of our Board, these risks are carefully managed,
contributing to our competitive advantage and helping us to achieve our
business and client objectives as set out on pages 22 and 23.
RISK APPETITE
The Board chooses carefully the risks it accepts and those it seeks to limit
or avoid. These choices are set out in detail in our Group Risk Appetite
Statement, which is owned by the Board and reviewed at least annually.
The Risk Appetite Statement is aligned with the outcomes based
approach of the Group’s business and client objectives and the
overarching Risk Management Framework. In particular, it articulates:
We do not seek to eliminate risk entirely, rather we seek to understand
our risks fully, and to apply appropriate risk management strategies such
that all material risks are identified, and appropriately managed or
mitigated. Risk management is a core aspect of decision making and is
embedded in our culture. Our framework is specifically designed to
manage the risks that are important to our shareholders, clients,
Partners, regulators and employees, and to provide reasonable assurance
against material financial misstatement or loss.
Risk management, solvency projections and stress and scenario testing
form a key part of the business planning process, including in relation to
decisions on strategic developments, pricing and dividend payments.
• Risks that are actively sought in pursuit of return;
• Risks that are consciously avoided;
• Risks that are reduced through transfer to other parties; and
• Risks that are minimised through controls.
Risk appetite can and will change over time, sometimes rapidly as
economic and business environment conditions change, and therefore the
statement is an evolving document. A comprehensive suite of indicators is
reported regularly to enable the Board’s Risk Committee (the ‘Risk
Committee’), on behalf of the Board, to monitor that the Group remains
within its agreed appetite.
RISK MANAGEMENT FRAMEWORK
The Board, through the Risk Committee, takes an active role in
overseeing the Risk Management Framework, for which it is responsible.
This framework is the combined processes by which the Group identifies,
assesses, measures, manages and monitors the risks that may impact on
the successful delivery of business objectives.
The Group’s Own Risk and Solvency Assessment (ORSA) is a central
part of this framework, the main elements of which are shown in the
following diagram.
STRATEGY – KEY OUTCOMES
Risk Appetite
Identify
Assess
Risk Management Processes
Monitor
Manage
Risk Culture and Policies
Risk
Governance
Board
Risk
Committee
Executive
Board
Subsidiary
Boards
Group Risk
ExCo
Other ExCos
Risk Escalation
Risk
Capital
Standard
Formula
Own
Assessment
48
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 The Risk Committee comprises Independent Non-executive Board members, and is responsible for ensuring that a culture of effective risk
identification and management is fostered across the Group. A report of its activity during the year can be found on pages 88 to 90.
The Risk Committee is supported by the Executive Board, but also by the Group Risk Executive Committee and by Risk Management teams at Group
and local levels, which take the lead in ensuring an appropriate framework is in place and that there is on-going development and co ordination of risk
management within the Group. The other executive sub committees of the Executive Board (the ‘Executive Committees’) also provide support for
the management of risks in their areas of responsibility.
The Risk Management Framework is grounded in the outcomes which are key to our organisation. These are:
CLIENTS
That we deliver positive
outcomes for our increasing
population of clients
PARTNERS
That we continue to grow
and develop the Partnership,
both numbers and skills
PEOPLE
That we treat all
of our
stakeholders well
REGULATORS
FINANCIALS AND SHAREHOLDERS
That we are compliant, have an open
and honest relationship with our regulators
and protect our reputation
That we deliver sustainable
growth in reported profits on
all measures
Whilst clearly a simplification of the business model, this focuses
attention on those things that are of greatest importance, and hence
indicates where risk management activity should be focused. It also
allows the identification of the individuals within the Group responsible
for managing these risks.
Within these outcomes, indicators are used to monitor performance
against risk appetite. Each indicator has an owner on the Executive Board
who is accountable for managing the associated risks within agreed
thresholds and providing regular reports to the Executive Board. This
enables the Executive Board to maintain effective oversight of all outcomes,
and to manage any conflicts of interest that arise between them.
To ensure a comprehensive risk universe, there is also a bottom up
element to our framework. Each division of the Group is responsible for
the identification, management and quarterly reporting of its own risks,
and is supported in this by the Risk Management function. Each risk is
assessed by considering its potential impact and the likelihood of its
occurrence, with impact assessments being made against financial and
non financial metrics. Establishment of appropriate controls is a core part
of the risk management process.
Recognising the importance of ongoing effective risk management, the
Group maintains a comprehensive suite of governance policies to support
the Risk Management Framework.
Own Risk and Solvency Assessment (ORSA)
Many of the activities of the Group, and the legal entities in the Group,
are regulated. We have relationships with the UK regulators (PRA and
FCA) and the Irish Regulator (Central Bank of Ireland), and with the
local regulators in Singapore and Hong Kong. The nature of our activities
and the regulatory focus results in additional risk management activity,
including, but not limited to, stress and scenario testing, loss event
recording, resolution planning and risk capital management activity.
The different regulated entities in the Group are governed by a number
of specific regulations, however, as an Insurance Group we are primarily
governed by the Solvency II Directive, which came into force on
1 January 2016. As part of these regulations, we are required to
undertake an ORSA for the Group, containing the ORSAs for each
insurance company within the Group. We also produce a separate ORSA
for the Singapore Branch of St. James’s Place International, to meet the
requirements of the local regulator. In 2016 the Group submitted its
third annual ORSA report to the regulator, relating to the period ended
31 December 2015.
The ORSA is directed by the Board, with active engagement from the
boards of St. James’s Place UK plc (‘SJPUK') and St. James’s Place
International plc (‘SJPI'), and is intended to be a comprehensive risk
assessment, bringing together an understanding of the risks that the
Group faces, in the context of the strategic plan, and how these risks may
change over our planning period. It also requires quantitative analysis of
the capital required, and how it might develop over our planning period
(five years). The ORSA is a continually evolving process which has been
useful to inform management decisions during the year and is
increasingly embedded in ongoing risk management processes throughout
the Group.
Capital for our insurance companies is based on the Solvency II
regulations: separate risk based capital assessments are performed for the
other regulated entities. As a result of these activities we have considered
the calculation and allocation of risk capital to all the major risks in the
Group, and the insurance companies in particular, and the adequacy of
the capital position. This process ensures our continued confidence that
the regulated entities remain strongly capitalised.
Annual Report and Accounts 2016
49
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation RISK AND RISK MANAGEMENT continued
Viability Statement
In accordance with provision C.2.2. of the UK Corporate Governance
Code, the Directors have assessed the Group’s current financial position
and future prospects over a five-year period, and have a reasonable
expectation that the Group will be able to continue in operation and
meet its liabilities as they fall due over the period of this assessment.
Management has delegated responsibility to implement and maintain
effective controls, such that the Group operates within the risk appetite
agreed by the Board. The Audit Committee, on behalf of the Board,
monitors the effectiveness of internal controls across all business areas
primarily through the outcomes of independent assurance assignments
undertaken by Internal Audit.
Control Self Assessment
Control Self Assessment (CSA) is a continuous activity, which has a
formal summary on an annual basis, and forms a key part of our internal
control system. This self assessment process requires business areas to
review their controls regularly, and sign off on their efficacy, against a
standard set of control statements. Collectively these control statements
embody the elements required for an organisation to maintain a control
framework across the five components of Control Environment, Risk
Assessment, Control Activities, Information and Communication, and
Monitoring Activities, as laid down in the internationally accepted
COSO control standards.
This process is beneficial as it provides confidence that business areas can
meet their objectives, clarity to support decision making, and agility in
adapting to change and complexity. The annual summary of the control
self assessment process contributes to the year end Internal Control
Evaluation exercise undertaken by Internal Audit as part of the assurance
provision to the Audit Committee.
Financial Reporting Processes
Specifically, in relation to the financial reporting processes, the main
features of the internal control systems include:
• Extensive documentation, operation and assessment of controls in key
risk areas;
• Monthly review and sign off of all financial accounting data submitted
by outsource providers and the results of all subsidiaries within the
Group; and
• Formal review of financial statements by senior management, for both
individual companies and the consolidated Group.
In reaching this conclusion the Directors have taken into account a
number of different strands of work, including:
• The Business Plan and associated strategy documents;
• An assessment of the economic, regulatory, competitive and risk
environment which was carried out as part of the Board’s strategy
review process; and
• The latest Group ORSA, which is a new requirement under the
Solvency II Directive, and which scope is summarised in the
section above.
As a result of this work the Board has concluded that the business model
remains appropriate, with no concerns that would fundamentally
threaten the business model or market. This is also supported by the
resilience that the Group has demonstrated over recent years and in a
variety of different external conditions.
A planning period of five years is used both in medium term business
planning and also for the ORSA, and has therefore been used for the
Code requirement as well, reflecting the horizon over which the Board
sets medium term strategy.
The ORSA was particularly useful in assessing viability as it has a similar
purpose and includes a range of stress tests, which have been performed
at the level of the two insurance companies (St. James’s Place UK plc and
St. James’s Place International plc) as well as at the level of the Group.
The stress tests considered include a broad range of scenarios, including
market shocks, mass lapse events, new business growth scenarios and
particularly operational risk events. These were evaluated for the impact
on the free assets of the Group of the change in key assumptions or
circumstances. In all severe but plausible adverse tests, free assets were
available, demonstrating the Group’s resilience to adverse conditions.
Reverse stress tests have also been performed on liquidity, the results of
which indicate that the Group can reasonably expect to have sufficient
liquid funds to be able to meet its liabilities over the planning period.
The Group monitors performance against a range of predefined
indicators, which will identify if experience over the planning period
differs from risk appetite or expectations, allowing management action
to be taken.
INTERNAL CONTROL
The internal control environment in St. James’s Place is built upon a
strong control culture which is underpinned by our Code of Ethics and
organisational delegation of responsibility. The Board has adopted the
‘three lines of defence’ model for the internal control system, under
which the 1st Line is Business Operations, the 2nd Line is Oversight
Functions including Risk Management and Compliance, and the 3rd Line
is Independent Assurance. The purpose of this internal control system is
to provide reasonable assurance regarding the achievement of objectives
relating to operations, reporting, and compliance.
50
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 PRINCIPAL RISKS AND UNCERTAINTIES
The following tables summarise the principal risks and uncertainties that are inherent within both the Group’s business model and the market in
which we operate. These are the risks which could have a material impact on the key strategic outcomes in the five areas set out on page 49.
The Group Board and the Boards of the insurance entities have responsibility for assessing their main risks and these are monitored on a regular basis
by the Risk Committee, the Executive Board, the SJPUK and SJPI Boards, the SJPI Risk and Compliance Committee and the SJPI Singapore Branch
Executive Management Committee.
Against each of the principal risks, consideration is given to the level of exposure and the extent to which the risk can be mitigated. For example, the
Group believes that the Accumulation of Reputational Issues risk set out below presents a significant exposure yet is difficult to mitigate beyond the
processes currently in place across the business. Conversely, the Investor Relations risk described below presents a more moderate exposure and can
be mitigated through the ongoing development of the Investor Relations team.
In reflection of the stability and consistency of the Group’s business model, there have been no significant changes in the principal risks to the Group
over the last year. However, notable political events and economic changes during the year have had the effect of bringing certain risks, in particular
those in respect of market performance and relative exchange rates, into sharper focus. The changes in government and uncertainties created by the
vote to leave the European Union have led to an increase in the risks associated with regulatory, legislative and tax changes, although the Group
remains well positioned to accommodate and build on any such changes.
The principal risks and uncertainties, the business outcomes on which they impact, and the high level controls and processes through which we aim to
mitigate them, are as follows:
Non-financial Risks
Risk
Description
Outcome
Management and Controls
Systemic
advice failure
Clients rely on their SJP Partners for the
provision of initial and ongoing advice.
Failures in the quality of advice or
documentation of advice could lead to redress
costs, reputational damage and regulatory
intervention.
Clients
Cyber risk or
outsourcing
failure
Clients,
Financials and
Shareholders
The Group’s business model involves the
outsourcing of administration to third parties.
Poor service from, or failure of, one of these
third parties, the failure of an IT system, or a
significant cyber attack or fraud, could lead to
disruption of services to clients, reputational
damage and profit impacts. In particular, a
significant cyber attack could cause very
substantial reputational damage.
Low yield
environment
Our approach to investment management may
fail to deliver expected returns to clients of
the Group or the range of products and
services offered may become inappropriate for
client needs.
Clients
There are many processes in place to mitigate this risk,
including detailed advice guidance with appropriate governance
around changes and updates, appropriate incentive structures,
Partner training and accreditation, compliance procedures,
monitoring processes and quality checking. The Group
guarantees the advice given by Partners and also has appropriate
professional indemnity insurance in place.
We maintain close working relationships with our outsourcing
partners, who are central to our business model. This enables
us, in seeking to work effectively and efficiently together, to
deliver the best result. Service level agreements are in place and
performance is monitored against these. In the extreme event,
all our relationships are governed by formal agreements with
notice periods. The business continuity arrangements of each
outsourcer are also continually tested and improved and
scenario analysis is carried out.
An effective information security control framework is in place
and we continue to enhance our existing cyber security risk
management capabilities in light of the increasing threat in
this area.
We actively manage and monitor the performance of our
investment managers through the Investment Committee,
which also makes use of firms of professional investment
advisers, including respected independent investment research
consultancies, Stamford Associates, Redington and AON
Consulting, to help them with this key task. We offer a broad
range of funds, which allows client diversification and mitigates
our new business, persistency and market risks. Effective
governance frameworks are in place in respect of manufactured
and third-party products.
Key:
Clients
Partners
Financial
Regulation
People
Annual Report and Accounts 2016
51
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation RISK AND RISK MANAGEMENT continued
Non-financial Risks continued
Risk
Description
Partner
proposition,
recruitment
and retention
Regulatory,
legislative
and tax
environment
Competition
and charge
pressure
Group products are distributed, and ongoing
advice is provided, exclusively through the SJP
Partnership. Inadequacies in the Partner
proposition, range of products, technology or
services offered to the Partnership may result
in inefficiencies and frustration, with
consequent loss of Partners and client impact,
or inability to recruit sufficient, high quality
new Partners or field management.
The nature of the Group is such that it falls under
the influence of regulators and legislators in
multiple jurisdictions, a growing number given
the Group’s expansion into Asia. Wholesale
changes to regulations or to the political
environment may result in implementation costs
and disruption to business. The Group could face
a fine or regulatory censure from failure to
comply with applicable regulations, with
increased supervisory intrusion and disruption
to business.
Competitor activity in the adviser based wealth
management market may result in a reduction
in new business volumes, reduced retention of
existing business, pressure on margins for both
new and existing business, and the potential
loss of Partners and key employees.
The low yield environment places additional
pressure on client charges and advice fees.
Outcome
Partners
Regulators
Financials
and
shareholders
Availability
of credit
Lack of availability of credit may limit the
Group’s ability to provide Partner loans and
make strategic investments.
Financials
and
shareholders
Investor
relations
Failure to communicate effectively with new
and existing shareholders may lead to falls in
the share price and reputational damage.
Accumulation
of reputational
issues
People and
culture
The success of the Group is closely linked
with the strength of the St. James’s Place
brand. An accumulation of reputational issues,
for example, advice failures, fraud, service
issues, low client investment returns, has
the potential to damage the brand, leading
to reduced retention and lower levels of
new business.
People and the distinctive culture of the
Group play an important part in its success.
Poorly managed expansion, succession,
culture and resourcing may lead to loss of
valued individuals, increased risk of errors,
and failure to deliver on the business plan.
Financials
and
shareholders
Financials
and
shareholders
People
52
Management and Controls
The Partner proposition is an area of continual focus, with
outputs from regular Partner surveys and other Partner
feedback being reflected on an ongoing basis. We employ a
number of specialist managers specifically to manage the
recruitment and retention of high quality Partners, and a
dedicated senior management team oversees the SJP Academy,
which broadens our recruitment streams. Formal retention
strategies are in place to ensure that, wherever possible, we
retain good quality and experienced Partners. All recruitment
and retention activity is closely monitored.
Regulatory and legislative change is largely a risk which cannot
be mitigated, although the Group seeks to engage with
regulators and policy makers in an open and constructive
manner, with the aim that key issues impacting the Group are
taken into consideration in the drafting of changes. Our
governance structures, management committees and
compliance monitoring activities seek to ensure we remain
compliant with regulation.
This risk is mitigated through ensuring our business is run
efficiently, being responsive to the needs of our clients and
Partners and seeking continual improvements to processes.
Charges are benchmarked against competitors and competitor
activity is monitored allowing action to be taken in a timely
manner if required. The Group offers a diversified product
range, including manufactured and third party products. We
have a proven track record in Partner and employee acquisition
and retention. Our more established Partners often have
significant equity stakes in their practices and their ability to
access these is structured to aid retention. Similarly, variable
remuneration of key employees is structured to aid retention.
A debt funding policy is in place, with committed funds
available through the revolving credit facility. Credit approved
bank lending facilities are available to support Partner loans.
Further corporate borrowing requires approval at Board level.
This risk is mitigated through the work of the investor relations
team, whose remit is to ensure the maintenance of positive
relationships with shareholders.
Mitigants for individual reputational events are described
earlier in the table. The Group seeks to achieve the best
possible outcomes for its clients and the cultural driver of
‘doing the right thing’ runs through the whole organisation.
However, it is recognised that isolated incidents will occur and,
when this is the case, the Group seeks to rectify the issue and
achieve positive outcomes for clients.
This risk is mitigated through effective leadership, succession
planning, the implementation of executive and management
development initiatives and regular surveys and consultation
groups. The latter enable us to monitor the sentiment of our
staff and Partners and identify any potential adverse impacts
upon, or trends within, our culture, and respond appropriately.
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415
Financial Risks
Risk
Description
Outcome
Management and Controls
A reduction in funds under management
owing to market shocks, poor market
performance or currency and exchange rate
movements would reduce future AMC
income, and hence future profits.
Financials
and
shareholders
The Group accepts the risk of reduced future profits as a result
of market shocks, poor market performance, adverse
movement in credit spreads or currency movements. This risk
is mitigated to an extent by the diversified fund range.
Market Risk
– Loss of
Annual
Management
Charge (AMC)
income
Insurance risk
A reduction in funds under management
owing to poor retention would reduce future
AMC income. This may arise from factors
such as changes in the economic climate, poor
investment performance, competitor activity,
or reputational damage to the Group.
Financials
and
shareholders
Adverse mortality or disability experience, in
particular higher death claims following an
incident or widespread illness, or longer-term
increases in mortality rates, would reduce
future profits.
Expense risk
Increased expenses, in particular higher than
expected administration costs, would reduce
future profits.
Financials
and
shareholders
Retention risk is managed through the long-term relationships
between Partners and clients. In particular, Partners keep
clients informed during periods of market volatility, and lower
risk funds and portfolios are available, with no charges for
switching. The Investment Management Approach involves
monitoring of fund manager performance, and changes are
made where appropriate. Some of the key sources of
reputational risk and related controls are described in the table
above.
Mortality and disability risk is substantially reduced through
the use of reassurance with low retention. Mortality risk
benefit on investment products are generally limited to 1% of
invested assets. Most risk deductions are reviewable and an
increase in reassurance rates would be passed on to clients
through increases to charges and/or premiums within five
years. Experience analysis is performed.
Expenses are controlled through contracts with third party
administrators and expense controls at Group level, so that
growth in average per policy expenses is no greater than the
rate of increase in the average weekly earnings index.
Administration charges are reviewable.
Clients meet investment management fees directly through the
product, with changes, both positive and negative, also passed
on.
Interest rate
and credit
risks
Changes in interest rates or the failure of a
counterparty may reduce the value of fixed
interest assets held by the shareholder.
Financials
and
shareholders
Generally, shareholder funds are invested in high credit rating
and highly liquid cash and cash equivalent investments, and only
highly rated reinsurers are used.
Key counterparties include reassurers, banks,
money market funds, issuers of fixed interest
securities, Partners to whom loans have been
granted, and other debtors.
Liquidity risk
Liquidity issues may arise from client requests
to switch or withdraw money from unit
linked funds, and through events that may
require immediate recourse to shareholder
funds.
Financials
and
shareholders
However, in support of the business, some shareholder funds
(outside the insurance companies) are used to provide loans to
Partners. These are secured against income streams on a
conservative multiple and with appropriate financial
monitoring.
A pre payment has been made to IFDS in anticipation of future
benefits arising from the development of the new Bluedoor
administration system. However, the contract with Bluedoor
would enable the Group to continue to use the Bluedoor system
in the event of failure of IFDS.
Client funds are invested in deep and liquid markets and, where
investments are less liquid, contractual terms are included,
allowing the flexibility to defer withdrawals. Sizeable balances
of liquid shareholder assets are maintained and the emergence
of cash profits is monitored. Banks’ propensity to lend in
support of Partner loans is also monitored.
Annual Report and Accounts 2016
53
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation CORPORATE SOCIAL RESPONSIBILITY REPORT
ST. JAMES’S PLACE IS COMMITTED
TO GROWING OUR BUSINESS
IN A WAY THAT CONSIDERS
THE ECONOMIC, SOCIAL AND
ENVIRONMENTAL IMPACTS OF
WHAT WE DO
We understand that responsible management is
important to all our stakeholders – shareholders,
clients, Partners, employees, suppliers and the
communities in which we operate.
Our commitment to responsible management
was established in the founding principles of
the Company and is expressed in both the ‘Our
Approach’ document, which is shared with all
members of our community, and the ‘What it
means to be a member’ brochure, which sets
out the expectations for our Partners. We
believe responsible management continues to
be embedded in our culture and reminders and
encouragement to live by this philosophy are
provided regularly through team meetings, and
employee and Partner newsletters.
By living up to the expectations established
within our culture, we believe we will be able
to demonstrate trustworthiness, reliability and
a commitment to the common good. In a world
where the reputation of the financial services
industry is constantly under pressure, we aspire
to create an authentic alternative which all our
stakeholders can trust, and which the
communities we are part of can appreciate
and respect.
OUR APPROACH TO CORPORATE
SOCIAL RESPONSIBILITY (CSR)
We are constantly seeking to improve our
delivery, but recent public endorsements include:
• We have received various awards relating to
our client offering over the years. Most
recently, these have included the Wealth
Adviser Award for ‘Best Private Client
Investment Manager’ (fourth year running),
the Personal Finance Awards ‘Best Financial
Adviser’ (seventh year running), FDs’
Excellence Awards ‘Pension Firm of the
Year’, City of London Wealth Management
Company of the Year Award (second year
running), What Investment Readers’ Award
‘Best Wealth Manager’ and Shares Magazine
Awards ‘Best Wealth Manager’.
• Our business model has been recognised
through winning the 2016/17 Britain’s
Most Admired Companies Award in our
sector for the second year running, which is
run in association with Management Today.
• Our continued inclusion in the FTSE4Good
Index, which comprises companies that
meet globally recognised corporate social
responsibility criteria, recognised our
positive culture and ongoing commitment
to responsible management.
CSR GOVERNANCE
Responsible management is central to our
culture, and the task of maintaining this
culture (including our CSR ambitions) is a key
focus of the Executive Board, with oversight by
the full Board.
The Executive Board is supported in this
objective (as in all of their work) by a number of
sub committees, which are chaired by
Directors or senior management.
Managing Committee
Our Culture
CSR overview, Local
Community, Volunteering,
Suppliers and the Environment
Investment Management
Approach
The St. James’s Place
Foundation
Executive Board
CSR Group
Investment Committee
Foundation Trustees
Remit
To ensure the strength and maintenance of the unique
culture throughout our community.
To co ordinate the Group’s approach to CSR and CSR
Department with particular focus on promoting local
community engagement and environmental matters.
To manage our Investment Management Approach and
oversee our fund managers.
To manage the St. James’s Place Foundation, including
overseeing grant making and compliance with the
charity’s objectives.
54
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 COMMUNITY SUPPORT
2016 Highlights
The St. James’s Place Foundation
We have always recognised our social
responsibility to our local communities and,
from the founding of the Group, have
encouraged our staff and Partners to use their
expertise to help local charities and other
voluntary organisations. The desire to provide
support to the less fortunate in society resulted
in the establishment of the St. James’s Place
Foundation which continues to receive support
from all parts of the St. James’s Place
Community: employees, Partners, clients,
suppliers and shareholders. This has been
another record year for fundraising by members
of our community and, as a result, the 100%
matching grant and other support from the
Company was £3.7 million. Since 1992, the
St. James’s Place Foundation has now raised
and distributed over £54 million to good
causes. Additional information from the
St. James’s Place Foundation about its activities
is provided on pages 62 to 65 or available from
its website at www.sjpfoundation.co.uk.
Community Volunteering and Support
St. James’s Place has a strong tradition of
volunteer support for the work of the
Foundation, but 2016 has seen continued and
significant increases in our staff volunteering
for wider CSR initiatives and in work time
community support.
In 2016 we have launched a new initiative to
partner with local charities to provide both
financial support and the physical and skills
capital of our organisation. We are not
supporting specific projects, but rather the core
charity to improve efficiency and sustainability.
These partnerships are aimed to last five years
with decreasing funds but increasing staff ties
and skills based support.
In this first year we have partnered with:
• The Churn Project, which works to
improve the quality of life and well being of
isolated and disadvantaged people within
Cirencester; and
• Cirencester Housing for Young People
(CHYP) which provides a home for young
people at serious risk of homelessness as
well as pastoral care and mentoring.
Staff support has included Marketing, Property
and IT expertise and Partners have provided
financial advice. During 2017 we aim to add
three more charities to this initiative and
empower these charities to work together as
they all strive to help the same people.
We are also pleased to have maintained our
drive to link the professional skills of our
employees to the professional needs of local
charities. During 2016 we were able to offer 86
of our staff, who already volunteer with a local
community organisation, a grant of £300 as our
way of recognising and supporting the 14,800
hours of volunteering they gave in their own
time. We also formalised our encouragement
for staff to get involved with community
activity, by offering all members of staff two
days a year for community support in work
time. This has been used to support The
Foundation, to get involved in other corporate
CSR initiatives or through giving skills directly
to a charity of their choice. In 2016, 27.4% of
staff used half a day or more of their two days
and increasing this is a core objective of 2017. A
new CSR initiative introduced in 2016 was our
community team challenges. These provide an
opportunity for groups of colleagues to
undertake community and charity projects
together, which can also be beneficial in
strengthening teamwork and motivation. 1,200
hours of team community work have been
undertaken this year, working with causes local
to our offices including local charities,
conservation projects, and an NHS trust.
Responsible
management is
central to our
culture
55
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plcAnnual Report and Accounts 2016 CORPORATE SOCIAL RESPONSIBILITY REPORT continued
88%
of Group employees and contractors involved
in some kind of citizenship activity.
STAFF GIVING THROUGH
SALARY COVENANT
STAFF PARTICIPATING
IN CSR ACTIVITIES
18%
77%
STAFF ORGANISING
FOUNDATION ACTIVITIES
STAFF PARTICIPATING IN FOUNDATION
FUNDRAISING EVENTS
12%
41%
Employability Skills for Young People
St. James’s Place is an entrepreneurial
organisation and we have always been keen that
the next generation should be able to contribute
successfully through employment. In 2016 our
work with Cirencester College, including our
apprentices’ initiative, continued to be the
heart of this workstream.
Cirencester College
St. James’s Place has now been providing
support to Cirencester College, a further
education college local to our head office, for
over twelve years. During that time, we have
been able to offer 82 internships to students
from Cirencester College, with 29 of them
turning into full time employment
opportunities often in our Apprenticeship
scheme (see below). However, our main
involvement has been providing support for the
four ‘Academy Programmes’, operated in
conjunction with the national charity ‘Career
Ready’, each designed for students who aspire
to work in a particular market sector. The
support provided includes providing paid
summer internships, mentors, and business
coaching to many students.
Apprenticeships
Working in conjunction with Cirencester
College, which provides the training, our
apprenticeship programme is now a
cornerstone of our long-term recruitment
policy. Our 2016 September intake of 14 has
included apprenticeships in Financial Services,
Business Administration, Marketing, IT and
Accountancy. The 2016 programme has been
enriched by the addition of the Duke of
Edinburgh’s Award for all our apprentices.
A further intake of 14 apprentices is planned
for September 2017.
14 hours
the number of hours our employees
receive per year for community
support in work time.
8.1 hours
the average number of hours our employees
and contractors gave to support our
communities in 2016, during work time.
4.4 hours
the average number of hours our employees
and contractors gave of their own time in
support of our CSR activities and the Foundation.
56
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Other Employability Skills Training
This year we have maintained out support for
organisations like Young Enterprise and
Employability UK, but also started to support
The Duke of Edinburgh’s Award and the Urban
Stars programme; all helping young people
bridge the gap between education and work.
We have also maintained our support for local
schools with staff giving their time to support
CV workshops, networking days, assemblies,
interview training and work experience.
With increased focus on careers education in
schools and colleges we believe this is an
important area in which we can develop our
offering in 2017, moving beyond providing
grants to finding ways of working more actively
in supporting these organisations with staff
skills and expertise.
Financial Education
As one of the leading providers of financial
advice to individuals and business owners in the
UK, we recognise the importance and value
of financial education and this continued to
be a core focus in the year. During 2016 we
significantly increased the delivery of our Year
9 and Sixth Form Financial Education courses
with schools. Offering a mix of full day, half
day and flexible modular programmes we
supported PSHE (Personal, Social and Health
Education) and Maths curriculum in 15 schools
and two charities in Gloucestershire, Wiltshire
and London. We have developed a team of staff
to go into the schools to deliver our courses
which brings the day to life for the students
and delivers excellent engagement and positive
experiences learning about tax, budgeting and
understanding debt. In all, 27 sessions have
been delivered supporting over 2,000 students.
We have been able to both lead and support
these days thanks to the 81 individual staff who
volunteered to be involved, in all, giving 550
hours of work time.
Following the success of 2016 we will look to
maintain the scale of our Financial Education
programme in 2017 and expand delivery to
schools and charities in more locations across
the UK supported by volunteers from our
offices and wider Partnership.
£495,172
the total value of all the time our
employees and contractors gave
in work time.
£4.63m
the total cash value we invested this year in
our communities and good causes through
our CSR programmes and the SJP Foundation.
1,773
the number of young people our staff have
worked with face to face through our Financial
Awareness programme.
Loughborough University Swimming
In 2016, we were pleased to continue our
sponsorship of the Loughborough University
Swimming programme. This enables the squad
to receive additional coaching and, since our
relationship started in 2007, the team have
medalled in all major UK and International
events including European, Commonwealth,
World Championships and the Olympic Games.
Four of the 26 strong British Swimming team
at the Rio Olympics were part of the
Loughborough University’s Fast Swimming
programme: Francesca Halsall, Molly
Renshaw, Georgia Davies and Tim
Shuttleworth. Adam Peaty, who also trains at
the University, won Britain’s first medal of the
games, a Gold in the men’s 100 metre
breaststroke. The 21 year old then led Team
GB to win Silver in the men’s 4 x 100 metre
medley relay.
In measuring our CSR community support
activities, we use the LBG measurement
methodology.
Apprentices
57
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plcAnnual Report and Accounts 2016
CORPORATE SOCIAL RESPONSIBILITY REPORT continued
RESPONSIBLE INVESTING
At St. James’s Place we place emphasis on the
principles of responsible investing (RI) in the
management of our clients’ assets and in the
integration of environment, social and
governance (ESG) factors into the investment
process. We see this as a tool for better
managing risk and generating sustainable,
long-term returns and better financial
outcomes.
We have continued to develop our approach
to RI during 2016, with the adoption of
the St. James’s Place Approach to Responsible
Investing Policy and its extension to cover all of
our major asset classes – equities, fixed income
and property. Our policy draws upon the
United Nations Principles for Responsible
Investment (UNPRI) but we also look to other
exemplars, such as the Stewardship Code and
the Investment Association’s Stewardship
Reporting Framework, the FTSE4Good
criteria, as well as industry good practice.
We encourage the investment advisers, where
appropriate, to become signatories of these
associations.
We have also established a dedicated RI
Governance Group with the objective of
promoting the principles of RI across our fund
range. We continue to engage with our
community of fund managers with a
comprehensive programme of pre appointment
due diligence and ongoing oversight. This
includes a major emphasis on the incorporation
of ESG into the investment process and the
importance of stewardship activities, including
engagement and voting. In 2017 we plan to
publish our first RI dedicated client report.
SUPPLIERS AND SUPPLY CHAIN
St. James’s Place believes in treating all our
stakeholders fairly. We also believe in the
benefits to be gained from building long-term
relationships based on mutual trust. As a result,
many of our key suppliers have been associated
with the Group for a number of years and we
have been able to cultivate very strong and
mutually beneficial relationships, such as our
providers of outsourced administration
services: IFDS, Capita and State Street.
More generally, we expect all our suppliers to
act in accordance with the standards embedded
in our culture, and will undertake due
diligence on new service providers to ensure
we are comfortable with their approach to
socially responsible management. Since 2014
we have been accredited with the Living Wage
Foundation, which involves us working closely
with our supply chain. We are particularly
pleased that many of our suppliers share our
desire to make a positive and lasting difference
to the lives of those less fortunate than
ourselves, and we are very grateful to all those
who have provided support to the St. James’s
Place Foundation, both through donations and
through active participation in many of the
events.
St. James’s Place has always placed great
reliance on the support of third party suppliers
and the continued success of our business
reflects, amongst other things, our success in
cultivating and managing successful
relationships with suppliers. We are pleased to
remain signed up to the Prompt Payment Code
which is encouraged by the Department of
Business, Energy and Industrial Strategy (BEIS)
and demonstrates a commitment to good
practice between organisations and their
suppliers. Signatories to the Code commit to
paying their suppliers within agreed and clearly
defined terms, and commit also to ensuring
that there is a proper process for dealing with
any issues that may arise.
THE ENVIRONMENT
St. James’s Place is committed to managing
our environmental impact through effective
monitoring of energy systems, travel, water
usage and waste recycling. We recognise the
effect our business can have on climate change
and manage our business activities to reduce
this impact where possible. We were pleased to
see these efforts recognised in 2016, when we
were awarded a ‘Grade B, Management’ by the
CDP (formerly Carbon Disclosure Project).
Oversight of our environmental strategy is
through a Corporate Social Responsibility
Group (CSR Group) with ultimate
responsibility resting with David Bellamy
(CEO). The group meets on a monthly basis
and reviews environmental performance.
We collect and report our environmental data
from October to September. The following
tables summarise targets and progress,
expressed in terms of both absolute and
normalised CO2e emissions for our core
business activities in recent years. Core
business activities are defined as those within
‘Operational Control’. Our emissions are
calculated in line with the Greenhouse Gas
Protocol using the 2016 emission factors
provided by DEFRA. The emissions were
calculated by our external sustainability
partner, Carbon Clear.
As our business continues to grow, we have
worked to integrate the acquired entities and
our offices in Asia into the Company wide
environmental reporting. Our new building in
Cirencester has not been accounted for in this
year’s carbon footprint, as staff moved into
there after our current reporting year. We have
achieved a BREEAM rating of ‘very good’ for
the new building and will account for it within
next year’s carbon footprint.
In 2016 we exceeded the Scope 1 and 2 targets
that were set in 2013, in both absolute and
normalised terms. We have now confirmed our
next set of emission reduction targets. As a
Company, we have committed to reducing our
Scope 1 and 2 absolute emissions by 50%
between 2016 and 2020. We plan to achieve
this target through a range of initiatives,
including procuring renewable electricity for
our UK offices.
58
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 1) Targets
Absolute Emissions Targets
ID
Abs1
Abs2
Abs3
Scope
1
Description
Gas and owned vehicles
2
3
Electricity
Business travel, waste, hotel stays, Electricity T&D
% of
Emissions
in Scope
% Increase
p.a. from
Base Year
Base Year
Base Year
Emissions
Target Year
100%
100%
100%
5%
5%
5%
2013
2013
2013
851
2,218
3,704
2016
2016
2016
Normalised Emissions Targets
ID
Int1
Int2
Int3
Scope
1
Description
Gas and owned vehicles
2
3
Electricity
Business travel, waste, hotel stays, Electricity T&D
% of
Emissions
in Scope
% Increase
p.a. from
Base Year
Base Year
Base Year
Emissions
Target Year
100%
100%
100%
0%
0%
0%
2013
2013
2013
3.03
7.90
13.18
2016
2016
2016
2) Progress
Absolute Emissions Progress
ID
Abs1
Abs2
Abs3
Scope
1
2
3
Abs3.1 3 (Property Trust
Investments and WTT)
Normalised Emissions Progress
Actual Emissions
in Year
(tonnes CO2e)
683
2,126
4,847
12,130
ID
Int1
Int2
Int3
Scope
1
2
3
Normalised Emissions
in Year (tonnes CO2e
per
‘000 sq ft)
1.73
5.40
12.31
% Variance
from Target
Comment
-31% Emissions from gas and owned vehicles have continued to decrease,
meaning that we have exceeded our Scope 1 absolute target.
-17% Emissions from electricity increased from last year due to the
inclusion of acquisitions in the carbon footprint, but we have still
exceeded our Scope 2 absolute target.
13% Scope 3 emissions appear to have increased due to an improvement in
the methodology used to calculate emissions from air travel, giving us
a more accurate representation of Scope 3 emissions going forwards.
n/a We calculated the emissions from our Property Trusts Investments
and for the Well to Tank (WTT) component of our Scope 1 and 2
emissions for the first time last year, so they were not considered
within the 2013 target.
% Variance
from Target
Comment
-43% Whilst our floor area has continued to increase, our Scope 1
-32%
-7%
emissions have decreased, leading to a significant decrease in the
intensity of emissions. The Scope 2 intensity has also decreased,
in line with a reduction in the carbon intensity within the
national grid. Trends in Scope 3 emissions are more difficult to
predict because emissions from business travel and conferences
are variable year on year. Nonetheless, we have exceeded our
Scope 3 intensity target.
The table below illustrates the changes in our absolute emissions over the past three years. During this time, we have taken steps to improve our data
quality and calculation methodology. This has enabled us to gain a more accurate understanding of our environmental impact and therefore to take the
appropriate steps to mitigate it.
3) Gross Emissions (excluding Property Trusts Investment and WTT)
ID
Abs1
Abs2
Abs3
Scope
1
Activity
Gas and owned vehicles
2
3
Electricity
Business travel, waste, hotel stays, Electricity T&D
Total
Gross Emissions (tonnes CO2e)
2014
932
1,888
2,366
5,187
2015
764
1,984
2,559
5,307
2016
683
2,126
4,847
7,656
59
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plcAnnual Report and Accounts 2016 APPROVAL OF
THE STRATEGIC REPORT
As part of the Annual Report by the Directors it is a statutory requirement to
produce a Strategic Report.
The purpose of the report is:
‘to inform members of the company and help them assess how the Directors
have performed their duty under section 172 of the Companies Act 2006
(duty to promote the success of the Company)’.
The objective of the report is to provide shareholders with an analysis of the
Company’s past performance, to impart insight into its business model,
strategies, objectives and principal risks and to provide context for the financial
statements in the Annual Report.
The Directors consider that the report, comprising pages 1 to 59 of this
document, meets the statutory purpose and objectives of the Strategic Report.
On behalf of the Board:
David Bellamy
Chief Executive
27 February 2017
Andrew Croft
Chief Financial Officer
60
St. James’s Place plc
Annual Report and Accounts 2016
Registered No. 03183415
ST. JAMES’S PLACE
FOUNDATION
A grant making charity with a difference.
Annual Report and Accounts 2016
61
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationSt. James’s Place plc ST. JAMES’S PLACE FOUNDATION
THE FOUNDATION IS A CORE PART OF THE COMPANY’S
CULTURE AND HAS BEEN FROM THE START IN 1992
In May 2016, the Directors of St. James’s Place were delighted to announce that our community had raised
and distributed £50 million to good causes since inception in 1992 through the grant making charity, the
St. James’s Place Foundation.
The Directors are also particularly proud of the fact that over 80% of our staff and members of the St. James’s
Place Partnership make regular contributions to the Foundation from their earnings. To our knowledge, we
are unique in the UK in having such a high proportion of our own community giving regularly in this way.
At the end of 2016, 89% of St. James’s Place Partners and employees were giving to the Foundation through
their pay or earnings on a monthly basis.
Amount raised and
distributed to good causes
Over £54m
Raised in 2016
£7.6m
Percentage of Partners
and employees who
donate each month
89%
62
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 The Picos Mountains Challenge
Summer Swing Event
The Jurassic Coast Walk
In addition, Partners and employees showed
their generosity by raising £12,000 in support
of Save the Children’s emergency appeal for
those devastated by Hurricane Matthew in
Haiti.
A GRANT MAKING CHARITY WITH
A DIFFERENCE
Rather than utilising funds received from an
endowment or an investment, funds are raised
and donated by the St. James’s Place
community and matched pound-for-pound by
the Company. The Company also covers all
related expenses which ensures all donated
funds go direct to the supported charities.
FUNDRAISING AND EVENTS
The St. James’s Place Foundation enjoyed
another record year for fundraising in 2016,
raising over £7.6 million for good causes in the
UK and abroad. This record was achieved
partially thanks to valuable contributions from
a number of successful fundraising events
throughout the year, which represent a vital
part of the Foundation’s income.
The funds for the St. James’s Place Foundation
come primarily from three sources (along with
Gift Aid and interest):
1. Regular monthly donations from St. James’s
Place Partners and employees;
2. Our community take part in and organise
fundraising events or challenges; and
3. Pound-for-pound matching by the Group.
In addition, individuals and businesses such as
our fund managers, suppliers and service
centres often generously support the
Foundation.
Events included:
• The Big Walk along Dorset’s Jurassic
coastline (£85,000);
• The Picos Mountain Challenge (£55,000);
• A gruelling three-day cycle challenge in
Mallorca (£185,000);
• A 150 mile paddle along the navigable
length of the River Shannon (for which two
St. James’s Place employees raised
£10,000); and
• £101,000 from the annual Summer Swing
event in Cheshire.
All amounts shown include Company
matching.
63
St. James’s Place plcAnnual Report and Accounts 2016Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation ST. JAMES'S PLACE FOUNDATION continued
Supporting children and
young people in 2016
£6.3m
Onside donation
£1m
2016 Hospice UK
donation
£570k
MAJOR GRANTS INCLUDE:
64
Youth Zone
‘The St. James’s Place Foundation aims to make a positive and lasting
difference to people’s lives through charitable giving, to those people who
need it most.’
– Mark Longbottom, Head of the St. James’s Place Foundation
The main theme that guides the Foundation’s giving is a focus on helping
children and young people up to the age of 25; children or young people with
a disability, life limiting condition or illness, or those who are socially and
economically disadvantaged.
The Foundation also funds projects aimed at disadvantaged young people not
currently in education, employment or training and living on the margins of
society. Our support is aimed at empowering young people to reach their
full potential.
A £500,000 donation from the Foundation to OnSide Youth Zones has helped
build a state-of-the-art youth centre called ‘The Way’ in Wolverhampton.
OnSide is a charity whose mission is to build a network of youth clubs across
the UK, giving young people and those who are socially and economically
disadvantaged, safe and inspiring places to go in their leisure time.
Opened in 2016, ‘The Way’ provides a vital space for young people to engage
in sport, fitness, dance, arts, music, media, enterprise, well being and self
improvement.
‘Only weeks after opening, we are absolutely thrilled to bits with the way
young people in Wolverhampton are taking full advantage of the offer.
With over 1,300 visits per week, we are already building strong
relationships with young people and are able to give them the support
they need.’
– Kathryn Morley, Chief Executive of OnSide Youth Zones
The charity was the brainchild of Bill Holroyd, Chair of the Bolton Lads and
Girls Club, which was visited by over 3,000 young people each week. He
realised other towns in the UK could benefit so he set up the OnSide Youth
Zones and spearheaded the development across the country.
There are currently nine OnSide Youth Zones in the north of England and one
in London, each providing quality, safe and affordable facilities for young
people to engage in fun and productive activities geared towards improving
their life chances, choices and opportunities.
Currently, the OnSide Youth Zone network boasts 15,000 members and aims
to open 20 new centres by 2020. The Foundation has also committed
£500,000 to help fund the build of a Youth Zone on the Wirral. To read more
about OnSide visit:www.onsideyouthzones.org.
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 TRANSFORMING CARE FOR PEOPLE REACHING END OF LIFE
The hospice movement is one of the main areas of need that the St. James’s
Place Foundation supports. The Foundation works closely with Hospice UK
to help us to find suitable projects to fund, and they have done this for the last
twelve years. Hospice UK is the national charity for hospice care, supporting
over 200 hospices in the UK. Together they are focused on transforming how
people are cared for at the end of life.
In 2016 we donated £570,000 to Hospice UK to help a number of hospices
improve their palliative care services and ensure people’s quality of life
is enhanced.
The St. James’s Place Foundation also makes donations to charities supporting
people with cancer and, following feedback from members of our community
in August 2016, we plan to extend our support to mental health.
HOSPICES SUPPORTED INCLUDE:
THE FUTURE
In 2017, the Company and the Foundation celebrate their 25th anniversary
and to mark this milestone, we aim to build on the £54 million raised since
inception in 1992 and a number of special events are planned for the year,
including: a gala dinner; a Foundation day with fundraising events happening
all over the country; and special versions of our Big Walk, Overseas Trek and
Cycle Ride. We also hope to announce details of a number of exciting and
significant grants, which we believe will make a transformative difference to a
charity and the people they help.
DOMINIC AND HIS MOTHER
Renata is a mother of three children, all of whom
have an undiagnosed genetic condition. Renata’s
youngest child, Dominic, is the most severely
affected and he has been extremely ill at times and in
and out of hospital his whole life. Dominic and his
mother inspired the UK charity, Roald Dahl’s
Marvellous Children’s Charity, to fund specialist
nurses working to transform the lives of ill children.
The St. James’s Place Foundation donated £84,500 to
Roald Dahl’s Marvellous Children’s Charity, spread
over two years, to help fund the salary costs of a
nurse specifically caring for children who are ill. The
charity helps to make life better for seriously ill
children and young people in the UK. The charity is
inspired by the belief that every child has the right to
a marvellous life, no matter how ill a child is or how
short their life may be.
‘No one seemed to be able to tell
me why. The more they looked
for a cause, the more problems
they found. I would spend days,
that rolled into weeks, that
stretched into months, crying
myself to sleep next to his
hospital cot wondering if the
next day would be the one
where they told me he was not
going to live.’
– Renata
65
St. James’s Place plcAnnual Report and Accounts 2016Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation 66
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 MEETING THE
CHALLENGE
We will continue to focus on the fundamentals of the
business: delivering good outcomes for our clients through
the St. James’s Place Partnership.
We have always favoured identifying how developments
in the governance environment lead to more effective
returns for our shareholders. It is in all our interests to
make sure we continue to deliver good outcomes for our
clients and take care of our communities.
CONTENTS
– Board of Directors
– Chair’s Report
– Corporate Governance Report
– Report of the Audit Committee
– Report of the Risk Committee
– Report of the Nomination Committee
– Directors’ Remuneration Report
– Directors’ Report
– Statement of Directors’ Responsibilities
Annual Report and Accounts 2016
67
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation
Governance
Board of Directors
BOARD OF DIRECTORS
SARAH BATES
CHAIR
DAVID BELLAMY
CHIEF EXECUTIVE
ANDREW CROFT
CHIEF FINANCIAL OFFICER
Date of Appointment:
Chair January 2014.
Non-executive Director September 2004.
Date of Appointment:
Chief Executive May 2007. Joined St. James’s Place
1991 and appointed to the Board 1997.
Date of Appointment:
Chief Financial Officer September 2004.
Joined St. James’s Place 1993.
Experience
Sarah brings over 30 years’ experience from the
investment and investment management sectors,
in both senior executive and non-executive
capacities. She served as Chair of the Association
of Investment Companies from 2011 to 2013.
She retains a range of investment related
responsibilities which support her Chairship of
St. James’s Place.
Experience
David has worked in the financial services
industry since 1973. He joined the Founders of
the Company at the outset to establish the back
office. Since then he has held a number of roles at
St. James’s Place, including Group Operations
Director and Managing Director. He is a Trustee
of the St. James’s Place Foundation.
External Appointments
Chair of JPMorgan American Investment Trust plc,
and Witan Pacific Investment Trust plc. Non-
executive director of Worldwide Healthcare Trust
plc and Polar Capital Technology Trust plc. Member
of the investment committee of the Universities
Superannuation Fund and on a voluntary basis, chair
of the St. Joseph’s Hospice investment panel and
trustee of the Liver Group Charity.
External Appointments
Deputy chair of the Financial Conduct Authority’s
Practitioner Panel.
Experience
Andrew joined the Company in 1993 and has been
Chief Financial Officer since 2004. Having trained
as an Accountant with Deloitte Haskins and Sells
(now part of PricewaterhouseCoopers LLP) he
then worked in the Financial Services sector.
Since joining St. James’s Place he has held
a number of roles within the Finance department,
assuming the role of Finance Director in 2002.
He is a Trustee of the St. James’s Place
Foundation.
External Appointments
Lay member of the Audit, Risk and Investment
Committees of the Royal College of Surgeons
of England.
IAN GASCOIGNE
MANAGING DIRECTOR
Date of Appointment:
Executive Director January 2003.
Joined St. James’s Place 1991.
DAVID LAMB
MANAGING DIRECTOR
Date of Appointment:
Executive Director December 2007.
Joined St. James’s Place 1992.
Experience
Ian is Managing Director responsible for the
management and development of the Partnership.
He has worked in the financial services industry
since 1986 and has considerable experience in the
financial advisory space. Ian is a Trustee of the
St. James’s Place Foundation.
Experience
David is Managing Director with responsibility for
Private Client, International and the Group’s
investment businesses including the fund range. He
is a Fellow of the Institute and Faculty of Actuaries,
having worked in the financial sector since 1979 and
has significant experience in wealth management,
together with investment and portfolio management.
He is a Trustee of the St. James’s Place Foundation.
External Appointments
Member of the Strategic Advisory Board of
Loughborough University School of Business and
Economics.
External Appointments
Non-executive director of The Henderson
Smaller Companies Investment Trust plc.
Governor of the University of the West of
England.
68
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415Page Title at start:Content Section at start:
IAIN CORNISH
SENIOR INDEPENDENT (SID)
NON-EXECUTIVE DIRECTOR
Date of Appointment:
Senior Independent Director January 2014.
Non-executive Director October 2011.
Experience
Iain brings experience from both the financial and
regulatory environments. He was a senior
consultant at KPMG, specialising in the banking
and finance sector, and then served as chief
executive of the Yorkshire Building Society. In
recent years he has been an independent director
of the Prudential Regulation Authority.
External Appointments
Chair of Shawbrook Group plc, Non-executive
director of Arrow Global Group plc and Treasurer
of MacMillan Cancer Support.
SIMON JEFFREYS
INDEPENDENT
NON-EXECUTIVE DIRECTOR
Date of Appointment:
Non-executive Director January 2014.
Experience
Simon brings experience of the auditing world and
financial services. He was a senior audit partner
with PricewaterhouseCoopers LLP from 1986 to
2006 where he also led their Global Investment
Management practice. Between 2006 and 2014,
Simon was CFO and chief administrative officer at
Fidelity International and then CFO and chief
operating officer at the Wellcome Trust.
External Appointments
Chair of AON UK Limited, non-executive director
and chair of the Audit Committees of Henderson
International Income Trust plc and SimCorp A/S, a
listed Danish financial services software company,
and non-executive director of Templeton Emerging
Markets Investment Trust plc.
BARONESS WHEATCROFT
INDEPENDENT
NON-EXECUTIVE DIRECTOR
Date of Appointment:
Non-executive Director April 2012.
ROGER YATES
INDEPENDENT
NON-EXECUTIVE DIRECTOR
Date of Appointment:
Non-executive Director January 2014.
Full biographical details may be found on the
corporate website at www.sjp.co.uk
Committee key:
Member of Audit Committee
Member of Risk Committee
Member of Remuneration Committee
Member of Nomination Committee
Member of Investment Committee
Denotes Chair of Committee
Experience
Baroness Wheatcroft brings experience of the
media and also the legislature. Her career has
included editorial roles at both the Sunday
Telegraph and The Times, as well as being
editor-in-chief at the Wall Street Journal, Europe.
She is a member of the House of Lords. Her
financial services experience includes previous
appointments as a non-executive director of
Barclays Group plc and Shaftesbury plc.
Experience
Roger brings over 30 years of investment
management experience. He started his career
with GT Management Limited in 1981 and has
subsequently held positions at Morgan Grenfell,
Invesco and Henderson Group plc, where he was
chief executive officer. Most recently, he was chair
of Electra Private Equity plc and a non-executive
director of IG Holdings plc.
External Appointments
Non-executive director of Fiat Chrysler
Automobiles. Chair of the Financial Times
Appointments and Oversight Committee.
External Appointments
Non-executive chair of Pioneer Global Asset
Management S.p.A.
Non-executive director of J.P. Morgan Elect plc.
Annual Report and Accounts 2016
69
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationPage Title at start:Content Section at start: Chair’s Report
CHAIR’S REPORT
David Bellamy has decided to step down from the Board
at the end of 2017 after 26 years as an executive, the last
eleven of which he has served as Chief Executive. Under
his leadership, St. James’s Place has gone from strength to
strength and is now the leading wealth manager in the
UK. It has demonstrably delivered for all of our
stakeholders: clients, shareholders, Partners, employees
and the charities supported by the St. James’s Place
Foundation. David has been an outstanding Chief
Executive and, although he will continue to lead the
business for the remainder of the year, on behalf of the
Board and the entire St. James’s Place community, I
would like to thank him. We are especially pleased that
he will remain with the Group in an advisory capacity and
will take on the role of Non-executive Chair of our new
International operations.
I am delighted that Andrew Croft will become Chief
Executive from the 1st of January 2018. Andrew has
already played a key role in the success of the Group
serving as Chief Financial Officer for the last twelve years
and is the ideal person to lead St. James’s Place. At the
same time, Craig Gentle, who joined the Group in 2016
as Chief Risk Officer, will be appointed as Chief Financial
Officer.
In recent years we have expanded our senior management
team such that we have an outstanding leadership group
with real strength and depth which Andrew will lead.
The management changes we have announced reflect the
continued development of the executive team as well as
our commitment to the strategy which has been so
successful over the years.
Having come far in our first 25 years, we are excited
about the opportunities that lie ahead. We recognise that
it is incumbent on us to build on our strong foundations
by continuing to make incremental improvements in all
aspects of the business and by learning fast where we do
not do as well as we would like. That includes the further
development of our proposition for both clients and
Partners alike, maintaining our ability to deliver superior
client outcomes, expanding our use of technology to
support Partners, and completing the transfer of our back
office administrative systems. It also means sustaining our
focus on our core areas of expertise and retaining our low
strategic risk appetite.
Sarah Bates
Chair
AS YOU WILL ALREADY HAVE
READ IN THE CHIEF EXECUTIVE’S
AND THE CHIEF FINANCIAL
OFFICER’S REPORTS, 2016
WAS ANOTHER STRONG YEAR
FOR ST. JAMES’S PLACE PLC
In my Statement of last year, I commented that 2015 had
seen much political, economic and social upheaval but
2016 was perhaps even more startling. Much has been
written about the potential impacts of the Brexit
referendum and the election of President Trump, but
predicting the future is difficult and relying on such
predictions can be risky. We will therefore continue to
focus on the fundamentals of the business: delivering
good outcomes for our clients through the St. James’s
Place Partnership. Naturally, we keep a watchful eye on
developments within the world around us, which will no
doubt continue to change. However, we benefit from our
Partner-client centric model which provides a rapid and
direct source of information about how the landscape is
developing on the ground and therefore how to respond.
In times of uncertainty, the benefits of St. James’s Place’s
long-term approach to advice and investment should stand
our clients in good stead.
70
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415Page Title at start:Content Section at start: simply adhering to box ticking exercises. It is in all our
interests to make sure we continue to deliver good
outcomes for our clients and take care of our
communities. By doing so we are much more likely to
deliver safe, sustainable growth for our shareholders.
2016’s results are a result of that approach and the work
done over many years as the business has evolved and
developed. Our strategic and operational progress in
2016 should bear fruit in future years. The strength of
our performance in 2016 and our confidence in our
future growth prospects, means that the Board is pleased
to propose a 20% increase in the final dividend to
20.67 pence per share, giving an increase of 18% for
the full year. I look forward to supporting the business
in continuing to deliver to client, Partners, employees
and shareholders in 2017.
Sarah Bates
Chair
27 February 2017
It is crucial that we preserve the distinct culture that
characterises St. James’s Place. Much is written about
culture these days but it is important to be focused on
good evidence of what makes organisations behave in a
responsible, fair and sustainable way in respect of all in
their communities. We aim to keep those principles
firmly in mind in all that we do. It would be rash to claim
that we never make mistakes, but if we do, we seek to
rectify and to learn as quickly as we can.
One cornerstone of our distinct culture which brings
together the entire St. James’s Place community is the
commitment to the St. James’s Place Foundation,
together with the charities that it supports. Therefore,
the Board is pleased to announce the doubling of matched
funding for our 25th anniversary year. Alongside our
support for the Foundation, we remain committed to
being involved in our local communities by way of
volunteering and support, as well as through providing
employability skills training for young people and through
delivering financial education courses for school children.
We have taken seriously our responsibilities to develop
our people. For example, we are progressing our
Academy concept further with a new programme for
para-planners and accreditation schemes for our Partner
support teams. We are also enjoying the successes of our
apprenticeship and graduate schemes, are working on our
management development programmes, and have made
advances on gender and diversity. The SJP community is a
broad church in many ways but we keep working to make
sure we do not unwittingly deter good people from
joining us, nor fail to support their continued
development once part of the business.
We do operate in a complex world and our stakeholders
understandably make many demands of us. We participate
frequently in regulatory and government consultations.
We survey our clients, Partners and employees, and we
engage very actively with our shareholders not only
regarding our financial results and strategy, but also
around many governance matters. We describe our
approach to our social responsibilities on page 54. All of
these are discussed by your Board and we think it is to all
stakeholders’ benefit that lines of communication are very
short. We have always favoured identifying how
developments in the governance environment lead to
more effective returns for stakeholders, rather than
Annual Report and Accounts 2016
71
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationPage Title at start:Content Section at start: Corporate Governance Report
CORPORATE GOVERNANCE REPORT
THIS CORPORATE GOVERNANCE
REPORT EXPLAINS HOW YOUR
BOARD LEADS THE COMPANY’S
APPROACH TO CORPORATE
GOVERNANCE AND EXPLAINS
HOW THE PRINCIPLES OF THE
FINANCIAL REPORTING COUNCIL’S
UK CORPORATE GOVERNANCE
CODE (THE ‘CODE’, AVAILABLE AT:
WWW.FRC.CO.UK) HAVE BEEN
APPLIED IN PRACTICE
THE ROLE OF THE BOARD
Board Leadership
Your Board is collectively responsible for the long-term success of the
Company by:
• Providing entrepreneurial leadership and direction to the Company
in setting out its strategic aims, visions and values, and overseeing
delivery against these;
• Monitoring financial performance and reporting and approving/
recommending payments of dividends;
• Setting the Company’s risk appetite, assessing the principal risks
facing the Company and ensuring that adequate controls are in place
to manage risk effectively;
• Ensuring that appropriate and effective succession planning
arrangements and remuneration policies are in place;
Implementing appropriate corporate governance procedures;
•
• Reviewing major transactions or initiatives proposed by the
Executives; and
• Deciding the Company’s policy on charitable and political donations.
Detailed reporting on Remuneration,
as required by Section D of the Code,
can be found in the Directors’
Remuneration Report.
Your Board considers that the Company
has complied with all of the provisions
of the Code during 2016.
MAKE UP OF THE BOARD AND ITS COMMITTEES
Nomination
Sarah Bates (Chair)
Iain Cornish
Baroness Wheatcroft
Remuneration
Roger Yates (Chair)
Simon Jeffreys
Baroness Wheatcroft
All of the Directors were in office
throughout the financial year and
up to the date of the report and
biographical details, including
their membership of Board
Committees, are set out on pages
68 and 69.
The Board
Sarah Bates (Chair)
David Bellamy (CEO)
Andrew Croft
David Lamb
Ian Gascoigne
Iain Cornish (SID)
Simon Jeffreys
Baroness Wheatcroft
Roger Yates
Audit
Simon Jeffreys (Chair)
Iain Cornish
Roger Yates
Risk
Iain Cornish (Chair)
Simon Jeffreys
Baroness Wheatcroft
Roger Yates
72
The powers of the Directors are set out in the Articles of Association
(the ‘Articles’), UK company law and may be prescribed by Special
Resolutions of the Company. The Articles contain, for example, specific
provisions and restrictions concerning the Company’s power to borrow
money. They also provide that Directors have the power to allot
unissued shares, up to pre-determined levels set and approved by
shareholders in general meetings. Our shareholders have also granted the
Directors authority to make charitable donations and further details on
the donations made can be found on page 62.
At the 2016 AGM, shareholders granted authority to the Directors for
the purchase by the Company of its own shares, with such authority
expiring at the end of the 2017 AGM, or 18 months from the date
granted, whichever is the earlier. The Directors will propose the
renewal of this authority at the 2017 AGM. During the year, the
Company did not purchase any of its own shares.
Further to the powers granted above, the Board maintains a full schedule
of matters reserved to it, together with a ‘Board Control Manual’ which
sets out the primary policy and decision-making mechanisms within the
Group. This includes terms of reference for the various Board
Committees, the Company’s risk policies and risk appetite statement and
detailed job descriptions for each of the Executive Directors and
Non-executive Directors.
BOARD ORGANISATION AND GOVERNANCE STRUCTURE
The Roles of the Chair and Chief Executive
Sarah Bates was appointed as Chair of the Board on 1 January 2014. The job
descriptions of the Chair and Chief Executive, David Bellamy, and the
division of responsibilities between them are clearly defined and agreed by
the Board. As Chair, Sarah takes responsibility for the leadership of your
Board, ensuring its continued effectiveness, and promoting effective
communication between the Executive and Non-executive Directors, as
well as with shareholders generally. As Chief Executive, David’s primary
responsibility is to manage the Company via the executive management
team and implement the strategies adopted by the Board.
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Iain Cornish was appointed Senior Independent Director (SID) in January 2014 and his job description has been agreed by the Board. The SID acts as a
sounding board and confidant for the Chair and the Non-executive Directors (NEDs). He also ensures he is available to meet with shareholders and
raises any shareholder concerns with the Board that might not be resolved through normal channels.
Committees
There are four wholly non-executive Committees of the Board: Audit; Nomination; Remuneration; and Risk. The members of each of these Committees
are all independent Non-executive Directors, with the exception of Sarah Bates, who chairs the Nomination Committee. The membership and terms of
reference of each of these Board Committees are reviewed annually and are available on the corporate website (www.sjp.co.uk), or on request from the
Company Secretary.
The Executive Board comprises the Executive Directors of the Board and other members of senior management. It is via the Executive Board that operational
matters are delegated to management. The Executive Board is responsible for communicating and implementing the Group’s business plan objectives, ensuring
that the necessary resources are in place in order to achieve those objectives, and managing the day-to-day operational activities of the Group. The terms of
reference for the Executive Board are also regularly reviewed and are included in the Board Control Manual. In addition, there is a Disclosure Committee of
Executive Directors, responsible for identifying and determining matters to be disclosed to the market.
There are also a number of Committees below the main Executive Board assisting it in executing its responsibilities. They each have Terms of Reference
which set out clearly their delegated authorities and a right of escalation of matters outside that remit to the Executive Board. A table showing the current
supporting governance structure is set out below.
St. James’s Place plc
Shareholders
(Matters reserved for Shareholder resolution)
St. James’s Place plc Board
(Chair: Sarah Bates)
(Matters reserved to Board)
Audit Committee
(TOR) (NEDs)
(Chair: Simon Jeffreys)
Risk Committee
(TOR) (NEDs)
(Chair: Iain Cornish)
Remuneration
Committee
(TOR) (NEDs)
(Chair: Roger Yates)
Executive Board
(TOR) (Execs)
(Chair: David Bellamy)
Nomination Committee
(TOR) (NEDs)
(Chair: Sarah Bates)
Disclosure Committee
(TOR) (NEDs)
(Chair: Andrew Croft)
Finance
ExCo
(Chair: Andrew Croft)
Group Risk
ExCo
(Chair: Craig Gentle)
Distribution
ExCo
(Chair: Ian Gascoigne)
Cirencester
Operations ExCo
(Chair: Andrew Croft)
Investment
Steering Group
(Chair: David Lamb)
Rowan
Dartington
(Chair: Graham Coxell)
BOARD COMPOSITION
Board Size and Composition
The Board currently comprises four Executive Directors, four independent Non-executive Directors and the Chair (who was independent on
appointment). There were no changes to the Board during 2016.
Appointment, replacement and re-election of Directors
The Articles permit Directors to appoint additional Directors and to fill casual vacancies and any Directors appointed must stand for election at the
first Annual General Meeting (AGM) following their appointment. All other Directors will stand for re-election at each AGM. Directors can be
removed from office by an ordinary resolution of shareholders or in certain other circumstances as set out in the Articles.
Before a Director is proposed for re-election by shareholders, the Chair considers whether his or her performance continues to be effective and whether
they demonstrate commitment to the role. After careful consideration, the Chair is pleased to support the re-election of all Directors at the forthcoming
AGM. Each Director brings significant skill sets to the Board as a result of their varied careers and we believe that this diversity is essential to contributing
to the appropriate mix of skills and experience needed by the Board and its Committees in order to protect the interests of the Company’s shareholders.
The Board therefore recommends to its shareholders that all the Directors retiring at the forthcoming AGM be re-elected.
Annual Report and Accounts 2016
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CORPORATE GOVERNANCE REPORT continued
Independence
When determining whether a Non-executive Director is independent,
your Board considers each individual against the criteria set out in the Code
and also considers how they conduct themselves in Board meetings,
including how they exercise judgement and independent thinking. Taking
these factors into account, the Board believes that all the Non-executive
Directors continue to demonstrate their independence.
As reported last year, the Board is satisfied that Simon Jeffreys’ role as
Chair of Aon UK Ltd has no bearing on his independence or that of New
Bridge Street (advisers to the Remuneration Committee) both of which
are part of the Aon group of companies. When considering their
relationships to the Aon Group, the Board took into account the fact that
Aon UK Ltd and New Bridge Street operate in different divisions of a
large group and their reporting and ownership lines to the Aon Group
board are entirely segregated.
Conflicts of Interest
The Board has in place procedures for the management of conflicts of
interest. In the event a Director were to become aware that they have an
actual or potential conflict of interest, they must disclose this to the
Board immediately. The Board will then consider the potential conflict
of interest based on its particular facts, and decide whether to authorise
the existence of the potential conflict and/or impose conditions on such
authority if it believes this to be in the best interests of the Company.
Internal controls also exist whereby regular checks are conducted to
ensure that the Directors have disclosed material interests appropriately.
Except as stated in the Directors’ Remuneration Report, no Director
has, or has had during the year under review, any material interest in any
contract or arrangement with the Company or any of its subsidiaries.
Duration of Appointments
The Chair and Non-executive Directors are appointed for a specified
term and the Executive Directors have service contracts (copies of the
terms and conditions of appointment of all Directors are available for
inspection at the registered office address). All Directors are subject to
annual re-election by shareholders at the Company’s AGM.
Executive Directors’ Service Agreements
The Executive Directors all have service contracts with the Company
that provide for termination on twelve months’ notice from either the
Company or the Director (except in certain exceptional recruitment
situations where a longer notice period from the Company may be set,
provided it reduces to a maximum of twelve months with a specified
time limit). Service contracts do not contain a fixed end date. Executive
Directors’ service contracts will be available for inspection at the
Company’s 2017 AGM. The Company does not have agreements with
any Director or employee that would provide compensation for loss of
office or employment resulting from a takeover, except that provisions in
the Company’s share schemes may, in certain circumstances, cause share
awards granted to employees under such schemes to vest on a takeover.
Time Commitments
Non-executive Directors are expected to commit at least 15 – 25 days
per annum and in practice may commit considerably more time than
this. The Board is satisfied that each of the Non-executive Directors
commits sufficient time to the business of the Company and further
details of how the Nomination Committee assesses their contribution is
set out on page 92.
74
Since her appointment in January 2014, the Chair has devoted a
significant proportion of her time to the role. In conjunction with the
SID, she regularly assesses her various commitments and continues to
manage her portfolio of other activities to ensure that she has sufficient
time to meet the requirements of the position. She currently holds two
other non-executive roles and two chairship roles in other publicly listed
companies; however, as announced, she will be stepping down as a
director (and chair) of JPMorgan American Investment Trust plc and as
chair of Witan Pacific Investment Trust plc before the end of July 2017.
All four of these directorships are with investment trusts which generally
require less time commitment than an operational company and which
provide useful and valuable investment insight to Board discussions. She
has a full attendance record at the Company’s Board meetings in 2016
and has also attended 21 Board Committee meetings in addition to
spending a substantial amount of time engaging with the business outside
formal Board and Committee meetings. The Board is satisfied that she
commits sufficient time to the business of the Company.
Succession Planning and Diversity
The Board has a responsibility to ensure that appropriate succession plans
are in place, both for the Board, the Executive Board and senior
management. Details of progress made in the year can be found in the
Report of the Nomination Committee.
Directors’ and Officers’ Indemnity and Insurance
The Company has taken out insurance covering Directors and officers
against liabilities they may incur in their capacity as Directors or officers
of the Company and its subsidiaries. The Company has granted
indemnities to all of its Directors (and Directors of subsidiary companies)
on terms consistent with the applicable statutory provisions. Qualifying
third party indemnity provisions for the purposes of section 234 of the
Companies Act 2006 were accordingly in-force during the course of the
financial year ended 31 December 2016, and remain in-force at the date
of this Report.
BOARD TRAINING
Induction
An appropriate induction programme is designed to enable all new
Directors to meet senior management, understand the business and
future strategy, visit various office locations and speak directly to
Partners and staff around the country, as well as being introduced to
other key stakeholders.
Continuing Professional Development
The Chair and Company Secretary also ensure the continuing professional
development for all your Directors, based on their individual requirements,
and a list of training carried out during the year is maintained by the
Company Secretary. Such training includes topical issues, visits to head
office and other locations to meet with staff and members of the Partnership
and attending seminars or other events taking place throughout the year. In
addition to this, ad hoc training is set up in the year to deal with individual
requests, external advisers are invited to deliver presentations and the
Non-executive Directors are able to attend seminars or conferences which
they consider will assist them in carrying out their duties. Non-executive
Directors are briefed on the views of major shareholders at Board meetings
and are provided with the opportunity to meet with shareholders, as
appropriate.
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The Chair is responsible for setting the Board agenda together with the
Chief Executive and the Company Secretary. Each year, the Chair and
CEO discuss the forward Board agenda for the year and identify
potential topics for strategy sessions and Board discussions. For each
Board meeting, all Board members are supplied with an agenda and pack
containing specific papers on particular strategic issues, as well as
reports and management information on clients, Partners, investment
matters, current trading, operational issues, compliance, risk,
accounting and financial matters. The Chairs of the various Board
Committees report on the activity of their Committees at Board
meetings and copies of Committee meeting minutes are included (where
appropriate) in the Board packs.
To ensure that there is sufficient time for the Board to discuss matters of
a material or more discursive nature, Board dinners are usually held
prior to most scheduled Board meetings which allow the Directors
greater time to discuss key topics with additional internal and
external participants.
In addition to the strategic discussion at Board meetings, the Directors
attend two separate Strategy Days each year. More information on the
discussions held in 2016 are set out on page 76.
Culture
The Board recognises the importance of safeguarding the Company’s
culture and regularly considers how both employees and Partners
demonstrate their commitment to the Group’s culture and reviews the
ways in which its prominence is maintained. The manner in which
employees and Partners can adhere to the culture is set out in a series of
‘Our Approach’ documents, including ‘What it means to be a member’.
The views of employees as to adherence to culture are sought in the staff
survey and the views of Partners are sought at various Partner meetings
throughout the year and through the Partner survey.
Company Secretariat
Directors have access to the advice of the Company Secretary at all
times, as well as independent professional advice, where needed, in
order to assist them in carrying out their duties.
Attendance at both Board and Board Committee meetings is set out below.
RELATIONS WITH SHAREHOLDERS
The Company maintains close relationships with institutional
shareholders through direct dialogue and frequent meetings, and meets
regularly with the Group’s brokers who facilitate meetings with investors
and their representatives.
During 2016, shareholder interaction included giving shareholder
roadshows, where the Chief Executive and the Chief Financial Officer
presented the Company’s full year and half year results to investors,
attending investor conferences, and holding Capital Markets days for
investors and analysts addressing a wide range of strategic and
operational topics, investor meetings and conference calls.
The Chief Financial Officer provides feedback to the Board on any
material topics raised in these meetings and Board members also receive
copies of the latest analysts’ and brokers’ reports on the Company, and
will attend shareholder and/or analyst meetings from time to time. The
Chair has also met with shareholders from time to time.
The Chair, SID and other Non-executive Directors are available for
consultation with shareholders on request and will be available after the
Company’s Annual General Meeting which will be held on Thursday 4
May 2017, further details of which are set out in the Notice of Annual
General Meeting. The Chair wrote to major shareholders in 2016, to
ensure they had contact details for her, the SID and the Chair of the
Remuneration Committee, and to explain the rationale for the changes
to the constitution put to shareholders at the 2016 AGM. The Chair and
Non-executive Directors also attended the Capital Markets briefing held
in October and each year attend a number of shareholder meetings with
the Executive team.
BOARD MEETINGS AND FOCUS DURING 2016
Meetings
During the year, six scheduled Board meetings and one ad hoc Board
meeting (held at short notice) were held. In addition, there were two
additional Board Strategy meetings, three ad hoc Board Committee
meetings and 21 meetings (in total) of the Board’s Non-executive
Committees.
MEMBER
Sarah Bates
David Bellamy
Iain Cornish
Andrew Croft
Ian Gascoigne
Simon Jeffreys
David Lamb
Baroness Wheatcroft
Roger Yates
BOARD AND COMMITTEE ATTENDANCE IN 2016
PLC BOARD
AUDIT
RISK REMUNERATION
NOMINATION
7 (7)
6 (7)
7 (7)
7 (7)
7 (7)
7 (7)
6 (7)
7 (7)
7 (7)
–
–
8 (8)
–
–
8 (8)
–
–
7 (8)
–
–
7 (7)
–
–
7 (7)
–
7 (7)
7 (7)
–
–
–
–
–
6 (6)
–
6 (6)
6 (6)
4 (4)
–
4 (4)
–
–
–
–
4 (4)
–
Note: The number in brackets denotes the number of meetings that the Board members were eligible to attend. All absences relate to ad hoc meetings held at short notice to deal with procedural matters.
In addition, the independent Non-executive Directors met without the Executive Directors but with the Chair three times during the year, and also
met once without the Chair.
Annual Report and Accounts 2016
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HIGHLIGHTS OF 2016 BOARD BUSINESS
As noted above, the Board agenda is set by the Chair working in conjunction with the Chief Executive and Company Secretary, and is also
coordinated with its Committees. A high-level plan for the year is established at outset, based on key themes from the Business Plan, but with
flexibility to allow for the inevitable unexpected developments.
More information about the work undertaken by the Board Committees is provided in reports following, but key activities for Board meetings in 2016 were:
Area of Focus
Brexit
Activity
Pre Brexit – Prior to the referendum, considered and discussed the potential risks and impacts of a vote in favour
of Brexit on our clients, our business and the wider industry. Post Brexit – Following on from a review at the
Risk Committee, discussed the implications of, and the Group’s position with regards to, the UK’s EU
Referendum, concluding that whilst the unexpected outcome might bring existing risks more sharply into focus,
the plans and approach had been appropriate and continued so to be, albeit in a period of uncertainty.
Client Administration
Received regular updates on the performance of the Group’s back-office administration systems, discussed the results
of the migration of the Unit Trust and ISA business to the Bluedoor platform and the plans for the development of the
Retirement Account and the eventual migration of the pensions and bond business to the platform.
Considered the results of a deep dive on the Company’s arrangements with providers of key back-office
administration systems and met with representatives to discuss challenges experienced and opportunities to
improve the quality of future service provision.
In conjunction with the Risk and Audit Committees, assessed and monitored risks in relation to third party
outsourcing arrangements.
Investment Management
Started the year with a presentation on ‘rebalancing’ and a long debate about the appropriate approaches for
clients, as well as a reminder of some of the practical realities of managing significant FUM. This was followed up
with a detailed session at the Risk Committee.
Then, later in the year, made use of a Board dinner to receive a presentation from members of the Investment
Committee and to consider, with independent members of the Investment Committee, the evolution of the
Group’s Investment Management Approach and the opportunities and challenges facing the Group in the future.
New Retirement Account
Proposition
Received a presentation on the new retirement account proposition, which also linked in with activity in the
Audit Committee which was reviewing the launch-readiness of the proposition. Updates as to progress in relation
to the launch of the Retirement Account were given at each Board meeting.
Client Proposition
Development
With the purpose of understanding the development of the proposition in the core UK market, the Board
received presentations on potential and planned new offerings to clients, including the extending of our
relationship with Metro Bank and the development of support for clients’ ‘inter-generational’ arrangements.
Strategic Development and
Planning
Following final regulatory approval the Board approved completion of the acquisition of Rowan Dartington in
March, securing our progression into the DFM market.
Together with both the Audit and Risk Committees, reviewed progress in Asia and considered further the
opportunities and practicalities of entering the Middle East.
The Board also approved a number of other smaller business acquisitions during the year, not least Technical
Connection, which enhanced the technical support available to Partners and clients.
The Board focused on particular strategic topics at two separate strategy days and, in addition to the other
strategic discussions mentioned in this section, the Board also considered the current situation in the markets and
with competition and reviewed the current medium term strategy.
IT Strategy
In an increasingly digitised age, the Board took an opportunity to consider the Group’s IT strategy and also the
impact of new technologies on the Group’s propositions.
The Board considered cyber-threats with a presentation building on review activity undertaken being made to the
Risk Committee.
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Partnership as a standard item on the agenda. In addition, the Board received presentations from two Heads of Business at a Board dinner. The Board
also received regular updates on presentations focusing on other key groups of stakeholders, including:
Area of Focus
Clients
Activity
The CEO’s report provides regular updates on how the business is delivering for clients.
Employees
This was given particular focus at the start of the year when, following completion of work analysing the Wealth
Account survey, the Board was able to review and consider the key messages emerging and the activity planned as a
result.
Later in the year, the Board received an update on our work in support of our clients, the delivery of client
outcomes and areas for future focus, which preceded a discussion on client outcomes and the importance of ‘value
added’ to our clients.
At September’s Strategy Meeting, the Board reviewed our approach to our people and the progress in relation to
our people strategy, which incorporated a specific focus on diversity. During the year, the Board considered
updates from the diversity working group established in 2015, and evaluated performance against relevant KPIs.
Also in September, the Board received the results of the latest employee survey and discussed the key themes
arising from the survey.
Community
During the year the Board received a report on the progress made by the Corporate Social Responsibility team and
discussed the focus for 2017.
The Board also heard about the achievements of the St. James’s Place Foundation in 2016 and was able to discuss
with the Foundation management their processes for, and controls around, the assessment of, and making of
charitable donations to, applicants. During this meeting it was also proposed that the Company should, for 2017,
offer (capped) double-matching on donations by members of our community to the Foundation, and this was
ultimately agreed as an appropriate celebration of the Company’s 25th anniversary, in the interests of maintaining
and supporting culture and binding the organisation together.
Shareholders
The CFO’s report provides a regular update on Investor Relations activity, and Board members also take up
opportunities to engage with shareholders.
Regulators
In addition, the Board welcomed a major institutional investor to meet with the Board and present their views and
expectations of the Group and overall views on governance and corporate performance.
Later in the year the Board was able to discuss the views and outlook of investors and the market on the Group with
Bank of America Merrill Lynch, advisers to the Company.
In addition to regular updates provided by the Client Risk Officer (CRO), and the regular monitoring undertaken
by the Risk Committee, the Board received updates on proposed changes to financial services regulations that were
likely to impact upon the Group, the Partnership and its clients.
Operating in a highly regulated environment, the Board is very conscious of the regulatory responsibilities which
complement the statutory requirements, and in order to ensure effective and appropriate engagement had regular
contact with the Group’s regulators during the year.
Members of the Board also met with the Supervisory Teams at the Company’s Regulators.
Annual Report and Accounts 2016
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Finally the Board undertakes a number of important of tasks on an annual basis, including:
Area of Focus
Business Planning
Activity
Undertook a review of the Company’s five year plan
Risk Management and the ORSA
At its September Strategy Day, considered in detail the Group’s medium term capital strategy.
At the start of the year, approved the Company’s Business Plan for 2016 and during the second half of the year
started the discussion about the approach and details of the 2017 plan.
In conjunction with the work of the Risk Committee, undertook a robust assessment of the principal risks facing
the Group, including those that would threaten its business model, future performance, solvency or liquidity and
approved the Group’s Risk Management Framework and Risk Appetite Statement (see the Risk and Risk
Management section of the Strategic Report and the report of the Risk Committee for more detail).
Building on the work of the Risk Committee, reviewed and approved the Own Risk and Solvency Assessment
(ORSA) required under Solvency II.
Received regular reports during the year from the Chief Risk Officer as to the key risks and issues facing the
Group together with an update as to how these were being mitigated.
Financial Reporting
Following on from the work of the Audit Committee, reviewed the financial statements and considered they were
indeed fair, balanced and understandable, and that they provided the necessary clarity required by shareholders to
understand sufficiently the business.
Following recommendations from the Audit Committee, approved the Half Year and Annual Reports, approved
an interim dividend and recommended a final dividend to shareholders. The notice of Annual General Meeting
was also agreed.
Following on from the work of the Audit Committee in overseeing an audit-tender process, approved a decision
to recommend to shareholders the reappointment of the external auditor, PricewaterhouseCoopers LLP.
Governance
Undertook a review of the governance across the Group and through the business lines and considered areas for
future enhancement.
Agreed the actions that should be taken in response to the results of the previous year’s Board evaluation and
receiving and discussing updates on progress at each Board meeting.
Worked to ensure, via its various reporting forums, that the Group complied with all of its obligations and
responsibilities under UK company law as well as the revised UK Corporate Governance Code.
Undertook an annual review and revision of the matters reserved to the Board and the terms of reference of
Board Committees.
Undertook an annual review of key Group policies and, where appropriate, approved revisions.
Board Effectiveness
Led by the Chair, undertook an internal Board effectiveness review of the Board, its Committees and the
individual Directors.
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During the year all the Directors identified and undertook relevant
training based on their individual requirements. They also attended
specific training sessions covering cyber security, regulatory updates,
enterprise resource planning and the support provided by key service
providers. In addition, during 2016, the Board Committees and
individual Directors identified a wide range of topics upon which they
particularly wished to receive further training and development. As a
result, individual and group sessions were held with third party advisers,
Partners and employees and Directors attended externally facilitated
events that were relevant to their own circumstances.
2016 BOARD EFFECTIVENESS REVIEW
The Board undertakes a review of its effectiveness each year, organised
by the Chair. At least once every three years this is facilitated by an
external party and, for 2015, it was conducted by Sean O’Hare from
Boardroom Dialogue.
The Board is pleased to report that good progress has been made in
relation to the four main areas on which we agreed to focus, namely:
• Enhancing Board engagement - additional informal meetings
•
involving Board members have been held, Non-executive Directors
are regularly updated on SJP communications events and there has
been increased engagement at shareholder meetings. The quality of,
and focus on, in depth discussions at Board meetings has continued to
be enhanced;
Improving meeting administration – the format and volume of
information presented to the Board has been streamlined. Also the
scheduling of certain Audit Committee meetings has been
rearranged, attendance by management at meetings has been
reviewed and the secretariat support for Board Committees and the
Executive Board has broadened significantly;
• Engaging further in Board development – Further briefing sessions
have been provided for Non-executive Directors on more complex
areas of the business and the induction process for Non-executive
Directors has been reviewed; and
• Building on existing long-term succession planning – This has
continued to be a key area of focus and there has been greater
visibility to the Board of succession plans below the Board and the
Executive Board.
In 2016, an internal review of the effectiveness of the Board and its
Committees was led by the Chair with the support of the Company
Secretary. Self-assessment questionnaires covering the performance of
the Board, the Committees and each individual Director, were sent to
the Directors. This was then followed by an open and full discussion by
the Board at the Board dinner in December 2016, reviewing what had
worked well during 2016, what had not worked so well and some areas
of focus for 2017. The Chair subsequently held individual meetings with
each Director and the key themes from these meetings, together with
the results of the questionnaire and the output from the Board dinner,
were then summarised and circulated by the Chair to the whole Board
prior to the Board meeting in February 2017. The Board agreed to focus
on the following areas:
• Setting out some clearer aspirations as to the appropriate amount of
time to be spent by the Board on supervisory matters and in depth
and major topics, with the consensus that more time should be
devoted to in-depth discussions of both internal and external matters.
Where appropriate, these conversations should be facilitated/
presented by external or internal experts;
• Some of the key strategic topics which should be included on the
Board Agenda for 2017 were agreed as were the forms of presentation
which would encourage the best discussions and mechanisms for
setting agendas to focus time appropriately;
• Having further development sessions for NEDs prior to strategic
discussions to enable them to be brought fully up to speed on specific
topics (particularly complex matters) before these discussions; and
• Further reviewing and focussing the NED training plan for the year.
Individual Director evaluation discussions focused on the contribution
made by the Director over the year and objectives to be set for 2017. In
addition, each Director was given the opportunity to raise any further
matters individually with the Chair. Training and development needs for
2017 were also discussed. The output from these reviews will be taken
into account in drawing up the Board effectiveness plan for 2017. The
Senior Independent Director led the Non-executive Directors in the
evaluation of the Chair.
By order of the Board
Elizabeth Kelly
Company Secretary
27 February 2017
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REPORT OF THE AUDIT COMMITTEE
ROLE OF THE COMMITTEE IN SUMMARY
• To be responsible for the accuracy and integrity
of the Group’s financial statements;
• To oversee the work of the external auditor and
consider its reports;
• To monitor the work of the Internal Audit
function and ensure its effectiveness;
• To monitor the effectiveness of the systems of
internal control and risk management;
• To review, and where appropriate refer on to
the Board, any significant control weaknesses
or failures; and
• To report to the Board on how the Committee
has discharged its responsibilities.
AUDIT COMMITTEE MEMBERS
Simon Jeffreys (Chair)
Iain Cornish
Roger Yates
Simon Jeffreys
Chair of the
Audit Committee
I am pleased to present the report of the Audit
Committee of St. James’s Place plc for the year ended
31 December 2016.
As shareholders will be aware, the Audit Committee has
numerous obligations to the Board and shareholders,
including assisting the Board in its monitoring of both the
financial reporting process, and the effectiveness of the
Company’s internal control, internal audit and risk
management systems.
The Committee is also responsible for monitoring the
statutory audit of the Annual Report and the consolidated
financial statements, and the independence of the Group’s
statutory auditor, PricewaterhouseCoopers LLP. In
carrying out these duties, the Committee must maintain
an effective relationship with the external auditors and
pay due regard to any findings and conclusions resulting
from independent inspections of their work, as well as the
results of our internal evaluation of the effectiveness of
prior year audits.
A further duty of the Committee is to provide advice to
the Board that the Company’s financial reports, taken as a
whole, provide a fair, balanced and understandable
assessment of the Company’s financial position and
results, and that they provide the information necessary
for shareholders to assess the Company’s financial position
and performance, business model and strategy.
These regular activities keep the Committee busy, but
each year brings its own particular nuances and 2016 was
no exception.
• An audit tender process is never undertaken lightly,
and so we were pleased to have completed it
successfully.
• Client assets is currently a particularly hot topic in the
industry, and the changes in regulation have increased
both the focus and pressure. This is a challenge which
appears to be getting ever more onerous.
• More generally, the Committee set itself a focus on
ensuring good practice around systems
implementation, particularly on ensuring controls are
in place before go live. This was particularly relevant
this year when there was considerable investment in
new systems and processes.
This report sets out how the Committee has discharged
these, and its other duties, through 2016.
Simon Jeffreys
On behalf of the Audit Committee
27 February 2017
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Committee membership is unchanged in the year and also as at the date of this report. The Committee comprises three independent Non-executive
Directors and the Board is satisfied that the Committee as a whole has the experience and qualifications necessary to successfully perform their roles,
noting in particular that the Chair of the Committee is a qualified accountant and former auditor, and other members also have recent and relevant
experience (being members of audit committees of other companies) and expertise in the financial services sector.
Details of attendance of Committee members at the meetings of the Audit Committee throughout the year can be found on page 75. Additional
invited attendees to the meetings during the course of the year included the Chair, the Chief Financial Officer, the Director of Internal Audit, the
Chief Actuary and other members of the Finance, Internal Audit and Controls teams, as well as representatives from the external auditors,
PricewaterhouseCoopers LLP.
COMMITTEE ACTIVITIES DURING 2016
Financial Reporting
The Committee reviewed both the Annual and Half Year Reports and Accounts, together with the associated reports from the external auditors. The
Committee received regular updates on the preparation of the Annual Report and started discussion in September on key developments from the prior
year, including material assumptions, key judgements, changes in generally accepted accounting practise (‘GAAP'), accounting policies and
disclosures, and significant events and activities during the year. The discussion included reflection on both positive developments and challenges
during the year. The topics discussed were driven both by consideration of risk of mis-statement of the financial statements, and also by assessment of
the scale of risk in the business.
Given the nature of our business, there are certain subjects which are always relevant and important, particularly valuation of assets and actuarial
reserving assumptions. Other topics reflect the business experience in the year. During 2016 the activity included:
Area of Focus
Activity
Fraud in Revenue Recognition
During the course of its regular work, the Committee reviewed the relevant policies and received regular
reports from management and internal/external audit on the controls.
Management Over-ride of Controls
Asset Valuation (particularly
property and derivatives)
Actuarial Reserving Assumptions
(including persistency assumptions in
relation to EEV and Solvency II
reporting)
Operational
Readiness Prepayment Asset
Re-assessment of Fair Value of
Insurance Bond and Pension Business
Much of the work of the Committee was directly or indirectly focused on management and controls. This
included review of systems of controls; reports on the self-assessment activity; and external review (which
included reviews undertaken by our co-source partner to Internal Audit).
During the year the Audit Committee received presentations from senior management on a number of
topics relevant to asset valuation, including systems and controls (with particular focus on property and
derivatives), the process of audit of Unit Trusts, and updates on the results of the statutory unit-trust audits
(‘UT Audit’) (split into two exercises in September and March). The Committee also received
presentations from the State Street business risk management team, outlining the processes and controls
supporting the custody and valuation services they provide. As a result the Committee was able to conclude
that the processes were appropriate and would provide reliable financial information.
Oversight of the ‘realistic’ basis assumptions was particularly extensive in the first half of 2016 due to the
additional focus engendered by the implementation of Solvency II (see more on Solvency II reporting
below).
As part of this work, and at the request of the Audit Committee, management developed a new Assumption
Setting Policy focused on making the most of the objective information available.
When it came to the changes in assumptions required for year-end 2016, the work of the Committee
earlier in the year meant the process was improved and more efficient.
During the year the Committee noted the increase in the operational readiness prepayment as work
progressed on the back office infrastructure project. At both half year and year end the Committee
reviewed the assessment of the savings which were expected to accrue from the associated changes in tariff
costs to gain assurance over the appropriateness of the carrying value.
At the year end the Committee considered the reassessment of the investment contract benefit and the
revised treatment of part of the liability as Deferred Income. The Committee noted that the revised
approach had no overall impact on the net assets, nor on emergence of profit, but recognised the benefit of
aligning the liability with the client encashment value. Following discussion the Committee approved
adoption of the reassessment.
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Area of Focus
Activity
APMs – Underlying Profit, EEV and
Cash Result
As part of the preparation for year end, the Committee considered the Company’s approach to APMs.
The Committee noted and supported the increasing focus on the Cash and Underlying Cash results, and
the move to present cash emergence from the business in a way that would be consistent with other
wealth managers.
Launch of the Retirement Account
on the Bluedoor administration
system
Segmental Reporting
The Committee discussed the more succinct EEV reporting, noting the importance of EEV in relation to
bonus schemes, but ultimately agreed a reduced level of assurance for EEV recognising development in
reporting practice in the industry.
The Committee specifically considered the guidance from ESMA and the FRC in relation to APMs when
considering the analysis presented in the Report and Accounts and approved the inclusion of a Glossary
of APMs.
The Committee received updates from management (and Internal Audit) through the year about project
progress, and assurance about the test strategy and go/no-go governance process for the product launch.
The Committee endorsed management’s approach to mitigating launch risk through use of a low key pilot,
to a limited group of Partners initially, with a controlled ‘ramp-up’. The new system was successfully
launched in October with ramp-up progressing steadily and full-roll-out expected in Q1 2017.
During the year the Committee reviewed the approach to segmental reporting as determined by the Board.
Increasingly the business is managed as a single vertically integrated Company and it is on this basis that
information is reported to the Board. Therefore whilst the Committee acknowledged that the prior year
reporting reflected a useful analysis of the accounting information, it was agreed with the Board that the
reporting should be simplified to reflect just a single unit in the financial statements.
Acquisition of Rowan Dartington,
Technical Connection and Other
IFAs
Following the completion of the Rowan Dartington and Technical Connection acquisitions, and a number
of other transactions, the Committee reviewed the consolidation of the additional entities and reporting of
the transaction costs and intangibles.
Charge Reviews in Legacy Business
Cohorts
Having been informed of the intention to review charges on the portfolios, the Committee requested
updates to monitor that progress was satisfactory.
Capital Management
ERP System Implementation
Having taken on responsibility for oversight of Group Capital Management, the Committee requested
a regular update on capital management in the Group should be included as part of the standing
agenda. The Committee also reviewed the systems for managing capital and considered forecasts of
capital requirements.
In the second half of the year, the Company implemented the first elements of a new Enterprise Resource
Planning (ERP) system, principally a new general ledger. Given the significance of this project the
Committee received presentations on the background and purpose of the project, and also updates on
progress and governance, including insight into the project from the external auditors. The Chair of the
Committee was able to share his experience of similar processes elsewhere, and by the end of the year the
Committee had received reassurance from management, as well as internal and external audit, about the
fitness of the new system to support year-end reporting.
Year-end Reporting Project
As every year, the Committee engaged with management in a review of the annual reporting processes,
encouraged evolution to reflect the growth and development of the Company.
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Solvency II. During the first half of the year the Committee rigorously reviewed the new reporting being produced. More detail on this work, and
other developments considered by the Committee, are summarised in the table:
Area of Focus
Solvency II
IFRS developments
Activity
Following implementation of Solvency II in January 2016, the Committee undertook an extensive review of
the initial reporting stages, including, in particular, the incorporation of an initial assessment in the prior
year Annual Report and Accounts. This was followed by review of Day 1 and Q1 regulatory submissions in
May. The Committee considered an annual report from the Actuarial Function and noted the developments
proposed, requesting updates on progress through the year.
In the second half of the year, the Committee considered Solvency II as an integral part of the year-end
reporting process for the first time, including consideration of the SFCR reporting requirement.
As part of the standing agenda, the Committee had requested regular updates on developments in Financial
Reporting, particularly IFRS. The standards which are changing and which have the potential to impact the
Company include IFRS 9, IFRS 15 and IFRS 16. The Committee was provided with assessments of the
likely impact, which were used to support the commentary included in the Annual Report and Accounts
on page 131.
EU Audit Regulation and Directive
The UK implemented the EU Audit Regulation and Directive during the year. The Audit Committee
discussed and reviewed compliance with the new rules with the external auditor, and also participated in
FRC initiatives to support implementation of the new guidelines.
‘Fair, Balanced and Understandable’ Opinion
The UK Corporate Governance Code requires the Board to give its opinion as to whether it considers the Company’s Report and Accounts, taken as a
whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and
performance, business model and strategy.
To aid the Board, the Audit Committee carried out a formal review of the Annual Report and Accounts in relation to this requirement, including a
consideration of the results of activities and information described above. In particular, the Committee reflected on the following questions:
• Does the report present the whole story, including challenges and issues faced as well as Company achievements?
• Does the report achieve consistency between the financial statements and the narrative sections?
• Are appropriate performance measures included and clearly explained?
• Are key judgements and estimation uncertainties in the financial statements appropriately explained and are they consistent with the Audit
Committee report and the risks the external auditor addresses in its report?
• Does the overall document have a clear and cohesive structure?
•
• Are explanations of business models, strategies and accounting policies clear?
Is the report readable and are the important messages highlighted appropriately?
Following this review, the Committee was able to advise the Board that the Company’s Annual Report and Accounts for the year ended 31 December
2016 are indeed fair, balanced and understandable.
External Auditor
The Committee has responsibility for the work of the external auditor of the Company.
The auditor attended all Audit Committee meetings, and reported on their work. The Committee also arranged for regular private meetings with the
external auditors. The Chair of the Committee also met regularly with the Senior Statutory Auditor both to receive updates on progress and also to
discuss any private matters.
The Audit plan was presented, discussed and agreed with the Audit Committee at the October meeting, setting out the activity planned and the major
risks identified. Regular progress updates were presented at the November and January meetings, with a full report presented at the conclusion of the
audit in February. The Committee discussed the findings from the work under the headings of the major risks as set out in the original audit plan and
members applied their understanding of the scope of work, findings, judgements and conclusions of the external audit in their evaluation that the
financial statements had been properly prepared.
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Particular areas that the Audit Committee requested the external auditor to consider as part of their audit work included:
Area of Focus
Activity
Client Assets (CASS) audit
The Committee requested additional information from PwC regarding progress with the CASS Audit, not
least due to concerns about the reporting timetable.
Third Party Administration
Outsource Providers
Given the importance of service levels, and with the business having experienced a short term issue early in
the year, the Committee requested the auditors focus particular attention on the outsource provider.
EEV
Following the implementation of Solvency II the Committee asked to be kept informed of developments in
reporting in the industry, particularly EEV.
Presentations on Topical Issues
During the year the Committee requested support from the external auditors as part of the audit work,
including specific presentations on topical issues. In particular a number of members of the Committee
discussed presentations on
• Developments in the Wealth Management Industry including Robo-advice; and
• A demonstration of the HALO proprietary audit software, which was used for the first time during the
year to support both the UT audit and the Group audit, and facilitates complete coverage for verification
of asset prices.
During the year the Committee again reviewed the policy on Auditor Independence, in light of the final Ethical Standard published by the Financial
Reporting Council (FRC), ready for adoption in 2017. The new policy makes clear the types of non-audit work which are prohibited, and our robust
policy of only engaging our auditor for limited non-audit work, where there is no risk of compromising independence, and where it is appropriate to
do so. Since there has been some ambiguity about the treatment under the new EU Audit Regulation and Directive of audit work on the Group’s Unit
Trusts, the Committee was pro-active in discussing this point with industry experts and the FRC. Ultimately, the Committee was particularly
mindful of the engagement of PwC to audit the Group’s Unit Trusts and of the potential for conflict. Due consideration has therefore been given to
full disclosure of the relationship in the Report and Accounts, and to ensure appropriate safeguards are in place.
The policy also sets out St. James’s Place’s commitment to regular rotation of the auditors, taking into account both the EU and Competition and
Markets Authority rules. In particular, the Committee is committed to reviewing the performance of the auditor every year, and considering whether
a change is required.
The Committee used their experience and the following additional information to assess the effectiveness, independence and objectivity of the
Company’s external auditor:
Area of Focus
Activity
Auditor Effectiveness and Quality
• The consideration given of the annual review by the FRC of the main auditing firms;
• The Audit Quality Review report on PricewaterhouseCoopers LLP specifically;
• The experience and knowledge of the team, (with due regard to the requirement for regular rotation of
audit team members); and
• Results of an internal survey of auditor performance.
• Review of the nature and extent of other ‘non-audit’ work undertaken to confirm compliance with our
policy;
• Review by SJP to confirm no links or investments with the Company by the audit team;
• Regular rotation of audit team; and
• Appropriate considerations when recruiting a former audit partner.
Detailed information on the break-down of fees paid to our external audit firm is provided in Note 5 of the
financial statements on page 141. Included in the total fees paid to PwC of £1.6 million (2015: £1.5 million)
is £0.1 million (2015: £nil) of fees in relation to a cyber security review. In this instance the Committee
determined PwC were best placed to provide this non-audit service.
Auditor Independence and
Objectivity
Level of Fees
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underlying the Company’s financial statements.
PwC had originally been appointed as auditor in 2009, and in the best interests of shareholders, (and as anticipated when we last reported) the audit
was tendered during 2016 in respect of the 2017 year end audit. The process included the following steps:
• An initial review of the whole market assessed the suitability of available firms and the review was used to identify a short list of audit firms with
the expertise and capacity required;
• The Audit Committee established an internal sub-committee to manage the process, chaired by the Chair of the Audit Committee and including
the Chief Financial Officer. Each member of the sub-committee disclosed their interests before a formal process was established to identify and
manage potential conflicts of interest that existed between selected audit firms and the Group;
• Four short-listed audit firms were invited to express an interest in tendering and objective criteria were established to ensure a thorough and
consistent process was followed when assessing the tender proposals. The criteria were weighted to take account of their relative importance to the
overall outcome and included the audit firms understanding of the Group and its market, its technical capability and the quality of its employees. A
broad range of factors were identified under each criteria to assist with the assessment process;
• Following the withdrawal of two of the short-listed audit firms due to their own independence and capacity issues, the remaining candidates PwC
and Deloitte were asked to submit an initial summary proposal. These proposals were assessed by reference to the criteria referred to above and
material differences in the proposals were identified;
• Following consideration of the proposals, and assessment, the sub-committee recommended that PwC be retained as the Auditor. Both firms
demonstrated they had the technical capabilities and people to deliver a high quality audit. However, due to the nature of SJP’s business, achieving
independence can be challenging and in this context PwC was able to achieve (continued) independence from the Group with less disruption and
impact on the SJP community and business; and
• The Audit Committee considered a report setting out the sub-committee’s consideration of both firms and endorsed its sharing with the Board,
together with the recommendation that a resolution be put to shareholders at the next AGM, proposing the reappointment of PwC as the
Company’s external auditor.
Having undertaken a tender process in 2016 (in respect of the 2017 audit), PwC’s appointment as the Group’s external auditor meets the relevant
requirements and recommendations relating to the tenure of appointment set out in The Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 (the ‘Order’), Regulation (EU)
No 537/2014 and the FRC’s revised Ethical Standard June 2016.
Having confirmed the proposed reappointment of PwC we will need to change our audit firm by no later than the 2027 audit. The slightly different
rules in Dublin, which limit auditors to a maximum of ten years mean that we will have to change our auditor in Dublin for the 2019 audit, although
we will ensure appropriate arrangements for the new auditor to liaise with the Group auditor for purposes of Group reporting.
In relation to the service provided by PwC, having rotated our Senior Statutory Auditor to be Jeremy Jensen in 2014, we are expecting rotation of this
key role by 2019.
Internal Audit
The Committee is responsible for monitoring the work of the Internal Audit function and its effectiveness. The Director of Internal Audit has regular
one-to-one meetings with the Chair of the Audit Committee and, if necessary, the Board and is accountable to the Audit Committee.
During the year the Committee reviewed and approved the Audit Charter, as required by the standards of the IIA (Institute of Internal Auditors). The
Internal Audit function also presented periodic reviews of the skills and capabilities within the team. The Internal Audit function reviewed and
reported on the performance of the co-sourcing agreement with Deloitte LLP, which has been an effective relationship. Co-sourcing provides
specialist expertise and additional resources to maintain and enhance the level of assurance, provided to the Audit Committee.
The work plan for the Internal Audit function was agreed at the start of the year, and progress was monitored through the year, with particular focus
on whether the team had the necessary resources to implement the plan in a timely manner at each of the quarterly review points for plan coverage.
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Risk based Internal Audit work during the year has focused on key control priorities identified at the planning stage with the Committee, these being:
Area of Focus
Activity
Strategic Initiatives and other Major
Change Projects
• Administration system – continued coverage of the programme to upgrade the Group’s back-office
administration systems;
• ERP – review of the implementation of the new general ledger; and
• Rowan Dartington – Assessment of the acquisition process and integration work.
Operational Integrity and
Technology
Investment Management Approach – processes and controls;
Information technology – review of data quality;
•
•
• Client experience;
• Client money; and
• Treasury processes and controls.
Third Party Risk Management
• Management and oversight of contracts in relation to material outsourcers, particularly IFDS and
Syntel;
• Business continuity planning and disaster recovery arrangements at key third parties, in particular IFDS
and Capita; and
• General audit coverage of other key third parties.
Governance and Risk Management
• Executive Committee and Board management information; and
• Financial Crime.
Regulation and Compliance
• Business assurance file checking; and
• Partner supervision – structure and controls.
In addition, all audits addressed the themes of the robustness of the operation of control self-assessments (as outlined in the following section), process
efficiency and risk and control culture.
When receiving regular updates from the Director of Internal Audit in relation to the results of completed audits, the Committee paid careful
attention to any areas where the audit led to remedial action being recommended. The actions arising were monitored to ensure completion. In
practice, 92% (2015: 86%) of actions were completed in line with the original agreed deadlines, with the rest expected to be completed by
appropriately agreed revised deadlines. No second revisions of deadlines were permitted during the year.
System of Internal Control
The Board has overall responsibility for the Company’s system of internal controls. In practice, management will design and implement controls, and
the Board will ensure management discharges this responsibility. The Audit Committee and Risk Committee work closely together to ensure controls
mitigating major risks are appropriately designed and operating effectively. The Risk Committee therefore provides regular updates to the Audit
Committee on the status of risk management in the Group.
The Group adopts the ‘three lines of defence model’ as the design basis for its internal control framework and the process for reviewing the
effectiveness of the framework takes account of this model as follows:
Area of Focus
Activity
First Line – Operations
• Control Self-Assessment attestation from management;
• Attestation by significant third party suppliers of outsourced administration services; and
• CEO attestation to the Audit Committee on the integrity of first line operations.
Second Line – Risk Management and
Controls
• Control assessments:
– ‘Risk control’ self-assessments;
– Compliance monitoring; and
– Business assurance ‘thematic reviews’.
• Review of the control self-assessment system led by the Controls Manager at half year and year-end;
• CEO attestation to the Audit Committee on the second line, risk management functions; and
• Reports from the Risk Committee.
•
•
Internal Audit ongoing assurance activity, including reviews by external organisations, managed by
Internal Audit; and
Internal Audit – Internal Control Annual Evaluation report as outlined below.
Third Line – Audit
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In summary, the Chief Executive has ultimate responsibility for the first
two lines of defence and uses his knowledge of the business, and that of
his senior management team, to provide an opinion on the control
systems. Separately, Internal Audit provides an independent opinion (the
Internal Control Evaluation report), from a third line perspective, based
on Internal Audit activity conducted throughout the year and Internal
Audit’s further analysis and appraisal of the outputs from a wide range of
other sources.
These sources of assurance assist the Audit Committee in completing its
annual review and enable the Audit Committee to attest on behalf of the
Board that it has been able to properly review the effectiveness of the
Company’s system of internal control in accordance with the 2014 FRC
Guidance on risk management, internal control and related financial and
business reporting. The Audit Committee did not identify any
‘significant failings or weaknesses’ and it has ensured that corrective
action is being taken on matters arising from the review.
Other Activity
The Chair of the Committee acts as a key contact for the Whistleblowing
Policy and is the whistleblowers’ champion under the Senior Insurance
Managers’ Regime. The Committee reviewed whistleblowing
arrangements during the year and concluded that the arrangements were
adequate and consistently in-force across the entire Group.
The Audit Committee is responsible for carrying out the function required
under the FCA’s Disclosure and Transparency Rule DTR7.1.3R.
Committee Effectiveness
The Committee’s effectiveness and its interaction with the Board and
other Committees was evaluated as part of the overall assessment of the
effectiveness of the Board and its Committees, details of which can be
found on page 79. Having considered the output from that assessment
and reviewed the effectiveness of the work undertaken by the
Committee against its terms of reference, the Committee concluded that
it continued to perform effectively and there were no material areas of
concern.
The terms of reference, which were revised in 2016 and which set out
the Committee’s role and authority, can be found on the corporate
website at www.sjp.co.uk.
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REPORT OF THE RISK COMMITTEE
ROLE OF THE COMMITTEE IN SUMMARY
• To foster a culture of effective risk identification and
management throughout the Group;
• To provide leadership, direction and oversight of the
Group’s management of risk;
• To review the principal risks affecting the Group and the
ways in which the risks are controlled and mitigated;
• To provide oversight of the Own Risk and Solvency
Assessment process; and
• To report any material areas of concern to the full Board.
RISK COMMITTEE MEMBERS
Iain Cornish (Chair)
Simon Jeffreys
Baroness Wheatcroft
Roger Yates
Iain Cornish
Chair of the
Risk Committee
Fostering a culture of effective risk management is of the
utmost importance to the Directors. The Risk Committee is
a sub-committee of the Board, the remit of which is to assist
the Board in developing this culture, by providing leadership,
direction and oversight of the Group’s management of risk.
• Receiving presentations from members of senior
management about their business areas and reviewing
the management of the associated risks; and
• Recommending to the Board the appointment of the
new Chief Risk Officer.
In carrying out this remit, the Committee’s key activities in
2016 included:
• Overseeing the implementation of the Solvency II
Directive alongside the Audit Committee;
• Monitoring and reviewing the effectiveness of risk
management in the Group and the risk
management functions;
• Reviewing the principal risks and uncertainties
affecting the Group as well as the risk appetite;
• Considering reports produced by the Group’s Risk
and Compliance functions, to monitor the ongoing
compliance interaction with the Group’s regulators;
The following report sets out in more detail the
Committee’s key activities in 2016.
Iain Cornish
On behalf of the Risk Committee
27 February 2017
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All members of the Risk Committee have considerable financial, risk
and/or other relevant experience and are independent Non-executive
Directors. There have been no changes to the membership of the Risk
Committee during 2016. Details of attendance at the meetings of the
Risk Committee throughout the year can be found on page 75.
Regular attendees at Committee meetings during the year included the
Chief Executive, the Managing Director, the Chief Risk Officer, the
Chief Technology Officer, the Joint Chief Operating Officer (Client) and
the Corporate Actuary. As Chair of the Board, Sarah Bates attended all
Risk Committee meetings during 2016.
COMMITTEE ACTIVITIES DURING 2016
During 2016, the Committee has overseen further developments to the
reporting of the key risks and has worked to ensure appropriate coverage
has been given to each of these risks at Committee meetings. An
important element of this work has been the consideration of reports
from senior executives and external consultants on specific topics,
including key corporate initiatives. The Committee spent time
discussing management of the associated risks, and provided challenge to
the executives responsible. Topics considered in 2016 included:
• Cyber-security threats and the Group’s defences – The Committee
considered the Group’s information security risk appetite statement,
developments in controls relating to people, processes and
technology, and future plans in this area of increasing risk;
• Brexit – The Committee discussed the short-term and potential
longer-term implications of the result of the EU referendum, in
particular noting that the heightened level of uncertainty brings
existing risks more sharply into focus, but that the outcome does not
appear to pose any fundamental threats to the business;
• The Group’s financial crime prevention controls – The Committee
considered the controls in place in respect of higher risk and
politically exposed clients and received an update on training and
awareness raising activities, including in respect of whistleblowing
procedures and anti-bribery and anti-corruption policies;
• The Group’s Investment Management Approach – The Committee
considered developments to the fund range, giving particular
consideration to current economic conditions, and the internal
governance processes in place to manage and mitigate risks in this
important area. In a separate discussion, the Chief Risk Officer of the
newly acquired Discretionary Fund Management business, Rowan
Dartington, attended a meeting to present on the risks in this part of
the business, and the Committee discussed progress in aligning risk
management across the businesses;
• Partner recruitment and advice – The Committee considered the
risks surrounding the recruitment of Partners and advisers, the
controls in place in respect of quality of recruits, and the
sustainability of continued growth. In a separate discussion, the
Committee considered the controls in place to verify the suitability
of the advice given by Partners to clients, and received an update on
developments in the technology provided to support the
documentation of advice;
• Operational developments – The Committee received updates on the
progression of the project underway to implement the Group’s new
administration platform and considered the internal governance
structures and management of risks associated with the launch of the
new Retirement Account;
• Outsourcing – The Committee discussed the nature of governance
and oversight of third party administrators, including the resilience
of key outsourcing partners. The Committee also considered the
controls in place to ensure correct handling of client money,
discussing changes in regulations and operational changes resulting
from the migration of Unit Trust and ISA business to the new
administration platform;
• Client complaints – The Committee discussed the nature of client
complaints, the way in which these are handled, resolved and
reported, and the extent of management action taken as a result of
complaints received;
• Remuneration – The Committee discussed the potential risks
associated with Partner and employee remuneration and the ways in
which these are mitigated; and
• Asian subsidiaries – The Committee considered the management of
key risks within the Asian subsidiaries, the development of
relationships with regulators, and the priorities for the Asian business
in future years.
This gave the Committee the opportunity to ensure that risks are being
addressed and to test that the culture of risk identification and
management is embedded.
One of the key areas of focus for the Committee is the Own Risk and
Solvency Assessment (ORSA). The Committee set the strategy for the
performance of a single, Group-wide, ORSA and had continued
involvement in this process throughout the year. In particular, the
Committee discussed the underlying basis and assumptions, the nature
and results of stress and scenario tests, the assessment of operational
risks, key risk management policies and the content of the ORSA report
and viability statement.
Oversight of the risk management framework is key to delivery of the
responsibilities of the Committee. Further information about this
framework can be found on pages 48 to 50. The risk management
framework and associated documents are subject to annual review and,
during 2016, the Committee participated in an external review of the
framework. The Committee discussed the resulting recommendations,
which chiefly related to the documentation and presentation of risks.
Consequently, the presentation of the Group’s Top Risk List has been
redeveloped, although the risks included remain largely unchanged. The
risks have been mapped to the Basel framework and to the bottom-up
risk assessment process, to provide assurance that the list provides
comprehensive coverage. This list, and the set of indicators used by the
Committee to regularly monitor performance against risk appetite, have
both been regularly reviewed by the Committee during the year and
both will be subject to further development during 2017 as part of an
ongoing cycle of improvement. Enhancements have also been made to
the capture, reporting and use of internal loss data.
The Committee is supported in its oversight of the risk management
framework by Risk Management teams at Group and local levels, and the
Committee spends a significant proportion of its time receiving updates
from the Chief Risk Officer and the Heads of the Group Risk Division,
who have direct access to the Chair of the Risk Committee should the
need arise. During late 2015 and early 2016, members of the Committee
were involved in the process of recruiting a new Chief Risk Officer and
met with Chris Gentle during this process. The Committee then
recommended his appointment to the Board.
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The Committee is also able to review and provide challenge on the
implementation of risk mitigation in the business. As part of this
oversight, the Committee also continued to receive and review reports
from a number of Executive Committees and other functions in the
Group including:
• Reports relating to relevant topics discussed at Group Risk Executive
and Finance Executive Committee meetings, where executive
oversight is given to the appropriateness and observance of the
Group’s Risk Appetite;
• Reports produced by the Compliance Oversight and Business
Assurance functions in respect of thematic reviews carried out into
specific areas of the Group’s business;
• Reports from the Chief Risk Officer on the effectiveness of the
Group’s risk management systems; and
• An annual report from the Money Laundering Reporting Officer on
the anti-money laundering, bribery and fraud activities taking place
within the Group.
Since most of the activity within the Group is regulated, the Committee
also considered regular updates on the Group’s ongoing interactions with
regulators, including the Prudential Regulation Authority, Financial
Conduct Authority, Central Bank of Ireland, Monetary Authority of
Singapore and Office of the Commissioner of Insurance in Hong Kong,
and the wider regulatory interactions with firms in the financial services
marketplace. This allowed it to monitor ongoing compliance with
regulation.
An internal review of the effectiveness of the Committee was also
carried out and no material issues were highlighted in respect of its
operation.
The terms of reference, which were revised in 2016 and which set out
the Committee’s role and authority, can be found on the corporate
website at www.sjp.co.uk.
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Committee
REPORT OF THE NOMINATION COMMITTEE
ROLE OF THE COMMITTEE IN SUMMARY
• To review regularly Board and committee composition and
structure;
• To identify, report on and recommend for Board approval
suitable candidates for appointment to the Board;
• To appropriately consider succession planning for Directors
and senior management; and
• To report to the Board on the work of the Committee.
NOMINATION COMMITTEE MEMBERS
Sarah Bates (Chair)
Iain Cornish
Baroness Wheatcroft
Sarah Bates
Chair of the
Nomination
Committee
The Nomination Committee plays a crucial role in
ensuring that the structure and composition of the Board
(including the skills, knowledge, experience and diversity)
is appropriate to continue to lead the Group and achieve its
strategic objectives. Another critical aspect of the role of the
Nomination Committee is considering succession planning
for the Board and the Committee has devoted significant
time to this activity during the year.
The Committee must also ensure that the skills and attributes
necessary at those levels immediately below the Board are
also constantly reviewed, in order to ensure that there is
an appropriate and talented succession pipeline. This has
continued to be a key area of focus as described in this
report.
Overseeing our approach and progress in relation to diversity
is another aspect of the Committee’s work and progress in
this respect is set out below.
Sarah Bates
On behalf of the Nomination Committee
27 February 2017
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The Committee is still of the opinion not to adopt the 25% target
proposed by the Davies Report for female representation for the Board in
2017, noting that the level of female representation on the Board is still
close to satisfying the target at the present time and that the Company
has a female Chair. We also note that a number of companies who have
achieved this level, have a rather different balance between executives
and non-executives on the board. As is often observed, there are fewer
women in executive ranks than might be expected. However, we are
trying hard and, as part of our current recruitment processes, we have
sought to discuss with potential and appointed headhunters how they
identify candidates from a diverse pool of people. We have also
consciously sought to avoid setting criteria which unwittingly and for no
purpose exclude any particular group. It is worth noting that the general
change in attitudes towards the number of board appointments held
probably reduces the experience which future candidates will have, but
perhaps increases the number of potential candidates.
The Committee has reviewed detailed analysis as to the significant other
commitments of the Non-executive Directors and how much time they
were spending on the Company’s business and affairs. The Nomination
Committee and the Board are satisfied that the Non-executive Directors
are able to, and do, commit sufficient time and attention to the
Company’s business. In addition, the Committee reviewed and approved
an assessment of the independence of each of the Non-executive
Directors, concluding that each of the Non-executive Directors
demonstrated that they remained independent in character
and judgement.
The terms of reference setting out the Committee’s role and authority,
and which were reviewed in 2016, can be found on the corporate website
at www.sjp.co.uk.
*These appointments are subject to regulatory approval.
COMMITTEE MEMBERSHIP DURING 2016
The members of the Committee remained unchanged during 2016 and
up to and including the date of this Report. Details of attendance at the
meetings of the Nomination Committee throughout the year can be
found in the Corporate Governance Report.
COMMITTEE ACTIVITIES DURING 2016
As set out in the Chair’s Report, we have undertaken the appointment
processes for our new Chief Executive and Chief Financial Officer,
which were led by the Committee*. These appointments are the result of
careful succession planning for these roles over the last few years in the
context of our overall strategy and our views of the nature of those roles
as the Group develops and the characteristics required for them. We
requested external market surveys for both roles and considered the
benefits and risks to the Group and its stakeholders of making these or
other appointments.
Assessing the appropriate composition and structure of the Board and its
various Committees is an ongoing process and this has been regularly
considered and discussed during the year. Of particular importance was
the assessment of the existing skills, knowledge, experience, diversity
and independence of the Board to ensure that these remained
appropriate both now and in the future, as well as considering whether
there was any requirement to draw in additional skills and experience
from elsewhere. It should be noted that half of the Board (excluding the
Chair) is comprised of independent Non-executive Directors.
The Committee has not felt it necessary to make any recommendations
to change the structure of the Board or its Committees during the
current year although it has been giving detailed consideration to its
plans for the future in order to plan for its own refreshment and
succession in the medium and long-term.
The skills review mentioned above formed the basis for a continued focus
this year on succession plans for the Board, Executive Board and senior
management. Excellent progress has been made in this respect and the
further refinement of the responsibilities of the Executive Board, the
development of internal talent and recruiting external executives, where
appropriate, has ensured the continued development of a platform for
future succession. There has also been a focus by the Board on the
appropriate people strategy (referred to on pages 18 and 115). Succession
planning will continue to evolve during 2017.
During the year, the Committee has concentrated on diversity in a
number of senses within the Group and the Partnership, receiving
regular updates as to developments in this respect. A number of
measures have been identified to make further progress in ensuring
appropriate female representation and this work will continue
during 2017. The Group is quite diverse in other senses, in terms of
regional focuses for example, and taking into account its work with
apprentices.A suite of metrics has also been developed and reviewed
to ensure that progress in relation to diversity can continue to
be monitored. These metrics include analysis of male/female
composition at all levels across the employee population and also in
respect of promotions and part-time working and in forms of responses
to the employee survey.
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DIRECTORS’ REMUNERATION REPORT
Roger Yates
Chair of the
Remuneration
Committee
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for 2016 which sets out the new Directors’
Remuneration Policy for approval by shareholders at the AGM, how the
current Directors’ Remuneration Policy was applied in 2016 and, subject
to shareholder approval of the new Directors’ Remuneration Policy, how
it will be implemented in 2017.
DIRECTORS’ REMUNERATION POLICY (‘POLICY’) AND THE
CORPORATE STRATEGY
The current Policy was approved by the shareholders in 2014 and
continued to operate in 2015 and 2016. The Policy has been reviewed
during 2016 and it is submitted for shareholder approval at the 2017
AGM. No material changes are proposed. The Policy for approval is set
out on pages 96 to 99. As with the current Policy, it supports the Group’s
business strategy in that the major part of remuneration for Executives is
performance-dependent, including both annual and longer-term
measures aligned to a balanced set of business objectives. There is
substantial deferral of variable remuneration into shares, and
requirements for Executive Directors to hold Company shares, through
minimum shareholding thresholds and a two year post-vesting sale
restriction on Performance Share Plan (PSP) awards. Further detail as to
how each element of the Policy supports the strategy is set out in the
table on pages 96 to 99.
CORPORATE PERFORMANCE AND REMUNERATION FOR 2016
As reported in this Report, 2016 has been another year of strong
performance and our Executives’ remuneration for 2016 reflects this.
Based on the three-year performance to the end of 2016, 100% of the
Executive Directors’ PSP awards granted in 2014 will vest in March
2017, as a result of relative total shareholder return (TSR) and earnings
per share (EPS) growth being above the upper end of the performance
range set by the Remuneration Committee (‘the Committee’).
This Report includes disclosure of performance targets and the outcome
for the annual bonus for 2016. The Committee determined that 96.67%
of the maximum annual bonus should be payable for 2016, reflecting the
strong financial results for 2016 and strong progress against strategic
objectives set by the Committee at the start of the year, which are fully
explained in the report. Fifty percent of the bonus is deferred into shares
for three years.
REMUNERATION FOR 2017
The Committee considered the overall remuneration arrangements for
the Executive Directors in 2017 in accordance with the Policy and has
decided to award an increase of 3% in the base salaries of the Executive
Directors for 2017 which is in line with the overall increase of base
salaries for the workforce. The Committee continues to monitor the
complexity of the responsibilities undertaken, the remuneration of staff
generally, an element of market comparison and inflation trends from
year to year.
The maximum annual bonus opportunity for 2017 will remain at the
same levels as 2016. Performance share awards will also be granted at the
same level as 2016 for our CEO at 200% of salary and will increase from
190% to 200% for our three other Executive Directors, which continues
to be below our shareholder approved Policy maximum.
In addition, to reflect the increased workload, regulatory responsibilities
and the size of the Group, the fees of the Chair for 2017 will increase to
£195,700 (3% increase), the base fees of the Non-executive Directors
will increase to £61,745 (3% increase), the Committee Chair fees will
increase to £20,600 (3% increase) and the Senior Independent Director
fees will increase to £5,560 (100%).
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ENGAGEMENT WITH SHAREHOLDERS AND BEST PRACTICE
The Committee has consulted with its major shareholders in relation to
the proposed Policy and, in addition, the Committee ensures it is up to
date with the developing views of shareholders and investor
representative bodies and best practice. Any views expressed by
shareholders at general meetings of the Company or otherwise will be
considered by the Committee as part of any review of the Policy. The
Committee understands the importance and increasing focus on clear
and transparent disclosure of remuneration outcomes demonstrating the
alignment of remuneration and performance, and the Committee
believes it provides complete disclosure in this area.
ROLE OF THE COMMITTEE DURING 2016
During 2016 the Committee’s main areas of focus were on:
• Reviewing performance and agreeing the 2015 annual bonus
payments for the Executive Directors and Code Staff as well as the
2013 PSP awards vesting in 2016 for this population;
• Setting the individual objectives for the 2016 annual bonus for both
the Executive team and Code Staff;
• Setting annual targets for the 2016 annual bonus scheme and
performance measures for the 2016 PSP awards
• 2016 salary reviews for the Executive Directors and Code Staff;
• Reviewing and approving the Remuneration Policy Statement in
relation to Code Staff for 2016 (and the list of the employees
classified as Code Staff);
• Reviewing and approving remuneration policies (including the
proposed new Policy);
• Considering risks in relation to remuneration policies and how these
are mitigated; and
• Updates on regulatory developments including the European Banking
Authority proposals on sound remuneration policies and Solvency II
remuneration requirements.
REGULATORY CHANGE
The Committee is closely monitoring developments in remuneration
regulation from European and UK authorities. Should there be a need to
amend policy or practice in the future, in light of these regulatory
developments, the Committee will undertake consultation with major
shareholders in advance of any proposed changes.
SUMMARY
The Policy supports our corporate objectives and the remuneration
received by the Executive Directors reflects the strong performance of
the Company and management.
I hope that you will support the remuneration resolutions to be proposed
at the next AGM. If, in the meantime, you have any questions regarding
remuneration then my colleagues and I on the Committee will be
pleased to address them.
Roger Yates
On behalf of the Remuneration Committee
27 February 2017
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(‘POLICY’)
How the Committee Operates to Set the Remuneration Policy
The Committee, on behalf of the Board, draws up and recommends the
Policy and determines the remuneration packages of the Executive
Directors of the Company and the Chair of the Board. In addition, the
Committee monitors the remuneration of the senior management team
(including the Chief Risk Officer and his senior colleagues in the Group
Risk Division) and employees classified as Code Staff and Solvency II
Staff and oversees the operation of the executive long-term incentive
schemes and all employee share schemes.
Approach to, and Objectives of, the Policy
Our Policy has been reviewed during the year, and is submitted for
approval in the required triennial vote at the 2017 AGM. The overall
approach to remuneration adopted by St. James’s Place has been in place
for many years and this Policy is very little changed from that approved
by shareholders in 2014.
The proposed Policy is designed to meet the following objectives:
• To support the retention of individuals with the experience and skills
to drive the performance of the Company;
• To ensure remuneration is transparent and reflects the performance
of the Group in the relevant year and the longer-term. Annual bonus
and long-term incentive opportunities are therefore linked to the
achievement of demanding performance targets; and
• To align pay with the strategic objectives of the Company and the
interests of our shareholders whilst giving due regard to principles of
best practice and relevant regulations.
In setting the Policy for the Executive Directors, the Committee also
takes into consideration a number of different factors:
• The Committee applies the principles set out in the UK Corporate
Governance Code and also takes into account best practice guidance
issued by the major UK institutional investor bodies, the PRA and
FCA (including the provisions of any applicable Remuneration Codes)
and other relevant organisations;
• The Committee has overall responsibility for the remuneration
policies and structures for employees of the Group as a whole and it
reviews remuneration policy on a firm-wide basis. When the
Committee determines and reviews the Policy it considers and
compares it against the pay, policy and employment conditions of the
Group to ensure that there is alignment between the two; and
• The Committee considers the external market in which the Group
operates and uses comparator remuneration data from time to time
to inform its decisions. However, the Committee recognises that
such data should be used as a guide only (recognising that data can be
volatile and may not be directly relevant) and that there is often a
need to phase-in changes over a period of time.
The Committee’s overall policy, having had due regard to the factors
above, continues, for a substantial proportion of total remuneration, to
be based on variable pay. This is achieved by setting base pay and benefits
up to mid-market levels, with annual bonus and long-term incentive
opportunities linked to the achievement of demanding performance
targets. In this way the Committee facilitates alignment between the
interests of shareholders and the total remuneration paid to the
Executive Directors. Historically, the levels of variable pay paid to the
Executives have varied considerably, reflecting the performance of the
Group in the relevant year.
The overall structure and maximum opportunity under the Policy
remains unchanged. Some changes have been made to the text of the
Policy in a number of places to increase clarity.
Engagement with Shareholders
The Committee engages with, and seek the views of, its major investors
and investor representative bodies on any significant changes to the
Policy. The Committee also engages from time to time with
shareholders when considering important questions about the
implementation of the Policy. Views expressed by shareholders are
considered by the Committee as part of any review of the Policy, or
sooner if appropriate.
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Remuneration Policy for Executive Directors
The following table summarises each element of the Policy, explaining how each element operates and links to corporate strategy. The proposed
Policy will be formally effective following shareholder approval at the 2017 AGM. If approved, this Policy supersedes that approved by shareholders
in 2014.
Base Salary
Purpose and link to strategy
To provide the core reward for the role.
Sufficient level to recruit and retain individuals of the necessary calibre, taking into account the required
skills, experience, demands and complexity of the role.
Operation
Normally reviewed annually from 1 March. Influenced by:
• Role, experience and performance of the individual;
• Company performance;
• External economic conditions;
• Average changes in broader workforce salary; and
• Periodic benchmarking for each role against similar UK listed companies.
Maximum opportunity
Percentage increases will normally be capped at the level of increases for the Company’s workforce
generally. Increases may be higher in exceptional circumstances, such as a change in role and/or a
significant change in responsibility or role size.
Where new appointees have been given a starting salary below mid-market level, increases above those
granted to the wider workforce (in percentage terms) may be awarded, subject to satisfactory individual
performance and development in the role.
The base salaries for the Executive Directors from 1 March 2017 are set out in the Annual Report on
Remuneration.
Performance metrics
Whilst there are no targets attached to the payment of base salary, performance alongside those factors
outlined above is considered in the annual salary review process.
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Purpose and link to strategy
including choice of performance
metrics
Operation
Rewards the achievement of annual financial and strategic business plan targets and delivery of key,
non-financial objectives.
Deferred element aids retention, encourages long-term shareholding, discourages excessive risk-taking and
aligns with shareholder interests.
Performance metrics reflect the key performance drivers of the annual business plan, achievement of which
will reflect performance in line with the Group’s strategy.
Performance measures, targets and weightings are reviewed annually and set in line with the annual
business plan. Bonus payments are determined by the Committee after the year end, based on performance
against the targets set.
Performance below threshold results in zero payment. Payments are on a scale from 20% to 100% of the
maximum opportunity for performance between threshold and maximum.
50% of any bonus payable is paid in cash and the remaining 50% deferred into SJP shares, the vesting of
which is normally subject to a three-year continuous service requirement but no further performance
targets.
Dividends that accrue on the deferred shares are paid to the Executive Directors during the three-year
deferral period.
All bonus payments are at the discretion of the Committee.
The Committee has the overriding discretion to scale back payments under the non-financial performance
scorecard if it deems them to be inappropriate in the context of the overall financial results of the
Company.
The Committee has the overriding discretion to adjust the bonus outcome up or down (subject to the
overall 150% maximum) to take account of factors such as an exceptional positive or negative event.
Withholding and recovery provisions apply to bonus awards in exceptional circumstances, such as a
material misstatement, error, or misconduct.
Maximum opportunity
150% of base salary.
Performance metrics
Performance is measured over one year.
At least half of the bonus is based on financial measures, reflecting the key priorities of the business for the
relevant year.
Up to half of the annual bonus can be based on the achievement of key, non-financial objectives set at the
start of the year.
Actual measures and weightings may change from year to year to reflect the business priorities at that time.
Details of performance criteria and targets set for the year under review and performance, against them are
provided in the Annual Report on Remuneration.
Annual Report and Accounts 2016
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Performance Share Plan
Purpose and link to strategy
including choice of performance
metrics
Supports long-term retention.
Focuses the Executives on longer-term corporate performance and performance objectives.
Aligns interests to those of shareholders.
Operation
Awards are normally granted annually. Vesting is usually on the third anniversary of the date of grant, dependent
on the achievement of stretching performance conditions measured over a period of three financial years.
Maximum opportunity
Performance metrics
Metrics, weighting and targets take account of the business plan and are reviewed annually to ensure they
remain appropriate.
Awards granted from 2015 are made under the Performance Share Plan approved by shareholders at the
AGM in 2014, and have a post-vesting holding period of two years on the shares vesting. During this period
the vested shares cannot normally be sold, other than to the extent necessary to settle tax on vesting or
exercise. Dividend equivalents may accrue on awards made between the date of grant and the end of the
two year post-vesting holding period. These dividend equivalents will be released only to the extent that
awards vest.
Awards are subject to withholding and recovery provisions.
The Committee has the discretion, in certain circumstances, to grant and/or settle an award in cash. In
practice, this will only be used in exceptional circumstances for Executive Directors.
The maximum annual award under the plan rules is 250% of salary as at date of grant, although the
Committee will not make awards above 200% of base salary without prior consultation with the
Company’s major shareholders.
Awards will vest to extent of achievement of performance metrics as set out below. The Committee may
choose alternative measures and weightings between them if it deems it appropriate, taking into account
the strategic objectives of the Company.
Awards in 2017 will be based on the achievement of three equally weighted metrics below:
• EPS growth based on EEV adjusted profit;
• EPS growth as above but excluding the impact of the EEV unwind of the discount rate (effectively
excluding the impact of stock market movements on earnings); and
• Relative TSR performance.
For each performance metric, a threshold and stretch level of performance is set. At threshold, 25% of the
relevant element vests rising on a straight line basis to 100% for attainment of levels of performance
between threshold and maximum targets.
Pension
Purpose and link to strategy
Helps recruit and retain Executives.
Operation
Defined contribution to a pension scheme or an equivalent cash amount via non-pensionable allowance if
the Executive is affected by HMRC limits.
Provides a discrete element of the package to contribute to retirement income.
In response to changes in legislation or similar developments, the Company may amend the form of an
Executive Director’s pension arrangements.
Maximum opportunity
20% of base salary.
Performance metrics
N/A
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Other Benefits
Purpose and link to strategy
including choice of performance
metrics
Operation
Operate competitive benefits to help recruit, retain and support the wellbeing of employees.
Including but not limited to: Company car (or salary supplement in lieu), private medical insurance, life,
critical illness and death in service cover, relocation assistance where necessary and the use of a driver for
business purposes.
Executive Directors will be eligible to participate in any all-employee share plan (e.g. SIP and SAYE)
operated by the Company on the same terms as other eligible employees. The maximum level of
participation is subject to limits imposed by HMRC (or a lower cap set by the Company).
Any reasonable business expenses (including tax thereon) may be reimbursed.
Maximum opportunity
Benefit costs are monitored and controlled and represent a small element of total remuneration costs.
Performance metrics
N/A
Non-executive Directors’ Fees
Purpose and link to strategy
To attract high quality, experienced Non-executive Directors.
Operation
The Chair is paid an all-inclusive annual fee which is reviewed periodically by the Committee.
Maximum opportunity
All Non-executive Directors receive a basic annual fee for carrying out their duties, together with
additional fees being paid in respect of Board Committees and other responsibilities, with fee levels
reviewed periodically by the Board. They may also be paid additional fees (calculated at an appropriate day
rate) in the event of exceptional levels of additional time being required.
Any reasonable business expenses (including tax thereon) may be reimbursed.
There is no prescribed maximum individual fee level or annual increase. Reviews take into account market
data for similar non-executive roles in other companies of a similar size and/or business to St. James’s Place
as well as the time commitment of its Non-executive Directors. The policy is to pay up to the mid-market
level based on similar time commitments of chair and non-executives in comparable companies.
Performance metrics
Neither the Chair nor the Non-executive Directors are eligible for any performance related remuneration.
Notes to the Policy table:
The performance measures and targets that are set for the Executive Directors’ annual bonus and Performance Share Plan (PSP) awards are carefully
selected to align with the Company’s strategic and key performance indicators.
For the annual bonus, financial and strategic measures are reviewed and selected by the Committee annually. The measures selected and weighting
between them may vary annually depending on the key priorities of the business for the year ahead. Robust and demanding targets will be set annually,
taking into account the economic environment, market expectations and the Company’s budget and business plan for the year ahead. EEV operating
profit has been used to assess financial performance as this measure reflects a number of key metrics including new business, retention of funds under
management and cost control. The remaining bonus is determined based on strategic measures set annually on a balanced scorecard basis.
The Company has used a relative TSR measure and EPS growth targets for the PSP for a number of years in line with the Group’s strategy of delivering
profitable growth and superior returns to its shareholders. The Committee will continue to review the choice of performance measures and the
appropriateness of targets prior to each PSP award being made and will set robust and stretching measures for any alternative measures used. For the
EPS growth measure, stretching targets will be set annually taking into account the economic environment, market expectations and the Company’s
budget and business plan at that time. For the comparative TSR measure the Committee’s policy is to set threshold vesting for median performance,
rising to full vesting for upper quartile performance. The Committee will assess annually the appropriateness of the TSR comparator group.
No performance targets are set for the SAYE and SIP awards as these form part of all employee arrangements designed to encourage employees across
the Group to purchase shares in the Company.
Annual Report and Accounts 2016
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Shareholding Requirements
Executives are required to build and maintain a shareholding equivalent
to 150% of base salary within five years of appointment. Until the
threshold is reached, 50% of vested shares from the PSP and other share
awards (less tax liability) must be retained. Executives are also required
to hold a further 50% of salary in shares and/or in one or more SJP
funds, thus providing further alignment with shareholders and clients.
Annual Bonus Plan and Share Plan Policy
The Committee will operate the annual bonus plan, deferred bonus
plan, PSP and all-employee share plans according to the rules of each
respective plan and consistent with normal market practice and the
Listing Rules, where relevant. The Committee will retain flexibility in a
number of areas regarding the operation and administration of these
plans, including (but not limited to) the following:
• Who participates in the plans;
• When to make awards and payments;
• How to determine the size of an award, a payment, or when and how
much of an award should vest;
• How to deal with a change of control or restructuring of the Group;
In the case of stated good leaver reasons or otherwise, whether a
•
Director is a good/bad leaver for incentive plan purposes and
whether and what proportion of awards vest at the time of leaving or
at the original vesting date(s) as relevant; and
• How and whether an award may be adjusted in certain circumstances
(e.g. for a rights issue, a corporate restructuring or for
special dividends).
The Committee also retains the discretion within the Policy to adjust
targets and/or set different measures and alter weightings for the annual
bonus plan and the PSP if events happen that cause it to determine that
the original targets or conditions are no longer appropriate and the
amendment is required so that the targets or conditions achieve their
original purpose and are not materially less difficult to satisfy.
The use of discretion would, where relevant, be explained in the Annual
Report on Remuneration and may, as appropriate, be subject to
consultation with the Company’s major shareholders.
Awards Made Prior to the Effective Date
For the avoidance of doubt, in approving the Policy, authority was given
to the Company to honour any commitments entered into with current
or former Directors that have been disclosed to shareholders in previous
remuneration reports. This includes all historic awards that were granted
under any current or previous share schemes operated by the Company
but remain outstanding (detailed in the Annual Report on
Remuneration) and which will remain eligible to vest based on their
original award terms. Details of payments to former Directors will be
set out in the Annual Remuneration Report, where required by the
relevant regulations, as they arise.
Approach to Remuneration for Recruitment and Promotions
The Committee would aim to set a new Executive Director’s
remuneration package in line with the Policy in place at the time of
appointment. The Committee will take into account, in arriving at a total
package and in considering the quantum for each element of the package,
the skills and experience of the candidate, the market rate for a candidate
of that experience as well as the importance of securing the best candidate.
For new appointments, base salary and total remuneration may be set
initially at below normal market rates on the basis that it may be increased
once expertise and performance has been proven and sustained.
100
Annual bonus and long-term incentive maximum award sizes will
comply with the maximum opportunity set out in the Policy table (not
including any arrangements to replace forfeited deferred pay).
Participation in the annual bonus plan and PSP will normally be
pro-rated for the year of joining and different performance measures
may be set from those applying to the other Directors, if it is appropriate
to do so to reflect the individual’s responsibilities and the point in the
year in which they joined the Board. A PSP award can be made shortly
following an appointment (assuming the Company is not in a close
period). Where it is essential for the purposes of recruitment, such as
where a new external recruit has not had any bonus deferral in their
previous role, bonus deferral may be phased in over a short period. The
standard approach will be for deferral to apply as stated in the Policy
table.
The Committee may make additional cash and/or share-based awards as
it deems appropriate and, if the circumstances so demand, to take
account of deferred pay forfeited by an executive on leaving a previous
employer. Awards to replace deferred pay forfeited would, where
possible, reflect the nature of awards forfeited in terms of delivery
mechanism (cash or shares), time horizons, attributed expected value
and performance conditions. Other payments may be made in relation to
relocation expenses and other incidental expenses as appropriate.
In the case of an internal appointment, any variable pay element awarded
in respect of the prior role would be allowed to pay out according to its
terms and any other ongoing remuneration obligations existing prior to
appointment would continue.
For an overseas appointment, the Committee will have the discretion to
offer benefits and pension provisions which reflect local market practice
and relevant legislation.
If appropriate, and in exceptional circumstances, the Committee may
agree, on the recruitment of a new Executive, a notice period of in excess
of twelve months but reducing to twelve months over a specified period.
For the appointment of a new Chair or Non-executive Director, the fee
arrangement would be set in accordance with the approved Policy at
that time.
Risk Management
Risk is managed within the Policy through the Committee:
• Taking into consideration the recommendations contained in any
applicable Remuneration Codes and associated guidance which apply
to the Group;
• Structuring the annual bonus plan to contain a mix of financial and
strategic performance metrics, where performance conditions are
tailored to the business outlook and strategy, including the
management of risk within the business. The Committee also retains
the discretion to reduce the bonus out-turn where appropriate;
• Assessing the performance metrics from a risk perspective, with
input from the Chair of the Risk Committee;
• Requiring deferral of 50% of annual bonus payments into the
Company’s shares which are deferred for three years;
• Requiring the Executive Directors to retain shares acquired on
vesting of PSP awards granted from 1 January 2015 for a post-vesting
holding period of two years on the shares vesting. During this period
the vested shares cannot normally be sold other than to the extent
necessary to settle tax on vesting or exercise;
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415Page Title at start:Content Section at start: • Ensuring that the majority of the incentive pay comes in the form of a long-term incentive plan subject to stretching performance targets measured
over multi-year performance periods, with the performance period for subsequent awards overlapping the previous award, together with an
additional two year holding period. This ensures that there is no particular incentive to maximise performance over a particular period;
Incorporating withholding and recovery provisions into the Company’s bonus and long-term incentive plans; and
•
• Requiring the Executive Directors to build and maintain a substantial shareholding in the Company.
Remuneration Policy across the Group
The Policy is designed with regard to the remuneration policy for employees across the Group as a whole and the Committee aims, where appropriate,
for there to be a consistent approach applied. For instance, the suite of benefits in kind is generally consistent (other than in relation to quantum) and
all employees participate in annual bonus plans. All employees, including the Executive Directors, are offered the opportunity to participate in the
Group’s SAYE Share Option Plan and Share Incentive Plan. Senior managers participate in the long-term incentive plan.
The Policy is more weighted towards variable pay than for other employees to make a greater part of their pay conditional on the successful delivery of business
strategy, and in line with shareholder interests. In addition, more of senior level remuneration is deferred than is the case for the workforce as a whole.
Employees were not consulted in respect of the Policy, but the Committee does consider the remuneration arrangements for the broader employee
population when determining the Policy.
Remuneration Scenarios for Executive Directors
The chart below shows how the proportion of each Executive Director’s remuneration package varies at different levels of performance in accordance
with the Policy to be implemented in 2017 and using the assumptions set out below. A significant proportion of remuneration is linked to
performance, particularly at maximum performance levels.
0
0
0
£
’
2600
2400
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
0
£2,499
£1,667
31%
42%
£1,806
£1,204
31%
28%
42%
31%
28%
31%
£679
100%
41%
27%
£490
Total Fixed Pay
Annual Bonus
Long-Term Share Awards
£1,850
41%
£1,249
30%
£1,814
42%
£1,212
31%
27%
30%
28%
31%
£534
£498
100%
41%
27%
100%
43%
29%
100%
41%
27%
Threshold
Target
Maximum Threshold
Target
Maximum Threshold
Target
Maximum Threshold
Target
Maximum
David Bellamy
Andrew Croft
Ian Gascoigne
David Lamb
Assumptions
Threshold = fixed pay only (salary, benefits and pension).
Target = fixed pay plus 60% vesting of the annual bonus and 50% vesting of PSP awards.
Maximum = fixed pay plus 100% vesting of the annual bonus and PSP awards.
Salaries used are those applying on 1 March 2017 and taxable benefits are those reported for the year ending 31 December 2016.
Pension is based on 2017 Policy applied to 1 March 2017 salaries.
Amounts have been rounded to the nearest £1,000. The assumptions noted for ‘on-target’ PSP performance in the graph above are provided for
illustration purposes only. Participation in all employee plans, dividends payable on PSP awards over the vesting period or on deferred share bonus
awards are not included in the above scenarios and the table assumes no increase to the share price.
Annual Report and Accounts 2016
101
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationPage Title at start:Content Section at start: DIRECTORS’ REMUNERATION REPORT continued
Service Contracts and Loss of Office
The Company’s policy is that service contracts may be terminated with twelve months’ notice from either the Company or from the Executive
Director (except in certain exceptional recruitment situations where a longer notice period from the Company may be set provided it reduces to a
maximum of twelve months with a specified time limit). Service contracts do not contain a fixed end date.
Under their service contracts, the Executive Directors are entitled to salary, pension contributions and benefits for their notice period (except on
termination for events such as gross misconduct where payment will be for sums earned up to the date of termination with no notice period only). The
Company would seek to ensure that any payment is mitigated by use of phased payments and offset against earnings elsewhere in the event that an
Executive Director finds alternative employment during their notice period. There are no contractual provisions in-force other than those set out
above that impact any termination payment.
In summary, the position on cessation of employment is as follows:
Provision
Notice period
Termination payment
Detailed terms
Twelve months by either party.
Base salary plus benefits (including pension). An express obligation on the Executive to mitigate his loss.
Payments can be made on a monthly basis and reduced if an Executive is able to secure
alternative employment.
In addition, any statutory amounts would be paid as necessary.
Remuneration entitlements on
cessation
A pro-rata bonus may also become payable for the period of active service along with the vesting of
outstanding share awards (in certain circumstances as described below).
Change of control
As on termination and with remuneration entitlements as described above.
When considering the size of any proposed termination payment, the Committee would take into account a number of factors, including the health,
length of service and performance of the relevant Executive, including the duty to mitigate their own loss, with a broad aim to avoid rewarding poor
performance while dealing fairly with cases where the departure is due to other reasons, for example illness or redundancy.
Any unvested awards held under the PSP schemes will lapse at cessation of employment, unless the individual is leaving for certain reasons (defined
under the plan such as death, injury, ill-health, disability, redundancy, retirement, their office or employment being either a company which ceases to
be a Group member or relating to a business or part of a business which is transferred to a person who is not a Group member, or any other reason the
Committee so decides). In these circumstances, unvested awards will normally vest at the normal vesting date (unless the Committee decides they
should vest at cessation) subject to performance conditions being met and normally subject to scaling back in respect of actual service as a proportion
of the total vesting period (unless the Committee decides that scaling back is inappropriate). The same approach applies on a change of control.
Any unvested awards held under the Deferred Bonus Scheme will lapse at cessation unless the Committee determines otherwise. In these
circumstances the Committee may determine that unvested awards will vest at the cessation (unless the Committee decides they should vest at the
normal vesting date).
The Committee may agree to the payment of disbursements such as legal costs and outplacement services if appropriate and depending on the
circumstances of the leaving Executive.
The Committee may pay any statutory entitlements or settle or compromise claims in connection with a termination of employment, where
considered in the best interests of the Company.
Non-executive Directors’ Letters of Appointment
The Non-executive Directors (including the Chair) do not have service contracts or any benefits in kind arrangements and do not participate in any of
the Group’s pension or incentive arrangements. The appointment of each Non-executive Director can be terminated by giving three months’ notice
(subject to annual reappointment at the AGM). Any period of service longer than six years is subject to particularly rigorous review by the Nomination
Committee of the Board. The Non-executive Directors’ letters of appointment do not provide for any payment on termination except for accrued fees
and expenses to the date of termination.
The terms and conditions of Executive Directors’ service contracts and the letters of appointment of the Non-executive Directors are available for
inspection at the Company’s registered office during normal business hours and at the AGM, the details of which can be found on page 116.
102
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415Page Title at start:Content Section at start: External Appointments
Executive Directors are permitted to be appointed to an external board or committee so long as this is unlikely to interfere with the business of the
Group. Any fees received in respect of external appointments are retained by the relevant Executive Director. Currently, the only Executive Director
who acts as a non-executive director on the Board of another listed company, is David Lamb, who is a non-executive director of The Henderson
Smaller Companies Investment Trust plc.
ANNUAL REPORT ON REMUNERATION
This Annual Report on Remuneration will be put to an advisory shareholder vote at the 2017 AGM. The information on pages 103 to 110 has been
audited where indicated.
How the Policy was Applied in 2016
Remuneration payable in respect of performance in 2016 (audited)
The following table sets out each element of remuneration for the years ended 31 December 2015 and 2016 (or period thereof for appointments or
cessations during the year).
Salary and
fees
Benefits(i)
Annual
bonus(ii)
Long-term
incentives(iii)
Pension(iv)
Other(v)
Total
Directors
David Bellamy
Andrew Croft
Ian Gascoigne
David Lamb(vi)
Non-executive Directors
Sarah Bates (Chair)
Iain Cornish
Simon Jeffreys
Baroness Wheatcroft
Roger Yates
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
£
502,833
492,000
363,500
356,000
363,500
356,000
363,500
356,000
190,000
175,100
82,725
77,460
79,945
74,680
59,945
58,200
79,945
74,680
£
55,294
59,168
38,773
41,292
83,020
69,523
46,833
48,754
3,931
3,365
11,788
7,829
973
1,397
2,100
1,788
–
–
£
732,250
688,800
529,250
498,400
529,250
498,400
529,250
498,400
£
1,132,563
1,756,266
754,804
1,170,904
754,804
1,170,904
754,804
1,170,904
£
100,567
98,400
72,700
71,200
72,700
71,200
72,700
71,200
–
20,596
–
19,380
29,775
–
–
22,544
£
2,523,507
3,115,230
1,759,027
2,157,176
1,833,049
2,166,027
1,767,087
2,167,802
193,931
178,465
94,513
85,289
80,918
76,077
62,045
59,988
79,945
74,680
Notes:
(i) Benefits for the Executive Directors comprise the entitlement to Company car or cash equivalent, fuel, private health care, life and critical illness cover, permanent health insurance and health
screening and, for Ian Gascoigne, a housing allowance to facilitate working across the Company’s two main locations, and are generally the amounts which are returned for taxation purposes. Benefits
for the Non-executive Directors are for reimbursement of taxable travel expenses grossed up for the tax payable thereon.
(ii) As explained on page 97, half of the annual bonus is paid in cash, with the other half being used to purchase St. James’s Place shares which are subject to forfeiture for three years under the terms of the
Deferred Bonus Scheme.
(iii) The value of the long-term incentives is the value of shares for the award where the performance period ends in the year, together with the value of the dividends that would have been received during
the three year performance period. The figures for 2016 have been calculated using the average of the SJP share price in the three month period to 31 December 2016, being £9.585, as the actual
vesting date of the PSP award is on 26 March 2017. The figures for 2015 have been updated from the three month average figures used in last year’s report (being £1,776,526 for David Bellamy and
£1,184,411 for Andrew Croft, Ian Gascoigne and David Lamb) to take into account the SJP share price on the date of vesting on 21 March 2016, being £9.405. The LTI vesting figure in monetary value
for 2016 is significantly lower than 2015. This is due to the number of shares in the 2013 award being substantially more (approximately 60%) than in the 2014 award, because the share price at grant
in 2013 was 40% lower than 2014. For example for the Chief Executive, the grant of 190% of salary on 2013 amounted to 176,178 shares at a share price of £5.16; in 2014 an award of 190% of salary
amounted to 109,782 shares at a share price of £8.52.
(iv) Pension contributions, being 20% of base salary for all Directors, were capped by legislation and so a non-pensionable salary supplement was paid to the Executive Directors in full for David Bellamy,
Andrew Croft and Ian Gascoigne and for the balance for David Lamb, who had a £20,000 contribution to the money purchase group pension scheme.
(v) The value of the SAYE options exercised by Ian Gascoigne on 24 March 2016 when the mid-market price of St. James’s Place shares was £9.10.
(vi) David Lamb was a non-executive director of The Henderson Smaller Companies Investment Trust plc during the year and was paid a fee of £23,000 in 2016 in connection with that role
(2015: £21,750).
Annual Report and Accounts 2016
103
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationPage Title at start:Content Section at start: DIRECTORS’ REMUNERATION REPORT continued
Details of Variable Pay Earned in the Year
Annual bonus for 2016 performance
The performance conditions which applied to the bonus and the resulting payout were as follows:
Assessment by the Committee of the Performance of the Executive Directors
Measure
EEV operating profit
Strategic business plan objectives
Total payout
Weighting (%
of salary)
Weighting (%
of maximum)
Threshold
Maximum
value
Actual
75%
75%
50%
50%
£586m
£642m
£673.6m
Assessment by the Committee of the
performance of the Executive Directors
Payout
(% of
salary)
Payout
(% of
maximum)
75%
70%
50%
46.67%
145%
96.67%
In setting the operating profit target for the year it was assumed that the combined operating experience variance and operating assumption changes
would have a neutral impact on the outcome for the year. The actual outcome for the year included a combined positive impact to the operating profit
from these two items of £20 million. The Committee concluded that this positive outcome was as a result of management action during the year and
should therefore be included when assessing the bonus payout for the year.
Annual Bonus Strategic Targets Performance Assessment
As described in other parts of the Annual Report and Accounts, the Company delivered strong performance in 2016 for our clients, shareholders and
other stakeholders. The Committee considered these three groups when setting the strategic targets for 2016, together with other objectives set out in
the 2016 business plan. In serving our clients well, developing our employees and the Partnership for the future and striving to improve the
effectiveness of our organisation, we will be best placed to meet our long-term business objectives, and create additional value for our shareholders.
We also focus on the importance of safe and sustainable growth through prudent management of risk and the highest standards of
regulatory compliance.
The Committee assessed how well the Executive team had performed in relation to the objectives set at the start of the year. The Committee did not
place fixed weightings on the factors assessed, but made a judgement based on the Committee’s view of the relative importance and impact of those
factors over the course of the year. For some factors the Committee put in place quantitative metrics, and for others qualitative judgements were
made, depending on the nature of the strategic objective.
The Committee took into account the following:
Objectives and performance
• The Annual Wealth Account Survey results for 2016/7 were very strong with results as at the date of
this Annual Report of 97% of clients saying they would recommend SJP to friends or contacts and 56%
of those surveyed confirming they have done so already;
• Clients continued to benefit from above average performance across the majority of funds and portfolios
over a range of time periods. Across all ten year periods, the equity fund managers outperformed their
benchmark, on average, 77% of the time. Over the three and five year periods, the equivalent average
outperformance rate was 72% and 84% respectively. For the range of eight Growth and Income
portfolios available to clients, outperformance compared to the relevant Asset Risk Consultants (ARC)
Private Client Index peer group occurred in 84% of all three year periods on average;
• The number of advice-related complaints remained very low;
• The Group won a number of industry awards, further details of which are set out on page 54, many of
which were voted on by clients; and
• The above factors, together with strong service levels, generally contributed to excellent retention of
funds under management, with 95% of existing funds being retained (excluding regular income
withdrawals) (see page 29 for further details).
Clients
104
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415Page Title at start:Content Section at start: Long-term success
• The growth in the size of the Partnership (including Partners and Advisers in the UK and Asia) of more
Objectives and performance
than 7%;
• The success of the Academy in attracting suitable candidates to the courses run in 2016 with more than
200 active students in the Academy programme. 73 students graduated from the Academy, 42 as
Partners and 31 as Advisers;
• Completing the acquisition of Rowan Dartington and continuing its integration into the Group;
• Launch of the Retirement Account and certain intergenerational products;
• Opening a new location at Canary Wharf and a new office in Cirencester;
• Very satisfactory results from the 2016 Employee Survey;
• High levels of retention for both employees and members of the Partnership, assisted by additional
training and development opportunities for the senior management team, the Partnership and the
workforce generally; and
• Continuing to maintain and reinforce the Group’s distinctive culture.
Risk management
• Continuing positive engagement with the Group’s regulators responding effectively to key regulatory
Other objectives
initiatives including the Financial Advice Market Review and Solvency II; and
• Completing various objectives designed to continue to enhance and strengthen the monitoring and
mitigation of key regulatory risks impacting the Group.
• Supporting more Partners to achieve Chartered status;
• Continuing development of the Group’s range of funds, the range of fund managers available to clients
and the effective operation of the Investment Committee; and
• The ongoing success of the Group’s CSR objectives, including raising more than £7.5 million for the
Foundation and expanding the volunteering opportunities available to employees.
Taking all the above strategic objectives into account, the Committee awarded a bonus of 70% of salary (93.3% of the maximum) under the team
performance element of the annual bonus scheme, recognising that a high proportion of the strategic objectives were graded as ‘outstanding’ or ‘above
stretch’ and that nearly all of the major business plan objectives had been satisfactorily completed.
Notes
(i) The Committee has the discretion to scale back the annual bonus payable in respect of the strategic measures if it considers it inappropriate in the context of the overall financial results of the Group.
The Committee reviewed the Group’s performance and agreed that no scale-back was appropriate.
(ii) The Committee retains the discretion to amend each element of the bonus, up or down, within the overall cap of 150% of salary, to take into account other relevant factors such as the Group’s
performance compared to competitor organisations or, for instance, an exceptional positive or negative event which impacts the Group. The Committee reviewed the Group’s performance as well as
competitors and the external market at the end of the performance period and agreed that no adjustment was required.
(iii) Half of the bonus is paid in cash, with the remainder being invested in the Company’s shares and deferred for three years, under the Group’s deferred bonus plan.
Annual Report and Accounts 2016
105
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationPage Title at start:Content Section at start: DIRECTORS’ REMUNERATION REPORT continued
Long-Term Incentive Awards
Vesting of Performance Share Plan (PSP) awards (audited)
On 31 December 2016, the awards made on 26 March 2014 under the PSP reached the end of their three year performance period. These will vest on
26 March 2017, being the third anniversary of the date of grant. The performance conditions which applied to the 2014 PSP awards, and the actual
performance achieved against these conditions, are set out in the table below:
TSR relative to the FTSE 51 – 150*
Average annual adjusted EPS growth
(including the unwind of the
discount rate) in excess of RPI
Average annual adjusted EPS growth
(excluding the unwind of the discount
rate) in excess of RPI
Performance level hurdle
Below threshold
Threshold
Stretch or above
Actual Achieved
Performance required
Below Median
Median
Upper Quartile or above
18 out of 88 companies
Above Upper Quartile
% of one
third of
award
vesting
0%
25%
100%
100%
Performance required
Below 5%
At least 5%
16% or above
19.5%
% of one
third of
award
vesting
0%
25%
100%
100 %
Performance required
Below 5%
At least 5%
16% or above
17.4%
% of one
third of
award
vesting
0%
25%
100%
100%
*
FTSE 51-150 Index excluding investment trusts and companies in the FTSE oil, gas and mining sectors.
Accordingly, the total percentage of the 2014 PSP awards vesting was 100%, which resulted in the following awards vesting to the Executive Directors:
Director
David Bellamy
Andrew Croft
Ian Gascoigne
David Lamb
Total
number of
shares
granted
109,782
73,165
73,165
73,165
Percentage
of awards
vesting
100%
100%
100%
100%
Number
of shares
vesting
109,782
73,165
73,165
73,165
Value of
shares
vesting
(£000)1
1,052
701
701
701
Note 1: The deemed share price used to calculate the value of shares vesting was £9.585 being the three month average to 31 December 2016 (as the awards will not actually vest until 26 March 2017).
Note 2: Up to 3,054 shares can be exercised by each Executive Director via a linked award under an approved share option scheme, with an exercise price of £8.515. If such linked award is exercised, a
number of shares equivalent to the gain achieved upon such exercise will be lapsed from the number of PSP shares noted, and the overall value shares vesting is therefore unchanged from the
number set out above.
Performance Share Awards Granted to the Executive Directors in 2016
Director
David Bellamy
Andrew Croft
Ian Gascoigne
David Lamb
Type of award
Nil cost option
Nil cost option
Nil cost option
Nil cost option
Basis of award granted
200% of salary of £505,000
190% of salary of £365,000
190% of salary of £365,000
190% of salary of £365,000
Average
share price at
date of grant
£9.3875
£9.3875
£9.3875
£9.3875
Number of
SJP shares
over which
award was
granted(1)
107,589
73,874
73,874
73,784
% of face
value that
would vest
at threshold
performance
25%
25%
25%
25%
Face value
of award
(£’000)
£1,010
£693
£693
£693
Note 1: The number of shares awarded was calculated based on the average share price over a period of three days prior to the date of grant on 24 March 2016, being £9.3875 per share. The face value of
the award figure is calculated by multiplying the number of shares awarded by the average share price figure of £9.3875.
PSP awards are structured as nil cost options and there is therefore no exercise price payable on exercise. Dividend equivalents accrue to the Executive
Directors between the date of grant and exercise of the award (up to a maximum of five years from date of grant), but are released only to the extent
that awards vest. Further details of the performance conditions which apply to the awards are set out in Notes 1 and 2 on page 113.
106
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415Page Title at start:Content Section at start: Total Shareholder Return Performance
The graph below shows a comparison of the Company’s TSR performance against the FTSE All-Share index over the last eight financial years. The
Company considers this to be the most appropriate comparative index, given the broad nature of the index and the companies within it.
Total shareholder return
700
600
500
400
300
200
100
0
)
£
(
e
u
l
a
V
31-Dec-08
31-Dec-09
31-Dec-10
31-Dec-11
31-Dec-12
31-Dec-13
31-Dec-14
31-Dec-15
31-Dec-16
St. James’s Place
FTSE All Share
Source: Thomson Reuters
This graph shows the value, by 31 December 2016, of £100 invested in St. James’s Place on 31 December 2008 compared with the value of £100
invested in the FTSE All-Share Index. The other points plotted are the values at intervening financial year ends.
Total Remuneration for the Chief Executive
The table below shows the total remuneration figure for the Chief Executive over the last eight financial years. The total remuneration figure includes
the annual bonus and long-term incentive awards which vested based on performance in those years (and ending in that year for PSP scheme awards).
2009
2010
2011
Year ending 31 December
2013
2012
2014
2015
2016
Total Remuneration
Annual bonus (% of maximum)
LTIP vesting (% of maximum)
£1,039,723 £1,495,600 £1,998,758 £2,410,380 £3,362,651 £3,646,514 £3,115,230 £2,523,507
96.67%
100%
93.3%
100%
46%
87%
95%
96%
63%
83%
96%
57%
98%
95%
92%
0%
The deemed value of the PSP award in the table above for 2016 is £1,132,563. Of this, £117,441 is due to increases in the SJP share price over the
vesting period, being an increase of 13%.
The value of long-term incentive awards for 2016 has been calculated using the average of the Company’s share price in the three month period to
31 December 2016, being £9.585, as the actual vesting date of the PSP award is on 26 March 2017. The 2015 figure for total remuneration has been
updated by substituting the three month average figure used to calculate the value of long-term incentive awards in last year’s report by a revised
figure based on the SJP share price on the date of vesting on 21 March 2016, being £9.405.
Relative Importance of Spend on Pay
The following table sets out the percentage change in profit, dividends and overall spend on pay in the year ending 31 December 2016, compared to
the year ending 31 December 2015.
IFRS profit after tax*
EEV operating profit after tax*
Dividends
Employee remuneration costs
* Both prior year comparatives include position one-offs (see Financial Review).
2015
£’Million
2016
£’Million
Percentage
change
202.0
539.2
146.5
121.2
111.7
553.5
173.8
150.8
(45)%
3%
19%
24%
Annual Report and Accounts 2016
107
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DIRECTORS’ REMUNERATION REPORT continued
The increase in the employee remuneration costs in 2016 were largely due to an increase in employee headcount, an increase to the costs of share
awards due to the headcount increase and the increase in the Company’s share price.
Percentage Increase in the Remuneration of the Chief Executive
The table below shows the percentage movement in the salary, benefits and annual bonus for the Chief Executive between the current and previous
financial year compared to that for the average Group employee.
Chief Executive
Salary
Benefits (Note 1)
Bonus
Average per Employee
Salary
Benefits
Bonus
Note 1: See Note (i) on page 103 for further details.
% change
2015 to
2016
2.6%
(6.5)%
6.3%
4.7%
(8)%
1.7%
Share Awards
The tables below set out details of share awards that have been granted to individuals who were Executive Directors during 2016 and which had yet to
vest or be exercised at some point during the year.
Performance Share Plan - awards held in return for qualifying services during 2016 (audited)
Director
David Bellamy
Andrew Croft
Ian Gascoigne
David Lamb
Balance at
1 January
2016
176,178(i)
109,782(ii)
100,280(iii)
–
117,458(i)
73,165(ii)
68,932(iii)
–
117,458(i)
73,165(ii)
68,932(iii)
–
117,458(i)
73,165(ii)
68,932(iii)
–
Granted
in year(iv)
107,589
73,874
73,874
73,874
Lapsed
in year(v)
371
Exercised
in year(vi)
175,807
345
117,113
343
117,115
346
117,112
Balance at
31 December
2016
–
109,782
100,280
107,589
–
73,165
68,932
73,874
–
73,165
68,932
73,874
–
73,165
68,932
73,874
Dates from which exercisable
21 March 2016
26 March 2017
26 March 2018
24 March 2019
21 March 2016
26 March 2017
26 March 2018
24 March 2019
21 March 2016
26 March 2017
26 March 2018
24 March 2019
21 March 2016
26 March 2017
26 March 2018
24 March 2019
21 March 2019
26 March 2020
26 March 2021
24 March 2022
21 March 2019
26 March 2020
26 March 2021
24 March 2022
21 March 2019
26 March 2020
26 March 2021
24 March 2022
21 March 2019
26 March 2020
26 March 2021
24 March 2022
Notes:
(i) These awards were made on 21 March 2013 when the St. James’s Place share price was £5.07. The performance period is the three year period ending on 31 December 2015. The performance
conditions, each in respect of one-third of the award, relate to (i) EPS (including the impact of the unwind of the discount rate, as described more fully on page 46) (ii) EPS excluding the impact of the
said unwind and (iii) TSR compared to the FTSE 250 Index, excluding investment trusts and companies in the oil, gas and mining sectors. The EPS scale starts at RPI +5% for 25% of the award to vest
and ends at RPI +16% for 100% of the award to vest, with pro rata vesting between the said points. The TSR sliding scale is between median and upper quartile, with 25% of the TSR part of the award
vesting at median. Up to 774 shares (being the maximum value under the £30k Inland Revenue cap on ‘approved’ share options) can be exercised via a linked award under an approved share option
scheme with an exercise price of £5.155.
(ii) These awards were made on 26 March 2014 when the St. James’s Place share price was £8.515. The performance period is the three year period ending on 31 December 2016. The three performance
conditions, each in respect of one-third of the award, relate to (i) EPS (including the impact of the unwind of the discount rate, as described more fully on page 46) (ii) EPS excluding the impact of the
said unwind and (iii) TSR compared to the FTSE 51-150 Index, excluding investment trusts and companies in the oil, gas and mining sectors. The EPS scale starts at RPI +5% for 25% of the award to
vest and ends at RPI +16% for 100% of the award to vest, with pro rata vesting between the said points. The TSR sliding scale is between median and upper quartile, with 25% of the TSR part of the
award vesting at median. Up to 3,054 shares (being the maximum value under the £30k Inland Revenue cap on ‘approved’ share options) can be exercised via a linked award under an approved share
option scheme with an exercise price of £8.515.
(iii) These awards were made on 26 March 2015 when the St. James’s Place share price was £9.45. The performance period is the three year period ending on 31 December 2017. The three performance
conditions, each in respect of one-third of the award, relate to (i) EPS (including the impact of the unwind of the discount rate, as described more fully on page 46) (ii) EPS excluding the impact of the
said unwind and (iii) TSR compared to the FTSE 51-150 Index, excluding investment trusts and companies in the oil, gas and mining sectors. The EPS scale starts at RPI +5% for 25% of the award to
vest and ends at RPI +16% for 100% of the award to vest, with pro rata vesting between the said points. The TSR sliding scale is between median and upper quartile, with 25% of the TSR part of the
award vesting at median.
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St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415Page Title at start:Content Section at start: (iv) These awards were made on 24 March 2016 when the St. James’s Place share price was £9.10. The performance period is the three year period ending on 31 December 2018. The three performance
conditions, each in respect of one-third of the award, relate to (i) EPS (including the impact of the unwind of the discount rate, as described more fully on page 46) (ii) EPS excluding the impact of the
said unwind and (iii) TSR compared to the FTSE 51-150 Index, excluding investment trusts and companies in the oil, gas and mining sectors. The EPS scale starts at RPI +5% for 25% of the award to
vest and ends at RPI +16% for 100% of the award to vest, with pro rata vesting between the said points. The TSR sliding scale is between median and upper quartile, with 25% of the TSR part of the
award vesting at median.
(v) These awards automatically lapsed in respect of a number of Vested Award Shares equal in value to the gain realised upon exercise of the Company Share Option Plan (CSOP) share option.
(vi) All four Directors exercised their 2013 PSP awards in 2016.
Deferred Bonus Scheme – Shares held during 2016 (audited)
The table below sets out details of the awards held by the Directors under the deferred element of the annual bonus scheme during 2016:
Director
David Bellamy
Andrew Croft
Ian Gascoigne
David Lamb
Balance at
1 January
2016
Released during
year(i)
Awarded during
year(ii)
24,591
17,769
17,769
17,769
24,591
33,924
37,252
–
17,769
24,556
26,955
–
17,769
24,556
26,955
–
17,769
24,556
26,955
–
37,721
27,294
27,294
27,294
Balance at
31 December
2016(iii)
Vesting Date
– 21 March 2016
33,924 26 March 2017
37,252 26 March 2018
37,721 24 March 2019
– 21 March 2016
24,556 26 March 2017
26,955 26 March 2018
27,294 24 March 2019
– 21 March 2016
24,556 26 March 2017
26,955 26 March 2018
27,294 24 March 2019
– 21 March 2016
24,556 26 March 2017
26,955 26 March 2018
27,294 24 March 2019
Notes:
(i) These deferred share awards were awarded on 21 March 2013 equal in value to the Executive’s 2012 annual cash bonus. The St. James’s Place share price on the date of the award was £5.07 and the
exercise price on 24 March 2016 was £9.2425.
(ii) These deferred share awards were awarded on 24 March 2016, equal in value to the Executive’s 2015 annual cash bonus. These shares will be held for a restricted period ending on 24 March 2019.
The price used to calculate the award was the three day average prior to the invitation (14th, 15th and 16th March 2016) which was £9.13.
(iii) Outstanding awards at the year-end relate to deferred share awards awarded in 2014, 2015 and 2016 (see (ii) above). The share price used to calculate the 2014 award was £8.515 and the 2015
award was £9.45.
(iv) Further details of the deferred element of the annual bonus scheme are set out on page 97. Dividends accrue to the Executive Directors during the three year period while the shares are subject
to forfeiture.
SAYE Share Option Scheme – shares held during 2016 (audited)
Details of the options held by the Directors in 2016 under the SAYE scheme and any movements during the year are as follows:
Director
Andrew Croft
Ian Gascoigne
David Lamb
Options
held at
1 January
2016
1,219
1,243
1,243
Granted
in year
Lapsed
in year
Exercised
in year
Options
held at
31 December
2016
1,219
1,243
1,243
Exercise
price
£7.38
£7.24
£7.24
Dates from which exercisable
1 May 2018 31 October 2018
1 November 2018
30 April 2019
1 November 2018
30 April 2019
Note:
(i) At 31 December 2016 the mid-market price for St. James’s Place shares was £10.14. The range of prices between 1 January 2016 and 31 December 2016 was between £7.16 and £10.14.
Annual Report and Accounts 2016
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St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationPage Title at start:Content Section at start: DIRECTORS’ REMUNERATION REPORT continued
Share Incentive Plan – shares held during 2016 (audited)
The table below sets out details of the awards held by the Directors under the Share Incentive Plan during 2016:
Director
Andrew Croft
Ian Gascoigne
Balance at
1 January
2016
Partnership
shares allocated
during year(i)
Matching
shares allocated
during year(ii)
Dividend
shares allocated
during year(iii)
Balance at
31 December
2016
642
325
167
–
502
210
167
–
159
159
15
15
642
325
167
174
502
210
167
174
Holding Period (matching shares)
26 Mar 2010 to 26 Mar 2013
26 Mar 2014 to 26 Mar 2017
26 Mar 2015 to 26 Mar 2018
24 Mar 2016 to 24 Mar 2019
26 Mar 2010 to 26 Mar 2013
26 Mar 2014 to 26 Mar 2017
26 Mar 2015 to 26 Mar 2018
24 Mar 2016 to 24 Mar 2019
Notes:
(i) Partnership shares are shares awarded in return for an investment of between £10 and £1,500. Partnership shares were awarded for both Directors on 24 March 2016 at a price of £9.3875 per share, in
return for £1,500 being deducted from pre-tax salary.
(ii) For every ten partnership shares acquired, the Company awards one matching share. Matching shares were also awarded on 24 March 2016 in relation to the partnership shares mentioned above.
(iii) The partnership, dividend and matching shares will be held by an employee benefit trust on behalf of the Director. The matching and dividend shares must be held for a minimum period of three years
from the date of the award.
Between 2 January 2017 and 27 February 2017 there were no exercises or other dealings in the Company’s share awards by the Directors.
Share Interests and Shareholding Guidelines (audited)
The Executive Directors are required to build up a shareholding equivalent to 150% of salary, and a further 50% of salary in shares and/or in one or
more St. James’s Place fund portfolios. All of the Executive Directors have met the shareholding guideline.
Directors’ Interests in Shares
Director
David Bellamy
Andrew Croft
Ian Gascoigne
David Lamb
Sarah Bates
Iain Cornish
Simon Jeffreys
Baroness Wheatcroft
Roger Yates
Shares held at
1 January
2016
Shares held at
31 December
2016
% of base salary held
in SJP shares as at
31 December 2016(i)
2,589%
2,600%
2,055%
1,394%
1,263,080
890,567
692,520
461,345
13,500
–
18,364
2,500
10,000
1,289,203
935,925
739,773
501,835
13,500
–
18,364
2,500
10,000
Notes:
(i) Calculated using the mid market price at 31 December 2016 of £10.14.
(ii) The interests of the Directors include those of their Connected Persons as defined in section 96B(2) of the Financial Services and Markets Act.
(iii) The interests of the Executive Directors set out above include deferred bonus scheme awards held in trust for the Directors, details of which are set out on page 109. The interests of the Executive
Directors also include awards under the Share Incentive Plan, details of which are set out on page 110.
(iv) The Company’s register of Directors’ interests contains full details of Directors’ shareholdings and any share awards under the Company’s various share schemes.
(v) Disclosure of the Directors’ interests in share awards is given on pages 108 to 110 of the Remuneration Report and also in Note 24 – Related Party Transactions.
Between 2 January 2017 and 27 February 2017 there were no transactions in the Company’s shares by the Directors.
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St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415Page Title at start:Content Section at start: Executive Directors’ shareholdings and outstanding share awards
Executive Director
David Bellamy
Andrew Croft
Ian Gascoigne
David Lamb
Beneficially owned
at 31 December
2016(i)
1,289,203
935,925
739,773
501,835
Outstanding
PSP awards
(performance
conditions)(ii)
317,651
215,971
215,971
215,971
SAYE options
(no performance
conditions)(iii)
Outstanding
DBS awards
(no performance
conditions)(iv)
SIP shares
(no performance
conditions)(v)
–
1,219
1,243
1,243
108,897
78,805
78,805
78,805
–
1,308
1,053
–
Notes:
(i) Beneficially owned shares include those DBS Awards and SIP Shares set out in columns (iv) and (v) above.
(ii) Details on the PSP awards are set out on page 108.
(iii) Details on the SAYE options are set on page 109.
(iv) Details on DBS awards are set out on page 109.
(v) Details on the SIP shares are set out on page 110.
Dilution
Dilution limits agreed by shareholders at the time of shareholder approval of the various long-term incentive schemes allow for the following:
• Up to 10% of share capital in ten years to be used for grants to employees and members of the St. James’s Place Partnership under all share schemes
i.e. both the employee and ‘Partner’ share schemes; and
• Up to 5% of share capital in ten years to be used for grants to employees under discretionary schemes.
The table below sets out, as at 31 December 2016, the number of new ordinary shares in the Company which have been issued, or are capable of being
issued (subject to the satisfaction of any applicable performance conditions) as a result of options or awards granted under the various long-term
incentive schemes operated by the Company in the ten years prior to 31 December 2016.
Share Scheme
SAYE schemes
Executive share schemes
Partners’ share schemes
Total
Number of new
ordinary shares of
15 pence each
% of total issued
share capital as at
31 December 2016
4,246,684
10,721,865
9,368,513
24,337,062
0.81%
2.03%
1.78%
4.62%
In addition, as at 31 December 2016, the Group’s Employee Share Trust held 1,330,156 shares in the Company which were acquired to meet awards
made under the PSP, executive share option schemes and awards made under the Deferred Bonus Scheme to Irish employees. In addition a further
1,272,805 shares are held to meet awards made in 2015 and 2016 under the Deferred Bonus Scheme and 300,948 shares are held to meet awards made
in 2016 under the Restricted Share Plan.
A further 535,448 shares, registered to employees under the terms of the Group’s Deferred Bonus Scheme, have been allocated by the Group’s
Employee Share Trust for awards made in 2014. These shares are allocated to the relevant individuals on a restricted basis whereby the recipients
are not entitled to the shares until completion of the three year restricted period. Further details of the Deferred Bonus Scheme are set out on
page 97.
Interests in Shares Held in Trusts
Certain Executive Directors and employees are deemed to have an interest or a potential interest as potential discretionary beneficiaries under the
St. James’s Place Employee Share Trust. As such, they were treated as at 31 December 2016 as being interested in 2,348,511 ordinary shares of
15 pence in the Company, such shares being held by S G Hambros Trust Company (Channel Islands) Limited, the trustee of that trust.
Annual Report and Accounts 2016
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St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationPage Title at start:Content Section at start: DIRECTORS’ REMUNERATION REPORT continued
Statement of Shareholding Voting at AGM
At last year’s AGM held on 4 May 2016, the Directors’ Remuneration Report received the following votes from shareholders:
For
Against
Discretion*
Total
Abstentions
Remuneration Report
Total number of votes
% of votes cast
407,906,771
1,611,329
359,800
409,877,900
5,199,778
99.52
0.39
0.09
100
* Discretion – of which 358,347 votes were proxy votes lodged in favour of the Chair.
Committee Membership and Attendance at the Committee Meetings
The membership and terms of reference of the Committee are reviewed annually and the terms of reference are available on the Company’s website.
The members of the Committee are Simon Jeffreys, Baroness Wheatcroft and Roger Yates. There have been six Committee meetings during the
year and all the members (as well as the Chair of the Board) attended each of the meetings (details of attendance at those meetings can be found on page 75).
Advisers to the Committee
The Committee appointed independent remuneration consultants New Bridge Street (NBS) to advise on remuneration matters generally and this appointment
is reviewed annually by the Committee. NBS is a signatory to the Remuneration Consultants’ Code of Conduct, which requires its advice to be impartial and
NBS has confirmed to the Committee its compliance with the Code.
The total fees paid to NBS for the advice provided to the Committee during the year were £94,688 (excluding VAT). Fees are charged on a ‘time spent’ basis.
NBS has not provided any other services to the Company during the year. However, certain subsidiaries of Aon plc, the parent company of NBS, have provided
some investment advisory services to the Company during 2016 for which the fees were £50,000 (excluding VAT). The Committee has been advised of the
basis on which NBS is organised and managed as part of the wider Aon organisation and the basis on which its staff are remunerated and is satisfied that the
additional services provided by other Aon group companies did not in any way compromise the independence of advice provided by NBS to the Committee.
The Committee also seeks internal support from the CEO, CFO, Chair of the Board, Chair of Risk Committee, Chief Risk Officer and the
Company Secretary. No Director is present at any part of a meeting of the Committee when their individual remuneration or contractual terms are being
discussed.
Engagement with Shareholders
The Committee is updated on the latest views of major shareholders (and their representative bodies) through meetings with investors (and their
representative bodies) and from various written communications received, including published guidelines. The Chair of the Committee is happy to
meet with shareholders on request to discuss any concerns regarding remuneration issues, should they arise.
How the Policy will be Applied for 2017
2017 salary review
The base salaries of the Executive Directors are being increased in 2017. The current salaries as at 1 March 2016 and from 1 March 2017 are as follows:
Director
David Bellamy
Andrew Croft
Ian Gascoigne
David Lamb
Salary from
1 March 2016
Salary from
1 March 2017
Increase from
1 March 2017
£505,000
£365,000
£365,000
£365,000
£520,000
£376,000
£376,000
£376,000
3%
3%
3%
3%
Annual bonus for 2017
The Executive Directors’ maximum bonus opportunity for 2017 will be the same as for 2016 being 150% of salary. Half of the annual bonus will be
determined by EEV operating profit and half by key strategic targets.
50% of the annual bonus earned for performance in 2017 will be paid in cash and the remaining 50% will be deferred in SJP shares for a three year
period and subject to continued service.
The EEV operating profit target set by the Committee is based on a sliding scale to progressively reward incremental performance. The EEV result is
calculated based on ‘best estimate’ assumptions and any deviation or changes from these assumptions are reported as an experience variance or an
operating assumption change. In setting the operating profit target for the year it is assumed the combined operating experience variance and
operating assumption changes will have a neutral impact on the outcome for the year. In setting the 2017 EEV Operating Profit target, the Committee
112
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415Page Title at start:Content Section at start: maintained the new business and expense growth objectives at the same level as in previous years. However, it was recognised that, in comparison to
the 2016 operating profit target, the 2017 contribution to operating profit from the unwind of the discount rate will be impacted negatively, by the
lower discount rate, following the 0.7% reduction in the UK ten-year government gilt yield.
The Board considers that the performance targets for the annual bonus are commercially sensitive and is not disclosing them at this time. The
performance metrics and performance against them will be disclosed in the 2017 Remuneration Report to the extent that they do not remain
commercially sensitive at that time.
The team element of the 2017 annual bonus will be assessed by reference to key strategic targets based around the 2017 business plan, including
elements relating to clients, shareholders and other key stakeholders. Specific objectives include: the delivery of excellent service to the Group’s clients
as measured by surveys and other client feedback; continuing to enhance the range of investment funds and maintaining strong investment
performance; the successful recruitment and retention of high quality Partners and Advisers; successfully implementing the next phase of the
administration system and transferring certain existing assets onto that system; successfully controlling and mitigating the material risks that could
impact the Group; and maintaining the Group’s good relations with its shareholders and regulators.
Performance Share Plan awards for 2017
The Executive Directors will each receive a PSP award in 2017 of 200% of salary.
Awards will be subject to a relative TSR performance condition for one-third of the award and earnings per share growth targets for two-thirds of the
award as follows:.
TSR relative to the FTSE 51 to 150
(Note 1)
Average annual adjusted EPS
growth (including the unwind of
the discount rate) in excess of RPI
(Note 2)
Average annual adjusted EPS
growth (excluding the unwind of
the discount rate) in excess of RPI
(Note 2)
Performance
required
Below Median
Median
Upper Quartile or above
% of one third of
award vesting
Performance
required
% of one third of
award vesting
Performance
required
% of one third of
award vesting
0%
25%
Below 5%
At least 5%
100% 16% or above
0%
25%
Below 5%
At least 5%
100% 16% or above
0%
25%
100%
Performance level hurdle
Below threshold
Threshold
Stretch or above
Note 1: FTSE 51 to 150, excluding investment trusts and companies in the FTSE oil, gas producers and mining sectors. Straight line vesting occurs in between threshold and maximum vesting.
Note 2: The first EPS performance condition is calculated by reference to adjusted consolidated profit after tax on the EEV basis of accounting for both the life and unit trust businesses (on a fully diluted
per share basis). The effect of the adjustment to the consolidated after tax figures will be to strip out the post-tax EEV investment variance and any economic assumption change in the final year of
the performance period as these factors are not within the control of management and can produce wide variations to reported earnings due to stock market fluctuations. However, this measure of
EPS is still impacted by stock market movements in the prior year due to the impact of any such movements on the unwind of the discount rate in the current year.
The second EPS performance condition is calculated in a similar way to the first EPS condition, save that a further adjustment is made to strip out the impact of the unwind of the discount rate. This
adjustment eliminates any direct impact of stock market volatility and changes in the economic assumptions throughout the whole three-year period of the performance condition.
Straight line vesting occurs in between threshold and maximum vesting.
Fees for the Chair and Non-executive Directors for 2017
The fees for the Chair and Non-executive Directors from 1 January 2016 to 31 December 2016 are as set out in column 1 below. For 2017, in
recognition of their increased workload, regulatory responsibilities and the size of the Group, the fees of the Chair have been increased by 3%, the
Non-executive Directors base fees have been increased by 3%, the Committee Chairs’ fee has been increased by 3% and the Senior Independent
Director fees have been increased by 100%. The 2017 fee levels are set out in column 2 of the table below.
Chair
Base fee
Committee Chair
Senior Independent Director
Note: No Committee membership fees are payable.
This report was approved by the Board of Directors and signed on its behalf by:
(1)
Fees from
1 January to
31 December
2016
£190,000
£59,945
£20,000
£2,780
(2)
Fees from
1 January to
31 December
2017
£195,700
£61,745
£20,600
£5,560
(3)
Percentage
increase
from
2016
3%
3%
3%
100%
Roger Yates
Chair of the Remuneration Committee
27 February 2017
Annual Report and Accounts 2016
113
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place FoundationPage Title at start:Content Section at start:
Directors’ Report
DIRECTORS’ REPORT
The Directors (as set out on pages 68 and 69) present their Report and
the Annual Report and Accounts and the audited consolidated financial
statements of the Group for the year ended 31 December 2016.
The content of the ‘Management Report’ required by the UK Financial
Conduct Authority’s (FCA) Disclosure and Transparency Rule DTR4.1
can be found in the Strategic Report and Governance sections of the
Annual Report and Accounts. An indication of likely future
developments can also be found in these sections.
Information disclosed in accordance with the requirements of the
sections of the UK Financial Conduct Authority’s Listing Rule LR9.8
(Annual Financial Report) that are applicable can be found in the
following sections:
Restrictions on Voting Rights
If any shareholder has been sent a notice by the Company under section
793 of the Companies Act 2006 and failed to supply the relevant
information for a period of 14 days, then the shareholder may not
(for so long as the default continues) be entitled to attend or vote
either personally or by proxy at a shareholders’ meeting, or to
exercise any other right conferred by membership in relation to
shareholders’ meetings.
If those default shares represent at least 0.25% of their class, any dividend
payable in respect of the shares will be withheld by the Company and
(subject to certain limited exceptions) no transfer, other than an
excepted transfer, of any shares held by the member in certificated form
will be registered.
Details of Long-term Incentive
Schemes
The Directors’ Remuneration
Report
Contracts of Significance
This Directors’ Report
Shareholder Waivers of Dividends This Directors’ Report
Shareholder Waivers of Future
Dividends
This Directors’ Report
Directors’ Interests in the
Company’s Shares
The Directors’ Remuneration
Report
Major Shareholders’ Interests
This Directors’ Report
Authority to Purchase Own Shares Corporate Governance Statement
Status of Company
The Company is registered as a public limited company under the
Companies Act 2006.
For details of the Company’s subsidiaries and overseas branches, please
see pages 180 and 181.
Share Capital
Structure of the Company’s Capital
As at 31 December 2016, the Company’s issued and fully paid up share
capital was 527,482,348 ordinary shares of 15 pence each. All ordinary
shares are quoted on the London Stock Exchange and can be held in
uncertificated form via CREST. Details of the movement in the issued
share capital during the year are provided in Note 19 to the financial
statements on page 170.
Voting Rights
At any General Meeting, on a show of hands, each member who is
present in person has one vote and every proxy present who has been
duly appointed by a member entitled to vote on a resolution has one vote.
On a poll, every member who is present in person or by proxy shall have
one vote for every share of which he is the holder.
Articles of Association
The full rights and obligations attaching to the ordinary shares of the
Company are set out in the Company’s Articles. The Articles can be
amended by a special resolution of the members of the Company and
copies can be obtained from Companies House. Holders of ordinary
shares are entitled to receive the Company’s Reports and Accounts;
attend, speak and exercise voting rights; and appoint proxies to attend
General Meetings.
The Company proposes to amend its Articles at its forthcoming Annual
General Meeting to increase the aggregate limit of non-executive
remuneration, which has not increased since 2010, so as to ensure the
Board has sufficient flexibility to adhere to the Remuneration Policy and
meet the needs of succession plans in the future. In addition, a change to
the membership and quorum requirements for the Company’s Executive
Board is proposed so that its constitution aligns with the requirements of
a growing business. Other minor clarification changes are also being
proposed and details are contained in the Notice of Annual General
Meeting.
Restrictions on Share Transfers
There are restrictions on share transfers, all of which are set out in the
Articles. Restrictions include transfers made in favour of more than four
joint holders and transfers held in certificated form. Directors may
decline to recognise a transfer, unless it is in respect of only one class of
share and lodged (and duly stamped) with the Transfer Office. The
Directors may also refuse to register any transfer of shares held in
certificated form which are not fully paid. Directors may also choose to
decline requests for share transfers from a US Person (as defined under
Regulation S of the United States Securities Act 1933) that would cause
the aggregate number of beneficial owners of issued shares who are US
Persons to exceed 70.
The registration of transfers may be suspended at such times and for such
periods (not exceeding 30 days in any year) as the Directors may from
time to time determine in respect of any class of shares.
The Company is not aware of any agreements between shareholders that
restrict the transfer of shares or voting rights attached to the shares.
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St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415Page Title at start:Content Section at start: Substantial Shareholders
As at 22 February 2017, the Company had been notified of the following interests disclosed to the Company under Disclosure and Transparency
Rule 5:
Shareholder
Ameriprise Financial Inc
BlackRock, Inc
Prudential plc
FMR LLC
The Capital Group Companies, Inc
*
Percentage provided was correct at the date of notification
Holding at
31 Dec 2016
28,184,506
26,992,901
N/A
26,126,505
25,481,770
% held at
31 Dec 2016*
5.38
5.11
N/A
5.03
4.83
Holding at
22 Feb 2017
28,184,506
26,992,901
27,682,923
26,126,505
25,481,770
% held at
22 Feb 2017*
5.38
5.11
5.24
5.03
4.83
The interests of the Directors, and any persons closely associated, in the issued share capital of the Company are shown on page 110.
Results and Dividends
The consolidated statement of comprehensive income is on page 127 and IFRS profit after tax for the financial year attributable to equity shareholders
decreased to £112.2 million from £202.2 million in the prior year, principally due to recognition of £74.8 million of capital losses in the prior year.
The profit before tax increased from £174.1 million to £486.3 million in the current year, principally due to the increase in charges deducted from
Life Investment business in respect of policyholder tax, which is subsequently due to HMRC, as explained on page 38. This movement was mainly
driven by relative investment performance in the year, reflecting the fact that the investment return was more positive in 2016 than the prior year.
The profit before tax was also impacted negatively by the £22.9 million movement in DAC/DIR/PVIF intangibles, which is explained on page 36.
An interim dividend of 12.33 pence per share, which equates to £64.8 million, was paid on 30 September 2016 (2015: 10.72 pence per share/£56.0
million). The Directors recommend that shareholders approve a final dividend of 20.67 pence per share, which equates to £109 million (2015: final
dividend of 17.24 pence per share/£90.4 million) to be paid on 12 May 2017 to shareholders on the register at the close of business on 7 April 2017.
Details of the Dividend Reinvestment Plan (DRP) are set out on page 196.
Our People
Details of the Company’s approach to maintaining an appropriately skilled and diverse workforce can be found in the Our People section of the
Business Model on page 18.
The Company is committed to attracting and retaining talented people of both genders, and indeed of diverse skills and mind-sets in the widest sense.
The Company has a policy of ensuring that no discrimination takes place with regards to its job applicants and employees. Appointments and
promotions are made based on fair and considered judgements, with the individuals being assessed on their merits and skill sets. We need to make sure
we are not unwittingly excluding any particular group from the opportunities we can offer or depriving ourselves of people who could bring benefits
to our community.
We strive to give full and fair consideration to applications from and promotions of disabled people, having regard to their particular aptitudes and
abilities, and, where appropriate, we will consider modifications to the working environment so they can take up opportunities or enhance their role.
We will similarly make every effort in the event of an employee becoming ill or disabled, for example, by arranging appropriate training.
We believe that, by adopting best practice principles, we seek to ensure that our responsibilities are met as an equal opportunity employer and that
everyone can enjoy an environment free from discrimination of any sort.
The right to collective bargaining has not been exercised by any of the Company’s employees, however were they to do so, the Company would look to
comply with due process.
The Company considers it important to provide its employees with a balanced work and home life, and does not expect its employees to work
excessive hours.
The Company has a calendar of regular communication with employees and this includes a bi-annual employee satisfaction survey, the most recent of
which was conducted in 2016.
Annual Report and Accounts 2016
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The Company also offers a range of development options which reflect business priorities and offer employees the opportunity to grow their careers
within the Group. Such opportunities include:
• An apprenticeship programme offering opportunities in a range of roles across the organisation;
• A rotational graduate programme providing diverse experience across the organisation;
• Higher Education partnerships delivering training and relevant qualifications within the wealth management industry;
• Membership of the Institute of Customer Service;
• A rolling programme of Knowledge Development Meetings;
• Support for employees seeking externally recognised professional qualifications;
• Management development activities for those with the interest and ability to develop their careers as leaders in the business; and
• Specific development programmes for the more specialist roles within the Company’s Field Management Team.
As a Company, we believe that equity participation for employees, through the use of employee share plans, allows and encourages employees to feel a
sense of ownership and share in the Company’s success.
Bribery Act 2010
The Board is responsible for the oversight of the Company’s anti-bribery, corruption and whistleblowing policies and procedures. During 2016, the
Company carried out its annual review of the adequacy of the policies established with the aim to prevent bribery and corruption by person associated
with the Group. This included reviewing the Anti-Bribery and Corruption Policy Statement, along with other related policies and procedures, and
providing training to employees and Partners with regards to money laundering, financial crime, fraud, bribery and corruption via online training
programmes, the completion of which is compulsory.
The Company also has a Whistleblowing policy, and encourages employees, Partners and other interested parties to report any instances of
wrongdoing, anonymously, to either the Chair of the Audit Committee or the Money Laundering Reporting Officer.
During 2016, no employees or Partners were disciplined or dismissed due to non-compliance with the Anti-Bribery and Corruption policies and no
fines were levied against the Company in relation to bribery or corruption.
The Anti-Bribery and Corruption Policy Statement and the Whistleblowing Policy and procedures are available to all employees and Partners via the
Company’s intranet.
Significant Contracts and Change of Control
The Company has a number of contractual arrangements which it considers essential to the business of the Company. Specifically, these are
committed loan facilities from a number of banks and arrangements with third party providers of administrative services.
A change of control of the Company may cause some agreements to which the Company is a party to alter or terminate. These include bank facility
agreements and employee share plans.
The Group had committed facilities totalling £307 million as at 22 February 2017 which contain clauses which require lender consent for any change
of control. In addition, the Group guarantees the obligations of loans made to Partners in connection with facilities agreed with various lenders
totalling £137 million in aggregate. Should consent not be given, a change of control would trigger mandatory repayment of the said facilities.
All the Company’s employee share plans contain provisions relating to a change of control. Outstanding awards and options may vest and become
exercisable on a change of control, subject where appropriate to the satisfaction of any performance conditions at that time and pro-rating of awards.
Financial Instruments
An indication of the Group’s use of financial instruments can be found in the notes to the financial statements on pages 157 to 167.
Directors’ Indemnity
Details of the indemnity provisions in place for the Directors, including qualifying third party indemnity provisions, can be found on page 74.
Political Donations
It is the Group’s policy not to make any donations to political parties within the meaning of the definitions set out in the Political Parties, Elections
and Referendums Act 2000 and sections 362 to 379 of the Companies Act 2006.
Annual General Meeting
The Company’s Annual General Meeting will be held on Wednesday, 4 May 2017 at The Royal Aeronautical Society, 4 Hamilton Place, London W1J
7BQ at 11.00am.
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In conjunction with its assessment of longer term viability as set out on
page 50, the Board concluded that it remained appropriate to adopt the
going concern basis of accounting in preparing the consolidated financial
statements as it believes the Group will continue to be in business, with
neither the intention nor the necessity of liquidation, ceasing trading or
seeking protection from creditors pursuant to laws or regulations for a
period of at least twelve months from the date of approval of the Group
financial statements.
Disclosure of Information to Auditors
Each of the Directors, at the date of approval of this report,
confirms that:
•
so far as each Director is aware, there is no relevant audit information
of which the auditors are unaware; and
• each Director has taken all steps that they ought to have taken as a
Director to make themselves aware of any relevant audit information
and to establish that the Company’s auditors is aware of such
information.
This confirmation is given and should be interpreted in accordance with
the provisions of section 418 of the Companies Act 2006.
Independent Auditors
As indicated by the Chair of the Audit Committee in the Annual Report
last year, it was expected that, in the best interests of shareholders, the
external audit contract would be tendered during 2016 in respect of the
2017 year-end audit. A competitive tender process was undertaken by the
Audit Committee (further details of which can be found in the Audit
Committee’s Report) and the Board subsequently agreed to recommend to
shareholders the reappointment of PricewaterhouseCoopers LLP (PwC)
at the Annual General Meeting on 4 May 2017.
On behalf of the Board
David Bellamy
Chief Executive
27 February 2017
Andrew Croft
Chief Financial Officer
Annual Report and Accounts 2016
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Statement of Directors’
Responsibilities
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
Each of the Directors, whose names and functions are listed in the Board
of Directors section of the Annual Report confirm that, to the best of
their knowledge:
•
the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit of
the Group;
the Parent Company financial statements, which have been prepared
in accordance with United Kingdom Generally Accepted Accounting
Practice give a true and fair view of the assets, liabilities, financial
position and profit of the Parent Company; and
the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company and
Group, together with a description of the principal risks and
uncertainties that it faces.
•
•
By order of the Board
Elizabeth Kelly
Company Secretary
27 February 2017
The Directors are responsible for preparing the Annual Report, the
Directors’ Remuneration Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for
each financial year. Under that law the Directors have prepared the
Group financial statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union, and the
Parent Company financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law). Under company law the
Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the
Group and the Parent Company and of the profit or loss of the Group for
that period. In preparing these financial statements, the Directors are
required to:
•
select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and
•
prudent;
state whether IFRSs as adopted by the European Union and applicable
UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the Group and Parent
Company financial statements respectively; and
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Group and Parent Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable them to
ensure that the financial statements and the Directors’ Remuneration
Report comply with the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation. They are also
responsible for safeguarding the assets of the Company and the Group
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
Group’s website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
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Consolidated financial statements on
international financial reporting standards basis.
CONTENTS
– Independent Auditors’ Report
– Consolidated Statement of Comprehensive Income
– Consolidated Statement of Changes in Equity
– Consolidated Statement of Financial Position
– Consolidated Statement of Cash Flows
– Notes to the Consolidated Financial Statements
Annual Report and Accounts 2016
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St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF
ST. JAMES’S PLACE PLC
REPORT ON THE GROUP FINANCIAL STATEMENTS
Our opinion
In our opinion, St. James’s Place plc’s group financial statements (the ‘financial statements’):
• give a true and fair view of the state of the group’s affairs as at 31 December 2016 and of its profit and cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.
What we have audited
The financial statements, included within the Annual Report and Accounts (the ‘Annual Report’), comprise:
•
•
•
•
•
the Consolidated Statement of Financial Position as at 31 December 2016;
the Consolidated Statement of Comprehensive Income for the year then ended;
the Consolidated Statement of Cash Flows for the year then ended;
the Consolidated Statement of Changes in Equity for the year then ended; and
the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.
Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are
cross-referenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is IFRS as adopted by the European Union, and
applicable law.
Our audit approach
Context
This year’s audit focused on the core aspects of the business such as the valuation of financial investments, the recoverability of the prepayment asset
linked to the new administration system developed at an outsourced provider and the risk of fraud in revenue recognition. Developments during the
year included the completion of the acquisition of the Rowan Dartington Group, as well as the acquisition of two smaller entities.
Overview
Materiality
• Overall group materiality: £24.25 million which represents 5% of profit before tax.
Audit scope
• The Group financial statements comprise the consolidation of approximately 60 individual components, each of which represents an individual
entity within the Group or consolidation adjustments.
• We assessed each component and considered the contribution it made to the Group’s profit before tax, whether it displayed any significant risk
characteristics or whether it contributed a significant amount to any individual financial statement line item.
• The above assessment resulted in us identifying ten components that required audit procedures for the purpose of the audit of the Group
financial statements.
• Nine of the components are based in the UK and were audited by the PwC UK Group audit team. The remaining component is based in the
Republic of Ireland and was audited by PwC Dublin.
• By performing audit procedures on these ten components we achieved greater than 90% coverage of each material financial statement line item
within the Group financial statements.
Areas of focus
• Risk of fraud in revenue recognition.
• Valuation of the prepayment asset in respect of the development of an administration platform at an outsourced provider.
• Recognition and disclosure of new acquisitions.
• Valuation of investments with a judgemental valuation, being investment property and derivatives.
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)’).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked
at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and
considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls,
including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as ‘areas
of focus’ in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the
financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list
of all risks identified by our audit.
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St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Area of focus
Valuation of the prepayment asset in respect of the development of an
administration platform at an outsourced provider
The Group is charged costs by IFDS in respect of ensuring operational
readiness of a new policy administration platform. These costs are
recognised as a prepayment to be unwound over the duration of the
related service agreement with IFDS. The balance of the prepayment at
31 December 2016 was £121m. The maximum prepayment that can be
recognised is capped at the net present value of future cost savings.
How our audit addressed the area of focus
In testing whether the asset was valued appropriately and whether an
impairment was necessary we:
• agreed amounts capitalised in the year back to the service
agreement and cash payments to IFDS.
• assessed the reasonableness of the assumptions underlying
management’s discounted cash flow calculating the anticipated cost
savings that support the valuation of the prepaid cost asset in the
consolidated statement of financial position.
Due to the nature and magnitude of the amounts arising from the
contractual terms the valuation of the prepayment asset was an area of
audit focus.
Recognition and disclosure of new acquisitions
During 2016 the Group completed three acquisitions. IFRS 3 requires
that, when businesses are acquired, management calculate the fair value
of the assets and liabilities acquired, as well as the total consideration
paid (including deferred or contingent consideration). The excess of the
consideration over the net fair value of assets and liabilities is then
recorded as goodwill. Calculating fair values of assets and liabilities and
the potential value of contingent consideration often requires
judgements and estimates, as such, this was an area of focus for
our audit.
We also agreed the cost savings for 2016 to the new service tariffs
against the legacy platform tariff. We performed a sensitivity analysis
on the inflation and discount rate assumptions as well as business flow
to determine the potential impact of changes in these variables on the
present value of future savings to check whether they would affect the
carrying value of the asset this year.
We noted no material exceptions in our procedures and we determined
that the disclosure of the transactions in the financial statements
was appropriate.
The most significant of the acquisitions, that of the Rowan Dartington
Group (‘RD’), was agreed in principle prior to the 2015 accounts being
signed and was disclosed as a subsequent event following legal
completion. We performed audit work over this disclosure, including
the initial calculation of fair value adjustments as part of the 2015 audit.
In 2016 we have audited the adjustments made to the RD calculation
compared to that used at the 2015 year end. The key change was in
respect to the subsequent sale of a subsidiary within the RD group, which
achieved a value in excess of that included in the 2015 calculation of ‘fair
value of assets acquired’. We agreed adjustments back to supporting
documentation such as the sale and purchase agreement.
For the other acquisitions in 2016, we obtained and reviewed the sale
and purchase agreement and agreed that the accounting entries posted
by management were in line with the details in the agreement.
For all three acquisitions we tested the disclosures made within the
notes to the financial statements to ensure they were in line with the
requirements of IFRS 3. We also reviewed the goodwill recognised on
the acquisitions and considered whether there was any indication
of impairment.
We noted no material exceptions in our procedures and we determined
that the disclosure of the transactions in the financial statements
was appropriate.
Annual Report and Accounts 2016
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INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF
ST. JAMES’S PLACE PLC continued
Area of focus
Risk of fraud in revenue recognition
ISAs (UK & Ireland) presume there is a risk of fraud in revenue
recognition because of the pressure management may feel to achieve
market expectations. In this regard we focused on transactions which
included a judgemental element in their calculation, typical within the
life insurance industry, as set out in note 2 to the financial statements.
For the Group, revenue includes fees and commission income on
investment contracts and investment advice, premiums on insurance
business, and investment return.
We focused specifically on the following:
• Estimates/assumptions made by management that have a direct
impact on revenue, as extended by Auditing Practices Board
Practice Note 20 – ‘The audit of insurers in the United Kingdom’
(‘PN20’), for example the amortisation profile of Deferred
Acquisition Costs (‘DAC’) and Deferred Income (‘DIR’).
Journals posted impacting revenue in addition to the source system
determined balance.
•
We also considered the recognition of income or costs which may have
a close relationship to earned insurance premiums and fees, in
accordance with PN20, such as reinsurance costs. The Group fully
reinsures the UK insurance risk of its closed book of protection
business and therefore we focused on whether the £31.5m of premium
income associated with this business that was passed on to the reinsurer
was complete.
Investment return relates largely to investment contract policyholders
and third party holdings in consolidated unit trusts and so has not been
included as an area of focus.
How our audit addressed the area of focus
We assessed the critical accounting estimates and judgements as set out
in note 2 to the financial statements that had a direct impact on
revenue.
Specifically we:
•
substantively tested the deferred income and acquisition costs and
the amortisation of DIR and DAC, including assessing the future
profitability of the products to which the income and acquisition
costs related to ensure that profitability was sufficient to support
the carrying value of the deferred balances; and
• confirmed substantively the classification of the Group’s products
between insurance and investment business to check that insurance
product revenue was appropriately included in the consolidated
statement of comprehensive income and investment business (except
for fees related to investment contract management) was excluded.
We confirmed that there were no new reinsurance arrangements
during the year and agreed a sample of premiums ceded to the cash
payment to the reinsurer.
Our work on the above areas of judgement was supported by controls
testing and substantive procedures over all material revenue
streams including:
• reconciling fees on investment business to confirmatory
•
documentation provided by the asset custodian, State Street;
testing internal controls over the accuracy and occurrence of
revenue recognised in the financial statements;
• obtaining and reading the two International Standard on Assurance
Engagements (‘ISAE’) 3402 ‘Assurance Reports on Controls at a
Service Organisation’ reports issued by International Financial Data
Services (‘IFDS’) relevant to the Group, in particular focusing on
the controls designed to prevent and detect fraud operating over the
Group administration systems owned and operated by IFDS;
testing a sample of journal entries posted throughout the year to
revenue accounts that met specific criteria to identify unusual or
irregular items.
•
There were no issues in the ISAE 3402 reports that impacted our audit
scope. We also performed testing of controls and substantive
procedures on the IFDS policy administration system ‘Salas’ and at
Capita in Ireland, where ISAE 3402 reports were not available.
Overall, we noted no material exceptions in our testing and found the
judgements taken by the Directors to be reasonable.
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St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Area of focus
Valuation of investments with a judgemental valuation, being investment
property and derivatives
The Group financial statements include c. £70bn of investments. A
large number of these are straight forward, vanilla instruments and as
such do not require judgement in calculating the valuation of the
investments.
However c. £2bn of the investments are in derivatives and investment
properties, which require management to use estimates and judgements
in order to calculate the year end valuation. Due to the magnitude of
the balances and the level of judgement involved, this was an area of
focus for our audit.
How our audit addressed the area of focus
Financial assets including derivatives
SJP outsources investment custodian and valuation activities for
financial assets, including derivatives, to State Street. Our audit
procedures therefore focused on the evidence available over these
outsourced processes.
We obtained and read the International Standard on Assurance
Engagements (‘ISAE’) 3402 ‘Assurance Reports on Controls at a
Service Organisation’ for State Street’s Global Fund Accounting and
Custody operations, which provided a description of the systems and
controls in place and the results of testing of the operational
effectiveness of those controls.
Where appropriate we placed reliance on the controls described in the
ISAE 3402 report over the valuation and existence of the financial
investments within the portfolio.
We independently re-priced a sample of derivative investments as at
year end. We agreed our independent prices to those provided by State
Street.
Investment properties
The investment property portfolio is managed by Orchard Street, with
title deeds held by DLA Piper and regular valuations performed
by CBRE.
We reconciled the listing of properties valued by CBRE to details
provided by Orchard Street and also agreed the total valuation to that
recorded in the general ledger.
We engaged our in house real estate valuation experts to review the
methodology and key assumptions used by CBRE in valuing the
portfolio. We also agreed factual inputs to the calculations (eg. rental
income) to tenancy agreements.
We noted no material exceptions in our procedures.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole,
taking into account the operational and geographic structure of the Group, the accounting processes and controls, and the industry in which the
Group operates.
The Group is structured to reflect its vertically integrated wealth management business and operates predominantly within the United Kingdom.
Four of the components within the Group required an audit of their complete financial information. Of these two (St. James’s Place UK plc and
St. James’s Place Unit Trust Group limited) were considered financially significant as they contributed greater than 15% of the Group’s profit before
tax. The remaining two (St. James’s Place International Plc and the St. James’s Place Unit Trusts) had specific risk characteristics which meant we
considered them to require an audit of their complete financial information. St. James’s Place International Plc, is a regulated insurance company
giving rise to complex accounting entries, such as the calculation of insurance reserves and DAC and DIR balances. The St. James’s Place Unit Trusts
contribute materially to investments, some of which require judgemental valuations (derivatives and investment property).
All components aside from St. James’s Place International Plc were audited by the Group audit team, PwC UK. St. James’s Place International Plc is
incorporated and regulated in the Republic of Ireland and was audited by PwC Dublin.
Annual Report and Accounts 2016
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ST. JAMES’S PLACE PLC continued
At the planning stage of the audit we provided written instructions to PwC Dublin to confirm the work we required them to complete and the
materiality level they should work to. We held regular phone calls with the PwC Dublin engagement leader and senior manager through the planning,
execution and completion phases of the audit to inform them of developments at a Group level and to understand from them any local developments
that were relevant for our audit of the Group. During the execution phase we obtained access to their electronic working papers and reviewed selected
elements of their work, focusing on their work to address the significant and elevated risks identified.
In addition to the full scope audit of the four components noted above, we also performed specific audit procedures on certain financial statement line
items within six other components. These financial statement lines items were selected for testing to ensure we had sufficient coverage of each
financial statement line item within the Group financial statements.
Together with additional procedures performed at a Group level on the consolidation, the result of the above scoping was that we achieved greater
than 90% coverage of each material financial statement line item within the Group financial statements, giving us the evidence we needed for our
audit opinion.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the financial statements as
a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall group materiality
How we determined it
Rationale for benchmark applied
Component materiality
£24 million (2015: £9 million).
5% of profit before tax.
Profit before tax is a generally accepted auditing benchmark.
For each component in our audit scope, we allocated a materiality that is
less than our overall group materiality. The range of materiality allocated
across components was between £17 million and £4 million. Certain
components were audited to a local statutory entity audit materiality that
was also less than our overall group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £1 million (2015: £0.4 million)
as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the Directors’ Statement, set out on page 117, in relation to going concern. We have nothing to
report having performed our review.
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the Directors’
Statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements. We have nothing
material to add or to draw attention to.
As noted in the Directors’ Statement, the Directors have concluded that it is appropriate to adopt the going concern basis in preparing the financial
statements. The going concern basis presumes that the Group has adequate resources to remain in operation, and that the Directors intend it to do so,
for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the Directors’ use of the going
concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the
Group’s ability to continue as a going concern.
OTHER REQUIRED REPORTING
Consistency of other information and compliance with applicable requirements
Companies Act 2006 reporting
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is
consistent with the financial statements; and
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
•
In addition, in light of the knowledge and understanding of the group and its environment obtained in the course of the audit, we are required to
report if we have identified any material misstatements in the Strategic Report and the Directors’ Report. We have nothing to report in this respect.
124
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the Corporate Governance Statement set out on page 86 with respect to internal control and risk management systems
and about share capital structures is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements; and
the information given in the Corporate Governance Statement set out on pages 72 and 73 with respect to the company’s corporate governance
code and practices and about its administrative, management and supervisory bodies complies with rules 7.2.2, 7.2.3 and 7.2.7 of the Disclosure
Guidance and Transparency Rules sourcebook of the Financial Conduct Authority.
•
In addition, in light of the knowledge and understanding of the group and its environment obtained in the course of the audit, we are required to
report if we have identified any material misstatements in the information referred to above in the Corporate Governance Statement. We have nothing
to report in this respect.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
information in the Annual Report is:
• materially inconsistent with the information in the audited financial
We have no exceptions to report.
statements; or
• apparently materially incorrect based on, or materially inconsistent
with, our knowledge of the group acquired in the course of
performing our audit; or
• otherwise misleading.
the statement given by the directors on page 83, in accordance with
provision C.1.1 of the UK Corporate Governance Code (the ‘Code’),
that they consider the Annual Report taken as a whole to be fair, balanced
and understandable and provides the information necessary for members
to assess the group’s position and performance, business model and
strategy is materially inconsistent with our knowledge of the group
acquired in the course of performing our audit.
the section of the Annual Report on page 81, as required by provision
C.3.8 of the Code, describing the work of the Audit Committee does not
appropriately address matters communicated by us to the Audit
Committee.
We have no exceptions to report.
We have no exceptions to report.
The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency or liquidity
of the group
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to:
We have nothing material to add or to draw attention to.
•
the directors’ confirmation on page 78 of the Annual Report, in
accordance with provision C.2.1 of the Code, that they have carried
out a robust assessment of the principal risks facing the group,
including those that would threaten its business model, future
performance, solvency or liquidity.
•
•
the disclosures in the Annual Report that describe those risks and
explain how they are being managed or mitigated
the directors’ explanation on page 50 of the Annual Report, in
accordance with provision C.2.2 of the Code, as to how they have
assessed the prospects of the group, over what period they have done
so and why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the
group will be able to continue in operation and meet its liabilities as
they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications
or assumptions.
We have nothing material to add or to draw attention to.
We have nothing material to add or to draw attention to.
Under the Listing Rules we are required to review the directors’ statement that they have carried out a robust assessment of the principal risks facing
the group and the directors’ statement in relation to the longer-term viability of the group. Our review was substantially less in scope than an audit
and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the statements are in
alignment with the relevant provisions of the Code; and considering whether the statements are consistent with the knowledge acquired by us in the
course of performing our audit. We have nothing to report having performed our review.
Annual Report and Accounts 2016
125
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF
ST. JAMES’S PLACE PLC continued
Adequacy of information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information and explanations we
require for our audit. We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are
not made. We have no exceptions to report arising from this responsibility.
Corporate governance statement
Under the Companies Act 2006 we are required to report to you if, in our opinion, a corporate governance statement has not been prepared by the
parent company. We have no exceptions to report arising from this responsibility.
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions of the Code. We
have nothing to report having performed our review.
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
Our responsibilities and those of the directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 118, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those
standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3 of Part
16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or
to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the
financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed;
•
•
the reasonableness of significant accounting estimates made by the directors; and
the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements, and
evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for
us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by
us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications
for our report. With respect to the Strategic Report, Directors’ Report and Corporate Governance Statement, we consider whether those reports
include the disclosures required by applicable legal requirements.
Other matter
We have reported separately on the parent company financial statements of St. James’s Place plc for the year ended 31 December 2016 and on the
information in the Directors’ Remuneration Report that is described as having been audited.
Jeremy Jensen (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
27 February 2017
126
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
Insurance premium income
Less premiums ceded to reinsurers
Net insurance premium income
Fee and commission income
Investment return
Other operating income
Net income
Policy claims and benefits
– Gross amount
– Reinsurers’ share
Net policyholder claims and benefits incurred
Change in insurance contract liabilities
– Gross amount
– Reinsurers’ share
Net change in insurance contract liabilities
Investment contract benefits
Expenses
Profit before tax
Tax attributable to policyholders’ returns
Profit before tax attributable to shareholders’ returns
Total tax (expense)/credit
Less: tax attributable to policyholders’ returns
Tax attributable to shareholders’ returns
Profit and total comprehensive income for the year
Loss attributable to non-controlling interests
Profit attributable to equity shareholders
Profit and total comprehensive income for the year
Basic earnings per share
Diluted earnings per share
The results relate to continuing operations.
Note
4
6
Year Ended
31 December
2016
£’Million
Year Ended
31 December
2015
£’Million
52.2
(31.5)
20.7
1,703.9
9,630.1
–
11,354.7
(62.7)
21.7
(41.0)
(64.6)
4.1
(60.5)
54.7
(32.6)
22.1
1,333.5
1,755.8
1.5
3,112.9
(65.0)
28.5
(36.5)
10.8
(0.5)
10.3
11
(9,541.8)
(1,762.5)
5
3
7
7
7
7
19
19
(1,225.1)
486.3
(1,150.1)
174.1
(345.7)
140.6
(374.6)
345.7
(28.9)
111.7
(0.5)
112.2
111.7
Pence
21.5
21.3
(22.8)
151.3
27.9
22.8
50.7
202.0
(0.2)
202.2
202.0
Pence
38.9
38.5
The notes and information below and on pages 131 to 183 form part of these financial statements.
As permitted by Section 408 of the Companies Act 2006, no statement of comprehensive income is presented for the Company.
Annual Report and Accounts 2016
127
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Equity attributable to owners of the Parent
Note
Share
Capital
Share
Premium
Shares in
Trust
Reserve
Retained
Earnings
Misc
Reserves
Non-
controlling
Interests
Total
Total
Equity
£’Million £’Million £’Million £’Million £’Million £’Million
£’Million £’Million
At 1 January 2015
77.9
147.4
(10.5)
793.1
2.3
1,010.2
(0.1)
1,010.1
Profit/(loss) and total comprehensive income/
(expense) for the year
Dividends
Issue of share capital
Exercise of options
Consideration paid for own shares
Shares sold during the year
Retained earnings credit in respect of proceeds from
exercise of share options of shares held in trust
Retained earnings credit in respect of share option
charges
At 31 December 2015
Profit/(loss) and total comprehensive income/
(expense) for the year
Dividends
Issue of share capital
Exercise of options
Consideration paid for own shares
Shares sold during the year
Misc reserves on acquisition
Retained earnings credit in respect of share option
charges
19
19
19
19
0.3
0.5
1.9
9.0
202.2
(130.8)
(4.7)
14.8
(12.8)
4.7
0.1
202.2
(130.8)
2.2
9.5
(12.8)
–
0.1
14.8
(0.2)
202.0
(130.8)
2.2
9.5
(12.8)
–
0.1
14.8
78.7
158.3
(18.5)
874.6
2.3
1,095.4
(0.3) 1,095.1
0.4
0.9
5.3
112.2
(155.2)
(3.1)
22.7
112.2
(155.2)
0.9
5.7
(5.5)
–
0.2
22.7
0.2
(5.5)
3.1
(0.5)
111.7
(155.2)
0.9
5.7
(5.5)
–
0.2
22.7
At 31 December 2016
79.1
164.5
(20.9)
851.2
2.5 1,076.4
(0.8) 1,075.6
The number of shares held in the Treasury Share Reserve is given in Note 19 Share Capital on page 170.
Miscellaneous reserves represent other non-distributable reserves.
The notes and information on pages 131 to 183 form part of these financial statements.
128
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Assets
Goodwill
Intangible assets
– Deferred acquisition costs
– Acquired value of in-force business
– Computer software
Property and equipment
Deferred tax assets
Reinsurance assets
Other receivables
Investments
– Investment property
– Equities
– Fixed income securities
– Investment in Collective Investment Schemes
– Derivative financial instruments
Cash and cash equivalents
Total assets
Liabilities
Borrowings
Deferred tax liabilities
Insurance contract liabilities
Deferred income
Other provisions
Other payables
Investment contract benefits
Derivative financial instruments
Net asset value attributable to unit holders
Income tax liabilities
Preference shares
Total liabilities
Net assets
Shareholders’ equity
Share capital
Share premium
Shares in trust reserve
Miscellaneous reserves
Retained earnings
Equity attributable to owners of the Parent
Non-controlling interests
Total equity
Net assets per share
Note
As at
31 December
2016
As at
31 December
2015
£’Million
£’Million
8
8
8
8
9
7
14
12
10
10
16
7
14
8
15
13
11
10
19
13.8
684.8
30.4
3.0
732.0
23.1
199.9
80.5
1,473.0
1,462.4
46,598.7
12,445.5
3,864.8
729.1
7,413.1
75,022.1
281.4
614.8
518.2
647.6
17.1
1,173.6
53,307.1
281.9
17,032.0
72.7
0.1
10.1
745.0
33.6
4.3
793.0
8.0
225.9
85.0
967.2*
1,344.9
37,960.8
8,934.0
3,269.6
364.1
5,325.1
59,277.6
181.8
434.6
463.5
413.5
15.4
706.7*
43,159.8
221.1
12,556.4
29.6
0.1
73,946.5
58,182.5
1,075.6
1,095.1
79.1
164.5
(20.9)
2.5
851.2
1,076.4
(0.8)
1,075.6
Pence
203.9
78.7
158.3
(18.5)
2.3
874.6
1,095.4
(0.3)
1,095.1
Pence
208.7
*
Some lines have been aggregated in the comparative to simplify the presentation. See Note 12 Other Receivables and Note 13 Other Payables for further information.
The financial statements on pages 127 to 183 were approved by the Board of Directors on 27 February 2017 and signed on its behalf by:
David Bellamy
Chief Executive
Andrew Croft
Chief Financial Officer
The notes and information on pages 131 to 183
form part of these financial statements.
Annual Report and Accounts 2016
129
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation
CONSOLIDATED STATEMENT OF CASH FLOWS
Cash flows from operating activities
Profit before tax for the year
Adjustments for:
Depreciation
Amortisation of acquired value of in-force business
Amortisation of computer software
Share-based payment charge
Interest income
Interest expense
Increase in provisions
Exchange rate gains
Changes in operating assets and liabilities
Decrease in deferred acquisition costs
Increase in investment property
Increase in other investments
Decrease in reinsurance assets
Increase in other receivables
Increase/(decrease) in insurance contract liabilities
Increase in financial liabilities (excluding borrowings)
Increase/(decrease) in deferred income
Increase in other payables
Increase in net assets attributable to unit holders
Cash generated from operating activities
Interest received
Interest paid
Income taxes paid
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of property and equipment
Acquisition of intangible assets
Acquisition of subsidiaries and other business combinations, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities
Proceeds from the issue of share capital
Consideration paid for own shares
Proceeds from exercise of options over shares held in trust
Additional borrowings
Repayment of borrowings
Dividends paid
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Exchange gains on cash and cash equivalents
Cash and cash equivalents at 31 December
Note
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
486.3
4.4
3.2
3.4
23.9
(26.6)
4.9
1.7
(3.3)
60.2
(117.5)
(13,109.6)
4.5
(464.4)
54.6
10,207.8
234.1
407.8
4,475.6
2,251.0
26.6
(4.9)
(87.7)
2,185.0
(19.6)
(2.1)
(23.1)
(44.8)
5.7
(5.5)
–
100.0
(0.9)
(155.2)
(55.9)
2,084.3
5,325.1
3.7
7,413.1
9
8
8
20
8
8
9
8
16
19
10
10
174.1
2.5
3.2
3.4
15.7
(23.9)
4.4
4.0
–
68.0
(313.5)
(5,826.7)
0.5
(451.8)*
(10.9)
4,450.4
(49.7)
282.1*
1,938.6
270.4
23.9
(4.4)
(61.7)
228.2
(4.0)
–
(0.8)
(4.8)
9.5
(12.8)
0.1
175.0
(79.1)
(130.8)
(38.1)
185.3
5,139.4
0.4
5,325.1
* Some lines have been aggregated in the comparative to simplify the presentation. See Note 12 Other Receivables and Note 13 Other Payables for further information.
The notes and information on pages 131 to 183 form part of these financial statements.
130
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
1. ACCOUNTING POLICIES
St. James’s Place plc (‘the Company’) is a Company incorporated and
domiciled in England and Wales.
Statement of Compliance
The Group financial statements consolidate those of the Company and its
subsidiaries (together referred to as the ‘Group’).
The Group financial statements have been prepared and approved by the
Directors in accordance with International Financial Reporting
Standards as adopted by the EU (‘adopted IFRSs') and interpretations
issued by the IFRS Interpretations Committee (IFRS IC) and those parts
of the Companies Act 2006 that are applicable when reporting under
IFRS.
As at 31 December 2016, the following amended standards, which the
Group has adopted as of 1 January 2016, have not had any material
impact on the Group’s reported results:
– IAS 1 Amendment – Disclosure Initiative
– IAS 16 and IAS 38 Amendments – Clarification of Acceptable
Methods of Depreciation and Amortisation
– IFRS 10, IFRS 12 and IAS 28 Amendments – Investment Entities:
Applying the Consolidation Exception
– Annual Improvements to IFRSs 2012 – 2014 Cycle
As at 31 December 2016, the following new and amended standards,
which are relevant to the Group but have not been applied in the
financial statements, were in issue but not yet effective:
– IAS 7 Amendment – Disclosure Initiative
– IAS 12 Amendment – Recognition of Deferred Tax Assets for
Unrealised Losses
– IFRS 2 Amendment – Classification and Measurement of Share-based
Payment Transactions
– IFRS 9 Financial Instruments
– IFRS 10 and IAS 28 Amendments – Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture
– IFRS 15 Revenue from Contracts with Customers (including
subsequent IFRS 15 clarification)
– IFRS 16 Leases
The Group is currently assessing the impact that the adoption of the
above standards, amendments and clarifications will have on the Group’s
results reported within the financial statements. Further detail regarding
the standards that are expected to have the most significant impact on
the financial statements is given below:
IFRS 9 Financial Instruments
IFRS 9 incorporates new classification and measurements requirements
for financial assets and liabilities, the introduction of an expected credit
loss impairment model which will replace the incurred loss model of
IAS 39, new hedge accounting requirements and enhanced disclosures in
the financial statements. On adoption of this standard, which is
mandatory for financial years commencing on or after 1 January 2018,
following endorsement by the EU on 22 November 2016, certain
financial assets will be reclassified but there will be no material on the
statement of financial position or the statement of comprehensive
income. The Group does not use hedge accounting and so this element of
the new standard is not applicable.
IFRS 15 Revenue from Contracts with Customers
The new standard establishes a principle based five step model to be
applied to all contracts with customers, except for insurance contracts,
financial instruments and lease contracts. The Group is assessing the
impact that IFRS 15 will have on the financial statements, where is it
likely to impact DAC and DIR. IFRS 15 is mandatory for financial years
commencing on or after 1 January 2018, following endorsement by the
EU on 22 September 2016.
IFRS 16 Leases
IFRS 16 was issued in January 2016. It will result in almost all leases
being recognised on the statement of financial position, as the distinction
between operating and finance leases is removed. Under the new
standard, an asset (the right to use the leased item) and a financial
liability to pay rentals are recognised. The only exceptions are for short
term or low value leases. The accounting for lessors will not significantly
change.
The standard will affect the accounting for the Group’s operating leases.
As at the reporting date, the Group has non-cancellable operating lease
commitments of £134.4 million, see Note 16. On adoption of the
standard, the right-of-use asset and liability for future payments are
expected to be material to the statement of financial position, and there
is expected to be a negative impact on the statement of comprehensive
income initially which will reverse over time. The negative impact arises
as the lease liability is accounted for using the effective interest method,
which means that the interest expense on the lease liability reduces year
on year, whereas under the current lease accounting standard the
operating lease rentals are constant throughout the lease term.
The Group is assessing the quantum of the adjustments that will be
required upon transition to IFRS 16, which is mandatory for financial
years commencing on or after 1 January 2019, subject to EU
endorsement.
The Group financial statements also comply with the revised Statement
of Recommended Practice issued by the Association of British Insurers in
December 2005 (as amended in December 2006), to the extent that it is
consistent with IFRS standards.
Basis of Preparation
The going concern basis has been adopted in preparing these financial
statements.
The financial statements are presented in pounds Sterling, rounded to
the nearest 100,000 pounds. They are prepared on a historical cost
basis, except for assets classified as investment property, available-for-
sale financial assets and assets and liabilities at fair value through profit
and loss.
The preparation of financial statements in conformity with IFRSs
requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of assets and
liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and various other factors
that are believed to be reasonable under the circumstances, the results of
which form the basis of making the judgements about carrying values of
assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
Annual Report and Accounts 2016
131
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
1. ACCOUNTING POLICIES continued
The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the year in
which the estimate is revised if the revision affects only that year, or in
the year of the revision and future years, if the revision affects both
current and future years.
(b) Fee and commission income
Fee and commission income comprises:
(i) Advice charges paid by clients who wish to receive advice with
their investment in a St. James’s Place or third party retail
investment product;
(ii) Commission, due in respect of products sold on behalf of third
parties; and
Judgements made by management in the application of IFRSs that have
significant effect on the financial statements and estimates with a significant
risk of material adjustment in the next year are discussed in Note 2.
(iii) Fees charged on investment contracts (including fees charged to
clients to match the policyholder tax element of the insurance
Company’s tax liability).
The financial statements are prepared in accordance with the Companies
Act 2006 as applicable to companies reporting under IFRS and the
accounting policies set out below have been applied consistently to all
years presented in these consolidated financial statements.
Summary of Significant Accounting Policies
(a) Basis of consolidation
The consolidated financial information incorporates the assets, liabilities
and the results of the Company and of its subsidiaries. Subsidiaries are
those entities in which the Group controls. Control exists if the Group is
exposed to, or has rights to, variable returns from its involvement with
the entity and has the ability to affect those returns through its power
over the entity (including unit trusts in which the Group holds more
than 30% of the units). Associates are all entities over which the Group
has significant influence but not control and are accounted for at fair
value through the profit or loss. The Group uses the acquisition method
of accounting to account for business combinations and expenses all
acquisition costs as they are incurred. The financial statements of
subsidiaries are included in the consolidated financial statements from
the date that control commences until the date that control ceases.
Accounting policies of subsidiaries have been changed where necessary
to ensure consistency with policies adopted by the Group.
Any contingent consideration to be transferred by the Group is
recognised at fair value at the acquisition date. Subsequent changes to the
fair value of the contingent consideration that is deemed to be an asset or
liability is recognised in accordance with IAS 39 in the consolidated
statement of comprehensive income.
The treatment of transactions with non-controlling interests depends on
whether, as a result of the transaction, the Group alters control of the
subsidiary. Changes in the Parent’s ownership interest in a subsidiary that
does not result in a loss of control are accounted for as equity transactions;
any difference between the amount by which the non-controlling interests
are adjusted and the fair value of the consideration paid or received is
recognised directly in equity and attributed to the owners of the Parent
entity. Where the Group loses control of the subsidiary, at the date when
control is lost the amount of any non-controlling interest in that former
subsidiary is derecognised and any investment retained in the former
subsidiary is remeasured to its fair value; the gain or loss that is recognised
in profit or loss on the partial disposal of the subsidiary includes the gain or
loss on the remeasurement of the retained interest.
Intragroup balances, and any income and expenses or unrealised gains
and losses arising from intragroup transactions, are eliminated in
preparing the consolidated financial statements.
The St. James’s Place Foundation is not consolidated within the financial
information. This is because the Company does not control the
Foundation in accordance with IFRS 10.
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Advice charges and commission are recognised in full on acceptance and
inception of the associated policy by the relevant product provider.
Where the product provider retains the right to clawback of commission
on an indemnity basis, turnover on sale of these products is recognised
net of a provision for the estimated clawback.
Investment contract management fees are generally recognised as
revenue as the services are provided. Initial fees, including dealing
margins from unit trusts, which exceed the level of recurring fees and
relate to the future provision of services, are deferred, and amortised
over the anticipated period in which services will be provided.
(c) Insurance and reinsurance premiums
Unit linked insurance contract premiums are recognised as revenue
when the liabilities arising from them are recognised. All other
premiums are accounted for when due for payment.
(d) Insurance claims and reinsurance recoveries
Insurance contracts death claims are accounted for on notification of
death. Critical illness claims are accounted for when admitted. All other
claims and surrenders are accounted for when payment is due.
Reinsurance recoveries, in respect of insurance claims, are accounted for
in the same period as the related claim.
(e) Investment return
Investment return comprises investment income and investment gains and
losses. Investment income includes dividends, interest and rental income
from investment properties under operating leases. Dividends are accrued
on an ex-dividend basis, and rental income is recognised in the statement
of comprehensive income on a straight line basis over the term of the lease.
Interest, which is generated on assets classified as fair value through profit
or loss, is accounted for using the effective interest method.
(f) Expenses
(i) Payments to Partners
Payments to Partners comprises initial commission and initial advice fees
(IAF) (paid for initial advice, at policy outset and within an 'initial period'),
renewal commission and renewal advice fees (payable on regular
contributions) and fund fee commission or ongoing advice fee (OAF)
(based on funds under management). Initial and renewal commission and
advice fees are recognised in line with the associated premium income, but
initial commission on insurance and investment contracts may be deferred
as set out in accounting policy (f) (iii). Fund fee commission and ongoing
advice fee are recognised on an accruals basis.
Commission and advice fees in respect of some insurance and investment
business may be paid in advance on renewal premiums and accelerated by
up to five years. The unearned element of this accelerated remuneration is
recognised as an asset within other receivables. Should the contributions
reduce or stop within the initial period, any unearned amount is recovered.
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 (ii) Operating lease payments
Leases where a significant proportion of the risks and rewards of
ownership is retained by the lessor are classified as operating leases.
Payments made under operating leases are recognised in the statement of
comprehensive income on a straight line basis over the term of the lease.
Lease incentives received are recognised in the statement of
comprehensive income as an integral part of the total lease expense and
are spread over the life of the lease.
utilised. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
Deferred tax assets and liabilities are offset when there is a legally enforceable
right to offset current tax assets against current tax liabilities and when the
deferred tax assets and liabilities relate to income taxes levied by the same
taxation authority on either the taxable entity or different taxable entities
where there is an intention to settle the balances on a net basis.
(iii) Acquisition costs
For insurance contracts, acquisition costs comprise direct costs such as
initial commission and the indirect costs of obtaining and processing new
business. Acquisition costs which are incurred during a financial year, net of
any impairment losses, are deferred and then amortised on a straight line
basis over the period during which the costs are expected to be recoverable
and in accordance with the incidence of future related margins.
For investment contracts, only directly attributable acquisition costs,
which vary with, and are related to, securing new contracts and
renewing existing contracts, are deferred, and only to the extent that
they are recoverable out of future revenue. These deferred acquisition
costs, which represent the contractual right to benefit from providing
investment management services, net of any impairment losses, are
amortised on a straight line basis over the expected lifetime of the
Group’s investment contracts. All other costs are recognised as expenses
when incurred. Note, following the implementation of the Retail
Distribution Review (RDR) on 31 December 2012, the initial advice
costs are no longer an acquisition cost linked to the contractual right to
benefit from providing investment management services and so they are
no longer deferred.
The period over which costs are expected to be recoverable are as follows:
6 years
Insurance contracts:
12 – 14 years
Investment contracts:
(g) Income taxes
Income tax on the profit or loss for the year comprises current and
deferred tax payable by the Group in respect of policyholders and
shareholders. Income tax is recognised in the statement of
comprehensive income except to the extent that it relates to items
recognised directly in equity, in which case it is recognised in equity.
Tax liabilities are recognised when it is considered probable that there
will be a future outflow of funds to a taxing authority and are measured
using a best estimate approach.
(i) Current tax
Current tax is the expected tax payable on the taxable income for the
year, using tax rates enacted or substantively enacted at the reporting
date, and any adjustment to tax payable in respect of previous years.
(ii) Deferred tax
Deferred tax is provided using the liability method, providing for
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
taxation purposes. The following differences are not provided for: the
initial recognition of assets or liabilities that affect neither accounting nor
taxable profit, and differences relating to investments in subsidiaries to
the extent that they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at the reporting date.
A deferred tax asset is recognised only to the extent that it is probable
that future taxable profits will be available against which the asset can be
(iii) Policyholder and shareholder tax
The total income tax charge is a separate adjustment within the
statement of comprehensive income based on the movement in current
and deferred income taxes in respect of income, gains and expenses. The
total charge reflects tax incurred on behalf of policyholders as well as
shareholders, and so it is useful to be able to identify these separately.
Shareholder tax is estimated by making an assessment of the effective
rate of tax that is applicable to the shareholders on the profits attributable
to shareholders. This is calculated by applying the appropriate effective
corporate tax rates to the shareholder profits. The remainder of the tax
charge represents tax on policyholder’s investment returns. This
calculation method is consistent with the legislation relating to the
calculation of tax on shareholder profits.
(h) Dividends paid
Dividend distributions to the Company’s shareholders are recognised in
the period in which the dividends are paid. The final dividend for the
financial year is disclosed but unpaid and awaiting approval by the
Company’s shareholders at the Annual General Meeting.
(i) Investment contract deposits and withdrawals
Investment contract payments in and out are not included in the
statement of comprehensive income but are reported as deposits to or
deductions from investment contract benefits in the statement of
financial position. The movement in investment contract benefits within
the statement of comprehensive income principally represents the
investment return credited to policyholders.
Explicit advice charges are payable to St. James’s Place distribution
Company by most clients who wish to receive advice with their investment
in a St. James’s Place retail investment product. St. James’s Place facilitates
the payment of these charges for the client, by arranging withdrawals
from the client’s policy, which are then recognised as income to
St. James’s Place distribution company. A proportion of the charge is
then paid to the St. James’s Place adviser (‘Partner’) who provides the
advice (see (f)(i) Expenses).
(j) Intangible assets
(i) Acquired value of in-force business
The acquired value of in-force business in respect of insurance business
represents the present value of profits that are expected to emerge from
insurance business acquired on business combinations. It is calculated at
the time of acquisition using best estimate actuarial assumptions for
interest, mortality, persistency and expenses, net of any impairment
losses, and it is amortised on a straight line basis as profits emerge over
the anticipated lives of the related contracts in the portfolio. An
intangible asset is also recognised in respect of acquired investment
management contracts representing the fair value of contractual rights
acquired under those contracts. The acquired value of in-force business
is expressed as a gross figure in the statement of financial position with
the associated tax included within deferred tax liabilities. It is assessed
for impairment at each reporting date and any movement is charged to
the statement of comprehensive income.
Annual Report and Accounts 2016
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UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
1. ACCOUNTING POLICIES continued
(ii) Deferred acquisition costs
Refer to accounting policy (f) (iii).
(iii) Computer software
Computer software is stated at cost less accumulated amortisation and
any recognised impairment loss. The carrying value is reviewed for
impairment when events or changes in circumstances indicate that the
carrying value may not be recoverable.
Computer software is recognised as an intangible asset during
development with amortisation commencing when the software is
operational. Amortisation is charged to the statement of comprehensive
income to expenses on a straight line basis over four years, being the
estimated useful life of the intangible asset.
(k) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Group’s share of the identifiable net assets of the acquired
entity at the date of acquisition. Where the fair value of the Group’s
share of the identifiable net assets of the acquired entity is greater than
the cost of acquisition, the excess is recognised immediately in the
statement of comprehensive income.
Goodwill is recognised as an asset at cost and is reviewed at least
annually for impairment or when circumstances or events indicate there
may be uncertainty over this value. If an impairment is identified, the
carrying value of the goodwill is written down immediately through the
statement of comprehensive income and is not subsequently reversed. At
the date of disposal of a subsidiary, the carrying value of attributable
goodwill is included in the calculation of the profit or loss on disposal
except where it has been written off directly to reserves in the past.
(l) Property and equipment
Items of property and equipment are stated at cost less accumulated
depreciation. Cost includes the original purchase price of the asset and the
costs attributable to bringing the asset to its working condition for its
intended use. Land is shown at fair value, based on valuations by external
independent valuers. The carrying value is reviewed for impairment when
events or changes in circumstances indicate that the carrying value may not
be recoverable and any assets that may have suffered impairment are
reviewed for possible reversal of the impairment at each reporting date.
Depreciation is charged to the statement of comprehensive income to
expenses on a straight line basis over the estimated useful lives of the
property and equipment.
(m) Investment property
Investment properties, which are all held within the unit linked funds,
are properties which are held to earn rental income and/or for capital
appreciation. They are stated at fair value.
An external, independent valuer, having an appropriate recognised
professional qualification and recent experience in the location and
category of property being valued, values the portfolio every month.
The fair values are based on open market values, being the estimated
amount for which a property could be exchanged on the date of valuation
between a willing buyer and a willing seller in an arm’s length
transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion.
134
Any gain or loss arising from a change in fair value is recognised in the
statement of comprehensive income within investment income. Rental
return from investment property is accounted for as described in
accounting policy (e).
(n) Investments
The Group’s investments are initially and subsequently recognised at fair
value through profit or loss, with all gains and losses recognised within
investment income in the statement of comprehensive income. The fair
values of quoted financial investments, which represent the vast majority of
the Group’s investments, are based on the value within the bid-ask spread
that is most representative of fair value. If the market for a financial
investment is not active, the Group establishes fair value by using valuation
techniques such as recent arm’s length transactions, reference to similar
listed investments, discounted cash flow models or option pricing models.
The decision by the Group to designate its investments at fair value
through the profit and loss reflects the fact that the investment portfolio
is managed, and its performance evaluated, on a fair value basis.
The Group recognises purchases and sales of investments on trade date.
The costs associated with investment transactions are included within
expenses in the statement of comprehensive income.
(o) Derivative financial instruments
The Group uses derivative financial instruments within some unit linked
funds, with each contract initially and subsequently recognised at fair value,
based on observable market prices. All changes in value are recognised
within investment income in the statement of comprehensive income.
(p) Other receivables
Other receivables are initially recognised at fair value and subsequently
held at amortised cost less impairment losses, except for renewal income
which is held at fair value. The value of any impairment recognised is the
difference between the asset’s carrying amount and the present value of
the estimated future cash flows, discounted at the original effective
interest rate. See accounting policy (ab) for information relating to the
treatment of impaired amounts.
(q) Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with
banks, other short-term highly liquid investments, and bank overdrafts to
the extent that they are an integral part of the Group’s cash management.
Cash and cash equivalents held within unit linked and unit trust funds
are classified at fair value through the profit and loss. All other cash and
cash equivalents are classified as loans and receivables.
(r) Insurance contract liabilities
Insurance contract liability provisions are determined following an
annual actuarial investigation of the long-term fund in accordance with
regulatory requirements. The provisions are calculated on the basis of
current information and using the gross premium valuation method. The
Group’s accounting policies for insurance contracts meet the minimum
specified requirements for liability adequacy testing under IFRS 4, as
they consider current estimates of all contractual cash flows, and of
related cash flow such as claims handling costs.
Insurance contract liabilities can never be definitive as to their timing
nor the amount of claims and are therefore subject to subsequent
reassessment on a regular basis.
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 (s) Investment contract benefits
All of the Group’s investment contracts are unit linked. Unit linked
liabilities are measured at fair value by reference to the value of the
underlying net asset value of the Group’s unitised investment funds,
determined on a bid value, at the reporting date. An allowance for
deductions due to (or from) the Company in respect of policyholder tax on
capital gains (and losses) in the life assurance funds is also reflected in the
measurement of unit linked liabilities. Investment contract benefits are
recognised when units are first allocated to the policyholder; they are
derecognised when units allocated to the policyholder have been cancelled.
The decision by the Group to designate its unit linked liabilities as fair
value through the profit and loss statement reflects the fact that the
matching investment portfolio, that underpins the unit-linked liabilities,
is managed, and its performance evaluated, on a fair value basis.
(t) Deferred income
The initial margin on financial instruments (including dealing margins
from unit trusts) is deferred and recognized over the expected lifetime
of the financial instrument.
(u) Net asset value attributable to unit holders
The Group consolidates unit trusts in which it holds more than 30% of
the units and exercises control. The third party interests in these unit
trusts are measured at fair value, since the underlying investment
portfolios are managed on a fair value basis, and they are presented in the
statement of financial position as net asset value attributable to unit
holders. Income attributable to the third party interests is accounted for
within investment income, offset by a corresponding change in
investment contract benefits.
(v) Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events such that it is probable
that an outflow of economic benefits will be required to settle the
obligation and a reliable estimate of the amount of the obligation can be
made. Provisions are measured as the discounted expected future cash
flows taking account of the risks and uncertainties associated with the
specific liability where appropriate.
(w) Borrowings
Borrowings are measured initially at fair value, net of directly
attributable transaction costs, and subsequently stated at amortised cost.
The difference between the proceeds and the redemption value is
recognised in the statement of comprehensive income over the
borrowing period on an effective interest rate basis. Borrowings are
recognised on drawdown and derecognised on repayment.
(x) Other payables
Other payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.
(y) Employee benefits
(i) Pension obligations
The Group operates a defined contribution personal pension plan for its
employees. Contributions to this plan are recognised as an expense in
the statement of comprehensive income as incurred. The Group has no
legal or constructive obligations to pay further contributions if the fund
does not hold sufficient assets to pay all employees the benefits relating
to employee service in the current and prior periods.
(ii) Share-based payments
The Group operates a number of share-based payment plans for
employees, Partners and Advisers. The fair value of share-based payment
awards granted is recognised as an expense spread over the vesting
period of the instrument which accords with the period for which
related services are provided, with a corresponding increase in equity in
the case of equity settled plans and the recognition of a liability for cash
settled plans.
The total amount to be expensed is determined by reference to the fair
value of the awards, measured using standard option pricing models as
the fair value of the services provided by employees, Partners and
Advisers cannot be reliably measured. For equity settled plans, the fair
value is determined at grant date and not subsequently remeasured. For
cash settled plans, the fair value is remeasured at each reporting date and
the date of settlement, with any changes in fair value recognised in the
statement of comprehensive income for the period.
At each reporting date, the Group revises its estimate of the number of
awards that are expected to vest and it recognises the impact of the
revision of original estimates, if any, in the statement of comprehensive
income, such that the amount recognised for employee, Partner and
Adviser services are based on the number of awards that actually vest.
The charge to the statement of comprehensive income is not revised for
any changes in market vesting conditions.
(z) Share capital
Ordinary shares are classified as equity. Where any Group entity
purchases the Company’s equity share capital (shares held in trust), the
consideration paid is deducted from equity attributable to shareholders,
as disclosed in the Shares in Trust reserve. Where such shares are
subsequently sold, reissued or otherwise disposed of, any consideration
received is included in equity attributable to shareholders, net of any
directly attributable incremental transaction costs and the related
income tax effects.
(aa) Product classification
The Group’s products are classified for accounting purposes as either
insurance contracts or investment contracts.
(i) Insurance contracts
Insurance contracts are contracts that transfer significant insurance risk.
The Group’s product range includes a variety of term assurance and whole
of life protection contracts involving significant insurance risk transfer.
(ii) Investment contracts
Contracts that do not transfer significant insurance risk are treated as
investment contracts. The majority of the business written by the Group is
unit linked investment business and is classified as investment contracts.
(ab) Impairment
(i) Non-financial assets
Assets that are subject to amortisation are reviewed for impairment when
circumstances or events indicate there may be uncertainty over this value.
An impairment loss is recognised for the amount by which the asset’s
carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset’s fair value less costs to sell and value in use. Refer
to accounting policy (k) for the Group’s impairment policy for goodwill.
Annual Report and Accounts 2016
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continued
(af) Alternative performance measures
Within the financial statements, a number of alternative performance
measures (APMs) are disclosed. An APM is a measure of financial
performance, financial position or cash flows which is not defined by the
relevant financial reporting framework, which for the Group is
International Financial Reporting Standards (IFRS) as adopted by the
European Union. APMs are used to provide greater insight to the
performance of the Group and the way it is managed by the Directors.
The Glossary of Alternative Performance Measures on page 199 defines
each APM, explains why it is used and, where applicable, how the
measure can be reconciled to the IFRS financial statements.
1. ACCOUNTING POLICIES continued
(ii) Financial assets
Formal reviews to assess the recoverability of financial assets are carried
out at each reporting date. The recoverability of such assets is measured
and the asset is deemed impaired if there is objective evidence of
impairment as a result of one or more loss events that have an impact on
the expected future cash flows associated with the financial asset. When
a loss is incurred the impairment loss recognised in the statement of
comprehensive income is calculated as the carrying value of the asset less
the projected future cash flows arising from the asset discounted at the
original effective interest rate. The impaired assets are presented net of
the impairment provision in the statement of financial position.
In relation to financial assets classified as loans and receivables, impairment
losses are reversed – through the statement of comprehensive income – if
there is a change in the estimates used to determine the recoverable
amount. Such losses are reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have
been determined, net of depreciation or amortisation where applicable, if
no impairment loss had been recognised.
(ac) Foreign currency translation
The Group’s presentation and the Company’s functional currency is
pounds Sterling.
Foreign currency transactions are translated into Sterling using the
exchange rate prevailing at the date of the transactions. Monetary assets
and liabilities denominated in foreign currencies are translated using the
rate of exchange ruling at the reporting date and the gain or losses on
translation are recognised in the statement of comprehensive income.
Non-monetary assets and liabilities which are held at historical cost are
translated using exchange rates prevailing at the date of transaction;
those held at fair value are translated using exchange rates ruling at the
date on which the fair value was determined.
(ad) Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker. The
chief operating decision maker, which is responsible for allocating
resources and assessing performance of the operating segments, has been
identified as the Executive Board.
(ae) Current and non-current disclosure
Assets which are expected to be recovered or settled no more than
twelve months after the reporting date are disclosed as current within
the notes to the financial statements. Those expected to be recovered or
settled more than twelve months after the reporting date are disclosed as
non-current.
Liabilities which are expected or due to be settled no more than twelve
months after the reporting date are disclosed as current within the notes
to the financial statements. Those liabilities which are expected or due
to be settled more than twelve months after the reporting date are
disclosed as non-current.
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St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN
APPLYING ACCOUNTING POLICIES
Judgements
The primary areas in which the Group has applied judgement in applying
accounting policies are in the classification of contracts between
insurance and investment business and when applying the concept of
control to determine which entities are subsidiaries.
Classification of Contracts between Insurance and
Investment business
Contracts with a significant degree of insurance risk are treated as
insurance. All other contracts are treated as investment contracts. It is
this classification that management considers to be a critical judgement;
however, due to the carrying value of the insurance contract liabilities
within the statement of financial position, management does not
consider insurance business to be significant to the Group.
Subsidiaries
Subsidiaries are those entities which the Group controls. Control exists
if the Group is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns
through its power over the entity (including unit trusts in which the
Group holds more than 30% of the units).
Deciding the Amount of Management Expenses that are
Treated as Acquisition Expenses
Certain management expenses vary with the level of new business and
have been treated as acquisition costs. Each line of costs has been
reviewed and its variability to new business volumes estimated on the
basis of the level of costs that would be incurred if new business ceased.
Estimates
The principal areas in which the Group applies accounting estimates are:
• Determining the value of insurance contract liabilities;
• Determining the fair value of investment contract benefits;
• Determining the fair value of investment property;
• Determining the fair value liability to policyholders for capital losses
in unit funds;
• Amortisation and recoverability of deferred acquisition costs and
deferred income;
• Determining the fair value, amortisation and recoverability of
acquired in-force business;
• Fair value estimation of assets acquired;
• Determining the value of deferred tax assets;
• Recoverability of St. James’s Place Partnership loans;
• Measurement of prepaid operational readiness costs; and
• Determining the fair value of share-based payments.
Estimates are also applied in determining the amount of deferred tax asset
recognised on unrelieved expenses and the value of other provisions.
Measurement of insurance contract liabilities
The assumptions used in the calculation of insurance contract liabilities
that have an effect on the statement of comprehensive income of the
Group are:
• The lapse assumption, which is set prudently based on an
investigation of experience during the year;
• The level of expenses, which is based on actual expenses in 2016 and
expected rates in 2017 and the long-term;
• The mortality and morbidity rates, which are based on the results of
an investigation of experience during the year; and
• The assumed rate of investment return, which is based on current
gilt yields.
Greater detail on the assumptions applied is shown in Note 14.
Determining the fair value of investment contract benefits
In accordance with IFRS 13, the Group categorises unit-linked insurance
contracts as financial liabilities, carried on the statement of financial
position at fair value. The fair value of unit linked liabilities is assessed by
reference to the value of the underlying net asset value of the Group’s
unitised investment funds, determined on a bid value, at the reporting
date. As the underlying net asset value is determined using inputs other
than quoted prices but which are observable, either directly (that is, as
prices) or indirectly (that is, derived from prices), the liability is
categorised as a level 2 financial instrument. Further details of these
valuations are described in Note 17.
Determining the fair value of financial instruments and
investment property
In accordance with IFRS 13, the Group categorises financial instruments
carried on the statement of financial position at fair value using a three
level hierarchy. Financial instruments categorised as level 1 are valued
using quoted market prices and therefore there is minimal judgement
applied in determining fair value. However, the fair value of financial
instruments categorised as level 2 and, in particular, level 3 is
determined using valuation techniques. These valuation techniques
involve management judgement and estimates, the extent of which
depends on the complexity of the instrument and the availability of
market observable information. Further details of these valuations are
described in Note 17.
Valuing capital losses in the unit funds
In line with IAS 12, the Group has recognised a deferred tax asset in
relation to capital losses in the unit funds at the reporting date. This asset
has been tested for impairment against the level of capital gains
realistically expected to arise in future.
Much of the benefit of the deferred tax asset on capital losses in the unit
funds will be shared with policyholders. The policyholder investment
contract liability has therefore been increased to reflect the fair value of
this additional benefit. The assumptions that have a significant effect on
the fair value of the liability are as follows:
• The assumed rate of investment return, which is based on current
gilt yields;
• The lapse assumption, which is set prudently based on experience
during the year; and
• The assumed period for development of capital gains, which is
estimated from recent experience.
Amortisation and recoverability of Deferred Acquisition Costs
(DAC) and Deferred Income (DIR)
Deferred acquisition costs on investment contracts are amortised on a
straight line basis over the expected lifetime of the underlying
contracts. The expected lifetime of the contracts has been estimated
from the experienced termination rates and the age of clients at
inception and maturity.
Deferred income on investment contracts is amortised on a straight line
basis over the expected lifetime of the underlying contracts, although on
certain contracts, the impact of early withdrawal charges means the
income is effectively recognised over a shorter period.
Annual Report and Accounts 2016
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St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
Measurement of prepaid operational readiness costs
Included within prepayments are operational readiness costs relating to
the new administration service agreement which are initially recognised
at the amounts advanced. The prepayment is expensed in line with the
provision of services under the service agreement. At each statement of
financial position date, the value of the prepayment is assessed for
impairment recognised against the present value of the estimated future
contract benefits. In determining the present value of the estimated
future contract benefits, the critical judgements are the levels of future
business that will be serviced, the anticipated future service tariffs,
termination fees payable and receivable under the contract and the rate
used to discount amounts to present value.
Determining the fair value of share-based payments
In determining the fair value of share-based payments and the related
charge to the statement of comprehensive income, the Group makes
assumptions about the future events and market conditions. In
particular, judgement must be formed as to the likely number of share
awards that will vest, and the fair value of each award granted. Further
details of these assumptions used are described in Note 20.
2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN
APPLYING ACCOUNTING POLICIES continued
Deferred acquisition costs on insurance contracts are amortised over the
period during which the costs are expected to be recoverable in
accordance with the projected emergence of future margins.
Deferred acquisition costs relating to insurance and investment contracts
are tested annually for recoverability by reference to expected future
income levels. Future income levels are projected using assumptions
consistent with those underlying our embedded value calculation.
Acquired in-force business
There have been no new business combinations generating acquired
in-force business during the year. The acquired value of the in-force
business is amortised on a basis that reflects the expected profit stream
arising from the business acquired at the date of acquisition. This profit
stream is estimated from the experienced termination rates, expenses of
management and age of the clients under the individual contracts as well
as global estimates of investment growth, based on recent experience at
the date of acquisition.
The acquired value of in-force business relating to insurance and
investment contracts is tested annually for recoverability by reference to
expected future income levels.
Fair value estimation of assets acquired
In accordance with IFRS 3 Business Combinations, as of the acquisition
date, the Group recognises, separately from goodwill, the identifiable
assets acquired, the liabilities assumed and any non-controlling interest
in the acquiree and classifies the identifiable assets acquired and liabilities
assumed on the basis of the contractual terms, economic conditions, its
operating or accounting policies and other pertinent conditions as they
exist at the acquisition date. The Group measures the identifiable assets
acquired and the liabilities assumed at their acquisition-date fair values.
Determining the value of deferred tax assets
In line with IAS 12, the Group has recognised deferred tax assets for
future tax benefits that will accrue. The asset value has taken into
consideration the likelihood of appropriate future income or gains
against which the tax asset can be utilised. In particular, future
investment income from the existing assets and new business will be
sufficient to utilise the unrelieved expenses, and capital gains
crystallising in the unit linked funds will utilise the capital losses. Tax
assets in relation to deferred income will be utilised as the underlying
income is recognised.
Recoverability of St. James’s Place Partnership loans
During the normal course of business the Group provides loans to
St. James’s Place Partners in order to support the development and
growth of the St. James’s Place Partnership. The St. James’s Place
Partnership loans are initially recognised at fair value and subsequently
held at amortised cost less impairment losses. The recoverability of loans
is measured and the asset is deemed impaired if the projected future
margins are less than the carrying value of the asset. The allowance
for impairment losses on St. James’s Place Partnership loans is
management’s best estimate of losses incurred in the portfolio at the
statement of financial position date.
138
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 3. SEGMENT REPORTING
IFRS 8 Operating Segments requires operating segments to be identified, on the basis of internal reports about components of the Group that are
regularly reviewed by the Board, in order to allocate resources to each segment and assess its performance.
The composition of the segments has changed and comparatives have been restated on the new basis. The Group’s only reportable segment under IFRS
8 is a ‘wealth management’ business – which is a vertically-integrated business providing support to our clients through the provision of financial
advice and assistance through our Partner network, and financial solutions including (but not limited to) wealth management products manufactured
in the Group, such as insurance bonds, pensions, unit trust and ISA investments, and a DFM service.
Separate geographical segmental information is not presented since the Group does not segment its business geographically. Most of its customers are
based in the United Kingdom, as is management of the assets. In particular, the operation based in south-east Asia is not yet sufficiently material for
separate consideration.
Segment Revenue
Revenue received from fee and commission income is set out in Note 4 which sets out the different types of revenue received from our wealth
management business.
Segment Profit
Two separate measures of profit are monitored on a monthly basis by the Board. These are the post-tax underlying cash result and pre-tax European
Embedded Value (EEV).
Underlying cash result
The measure of cash profit monitored on a monthly basis by the Board is the post-tax underlying cash result. This reflects emergence of cash available
for paying a dividend during the year. Underlying cash is based on the cash flows within the IFRS results, but with no allowance for intangibles,
principally DAC, DIR, PVIF, goodwill and deferred tax. As the cost associated with share options is reflected in changes in shareholder equity, they
are also not included in the underlying cash result.
More detail is provided in the Financial Review section of the Annual Report and Accounts.
The cash result should not be confused with the IFRS consolidated statement of cash flows which is prepared in accordance with IAS 7.
Underlying cash result after tax
Share option expense
IFRS deferred tax adjustments
Insurance reserves
Back office infrastructure
Variance
DAC/DIR/PVIF
IFRS profit after tax
Shareholder tax
Profit before tax attributable to shareholders’ returns
Tax attributable to policyholder returns
IFRS profit before tax
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
199.5
(23.9)
(21.1)
(1.6)
(16.7)
(7.7)
(16.8)
111.7
28.9
140.6
345.7
486.3
182.1
(15.0)
52.1
(1.8)
(14.4)
3.8
(4.8)
202.0
(50.7)
151.3
22.8
174.1
Annual Report and Accounts 2016
139
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
3. SEGMENT REPORTING continued
EEV operating profit
EEV operating profit is monitored on a monthly basis by the Board. The components of the EEV operating profit are included in more detail in the
Financial Review section of the Annual Report and Accounts.
EEV operating profit before tax
Investment return variance
Economic assumption changes
EEV profit before tax
Adjustments to IFRS basis
Deduct: amortisation of acquired value of in-force
Movement in life value of in-force (net of tax)
Movement in unit trust value of in-force (net of tax)
Tax of movement in value of in-force
Profit before tax attributable to shareholders’ returns
Tax attributable to policyholder returns
IFRS profit before tax
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
673.6
537.2
(12.4)
1,198.4
(3.2)
(642.7)
(257.6)
(154.3)
140.6
345.7
486.3
660.2
(24.4)
0.9
636.7
(3.2)
(187.6)
(176.4)
(118.2)
151.3
22.8
174.1
Segment Assets
Funds under Management (FUM)
FUM, as reported in Section 1 of the Financial Review on page 29 is the measure of segment assets which is monitored on a monthly basis by the Board.
Investment
Pension
UT/ISA and DFM
Total FUM
Exclude client and third party holdings in non-consolidated unit trusts and DFM
Other
Gross assets held to cover unit liabilities
IFRS intangible assets (see page 39 Adjustment 2)
including goodwill, DAC, PVIF, reassurance and deferred tax
Shareholder gross assets (see page 39)
Total assets
31 December
2016
31 December
2015
£’Million
25,500.0
28,630.0
21,180.0
75,310.0
(4,153.9)
283.7
71,439.8
£’Million
22,520.0
20,860.0
15,230.0
58,610.0
(2,497.1)
562.8
56,675.7
917.7
2,664.6
1,067.0
1,534.9
75,022.1
59,277.6
140
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 4. FEE AND COMMISSION INCOME
Advice charges
Third party fee and commission income
Wealth management fees
Investment management fees
Fund tax deductions
Discretionary fund management (DFM) fees
Fee and commission income before DIR amortisation
Amortisation of DIR
Total fee and commission income
5. EXPENSES
The following items are included within the expenses disclosed in the statement of comprehensive income:
Employee costs
Depreciation
Amortisation of acquired value of in-force business
Amortisation of DAC
Amortisation of computer software
Payments to Partners
Payment under operating leases
Fees payable to the Company’s auditors and its associates for the audit of the Company and consolidated financial statements
Fees payable to the Company’s auditors and its associates for other services:
– The audit of the Company’s subsidiaries (excluding Unit Trusts)
– Audit of the Company’s Unit Trusts
– Audit-related assurance services
– Other non-audit services
Employee Costs
Wages and salaries
Social security costs
Other pension costs in relation to defined contribution schemes
Cost of employee share awards and options
Total employee costs
Average monthly number of persons employed by the Group during the year
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
510.7
103.5
590.7
52.6
352.2
5.3
1,615.0
88.9
1,703.9
420.7
97.8
544.2
137.5
27.8
–
1,228.0
105.5
1,333.5
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
150.8
4.4
3.2
98.8
3.4
599.7
11.8
0.1
0.6
0.3
0.5
0.1
121.2
2.5
3.2
100.1
3.4
518.5
10.4
0.2
0.5
0.3
0.5
–
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
113.7
12.8
8.0
16.3
150.8
1,735
92.0
10.3
6.8
12.1
121.2
1,430
The above information includes Directors’ remuneration. The aggregate emoluments of the highest paid Director were £0.9 million (2015: £0.9 million),
cash supplement in lieu of their defined contribution pension scheme was £0.1 million (2015: £0.1 million), they exercised 175,807 share options during
2016 (2015: 490,435) and 24,591 shares were released to them in respect of the deferred bonus scheme (2015: 49,563). Full details of the Directors’
remuneration, share options, pension entitlements and interests in shares are disclosed in the Remuneration Report on pages 93 to 113.
Annual Report and Accounts 2016
141
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
6. INVESTMENT RETURN
Investment return on net assets held to cover unit liabilities:
Rental income
(Loss)/gain on revaluation of investment properties
Net investment return on financial instruments classified as fair value through profit and loss
Income attributable to third party holdings in unit trusts
Investment return on shareholder assets:
Net investment return on financial instruments classified as fair value through profit and loss
Interest income on financial instruments held at amortised cost
Total investment return
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
72.4
(23.4)
7,456.8
7,505.8
2,094.5
9,600.3
22.9
6.9
60.4
74.0
1,396.0
1,530.4
216.8
1,747.2
2.7
5.9
9,630.1
1,755.8
Included in the net investment return on financial instruments classified as fair value through profit and loss within investment return on net assets
held to cover unit liabilities is dividend income of £756.2 million (2015: £586.4 million).
142
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 7. INCOME AND DEFERRED TAXES
Tax for the year
Current tax
UK corporation tax
– Current year charge
– Adjustment in respect of prior year
Overseas taxes
– Current year charge
– Adjustment in respect of prior year
Deferred tax
Unrealised capital gains and losses in unit linked funds
Unrelieved expenses
– Additional expenses recognised in the year
– Utilisation in the year
Capital losses
– Additional losses recognised in the year
– Utilisation in the year
– Adjustment in respect of prior year
DAC, DIR and PVIF
Other items
Change in tax rate
Overseas taxes on losses
Adjustments in respect of prior periods
Total tax charge/(credit) for the year
Attributable to:
– policyholders
– shareholders
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
171.8
(0.6)
4.2
(0.1)
175.3
196.3
(12.5)
18.7
(2.2)
12.6
0.1
(11.6)
(4.4)
1.3
0.3
0.7
199.3
374.6
345.7
28.9
374.6
86.0
0.7
3.7
–
90.4
(50.0)
(11.6)
19.7
(74.8)
12.1
(1.1)
(4.4)
(5.8)
(4.5)
2.1
–
(118.3)
(27.9)
22.8
(50.7)
(27.9)
The prior year adjustment in current tax above includes a credit of £1.4 million in respect of policyholder tax (2015: £1.0 million charge).
Included within the deferred tax on ‘other items’ is a charge of £0.2 million (2015: £1.8 million credit) relating to share-based payments. Details of
share-based payments are disclosed in Note 20 Share-based Payments.
In arriving at the profit before tax attributable to shareholders’ return, it is necessary to estimate the analysis of the total tax charge between that
payable in respect of policyholders and that payable by shareholders. Shareholder tax is estimated by making an assessment of the effective rate of tax
that is applicable to the shareholders on the profits attributable to shareholders. This is calculated by applying the appropriate effective corporate tax
rates to the shareholder profits. The remainder of the tax charge represents tax on policyholders’ investment returns. This calculation method is
consistent with the legislation relating to the calculation of tax on shareholder profits.
Annual Report and Accounts 2016
143
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
7. INCOME AND DEFERRED TAXES continued
Tax paid in the year
Current tax charge for the year
Payments to be made in future years in respect of current year
Payments made in current year in respect of prior years
Other
Tax paid
Tax paid can be analysed as:
– Taxes paid in UK
– Taxes paid in overseas jurisdictions
– Withholding taxes suffered on investment income received
Tax paid
Movement in net deferred tax balance
Deferred tax asset
Deferred tax liability
Net deferred tax balance at 1 January
(Charge)/credit through the consolidated statement of comprehensive income
Arising on acquisitions during the year
Deferred tax asset
Deferred tax liability
Balance at 31 December
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
175.3
(72.6)
30.6
0.1
133.4
129.0
1.9
2.5
133.4
90.4
(28.7)
32.3
(0.5)
93.5
89.3
1.8
2.4
93.5
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
225.9
(434.6)
(208.7)
(199.3)
(6.9)
199.9
(614.8)
(414.9)
£’Million
192.8
(519.8)
(327.0)
118.3
–
225.9
(434.6)
(208.7)
144
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Reconciliation of tax charge to expected tax
Profit before tax
Tax attributable to policyholders’ returns*
Profit before tax attributable to shareholders’ return
Shareholder tax charge at corporate tax rate of 20% (2015: 20.25%)
Adjustments:
Tax regime differences
Lower rates of corporation tax in overseas subsidiaries
Expected shareholder tax
Other
Non-taxable income
Recognition and usage of capital losses arising in the Group
Adjustment in respect of prior year
Differences in accounting and tax bases in relation to employee share schemes
Disallowable expenses
Tax losses not recognised or past losses now recognised
Other
Change in tax rate
Shareholder tax charge/(credit)
Policyholder tax charge
Total tax charge/(credit) for the year
Year Ended
31 December
2016
£’Million
Year Ended
31 December
2015
£’Million
486.3
(345.7)
140.6
28.1
(0.9)
27.2
(1.0)
(2.2)
(0.1)
0.7
1.2
2.0
(0.2)
0.4
1.3
28.9
345.7
374.6
20%
(0.6%)
19.3%
(0.3%)
(20.6%)
174.1
(22.8)
151.3
30.6
(1.4)
29.2
–
(74.8)
(1.5)
(5.4)
3.0
1.8
1.5
(75.4)
(4.5)
(50.7)
22.8
(27.9)
20.25%
(0.9%)
19.3%
(49.8%)
(33.5%)
* Tax attributable to policyholder returns is equal to the policyholder tax charge and reflects fund tax deductions offset by policyholder tax effects on intangibles.
Tax calculated on profit before tax at 20% (2015: 20.25%) would amount to £97.3 million (2015: £35.3 million). The difference of £277.3 million
(2015: £(63.2) million) between this number and the total tax of £374.6 million (2015: £(27.9) million) is made up of the reconciling items above
which total £0.8 million (2015: £(81.3) million) and the effect of the apportionment methodology on tax applicable to policyholder returns of
£276.5 million (2015: £18.1 million).
Deferred tax assets
Unrelieved expenses (life insurance business)
Deferred income (DIR)
Capital losses (available for future relief)
Employee share scheme costs
Future capital allowances
Other
Total deferred tax assets
Expected
utilisation
31 December
2016
31 December
2015
Years
£’Million
£’Million
6
14
10
3
6
50.9
39.7
99.0
5.5
4.1
0.7
199.9
57.1
45.2
113.1
5.8
3.0
1.7
225.9
Annual Report and Accounts 2016
145
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
7. INCOME AND DEFERRED TAXES continued
Appropriate investment income, gains or profits are expected to arise against which the tax assets can be utilised. Whilst the actual rates of utilisation
will depend on business growth and external factors, particularly investment market conditions, they have been tested for sensitivity to experience
and are resilient to a range of reasonably foreseeable scenarios.
At the reporting date there were unrecognised deferred tax assets of £4.1 million (2015: £1.4 million) in respect of losses in companies where
appropriate profits are not considered probable in the forecast period. These losses primarily relate to our Asia based businesses and can be carried
forward indefinitely.
Deferred tax liabilities
Unrealised capital gains (and losses) on life insurance (BLAGAB) assets backing unit liabilities
Deferred acquisition costs (DAC)
Acquired value of in-force business (PVIF)
Renewal income assets
Other
Total deferred tax liabilities
Expected
utilisation
31 December
2016
31 December
2015
Years
£’Million
£’Million
6
14
10
20
501.1
97.8
5.4
8.6
1.9
614.8
304.8
117.8
6.2
3.5
2.3
434.6
Future tax rate changes
Future tax rate changes, including the further reduction in the corporation tax rate from 18% to 17% effective from 1 April 2020 which was enacted
in the Finance Act 2016, have been incorporated into the deferred tax balances.
Other tax matters
We have considered the OECD Base Erosion and Profit Shifting (BEPS) actions relevant to the St. James’s Place Group and believe that they will not
have a material impact on the financial results of the Group. We have developed our processes and procedures to enable completion of any required
reporting by the relevant deadlines.
146
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 8. GOODWILL, INTANGIBLE ASSETS, DEFERRED ACQUISITION COSTS AND DEFERRED INCOME
Cost
At 1 January 2015
Additions
At 31 December 2015
At 1 January 2016
Additions
Addition due to reassessment of unit liability
At 31 December 2016
Accumulated amortisation
At 1 January 2015
Charge for the year
At 31 December 2015
At 1 January 2016
Charge for the year
At 31 December 2016
Carrying value
At 31 December 2015
At 31 December 2016
Current
Non-current
Outstanding amortisation period
At 31 December 2015
At 31 December 2016
Goodwill
The carrying value of goodwill split by acquisition is as follows:
SJP Asia companies
Technical Connection Limited
Balance at 31 December
Acquired
value of
in-force
business
£’Million
Goodwill
£’Million
Computer
software &
other specific
software
developments
DAC
DIR
£’Million
£’Million
£’Million
10.1
–
10.1
10.1
3.7
–
13.8
–
–
–
–
–
–
10.1
13.8
–
13.8
13.8
n/a
n/a
73.4
–
73.4
73.4
–
–
73.4
36.6
3.2
39.8
39.8
3.2
43.0
33.6
30.4
3.2
27.2
30.4
13.6
–
13.6
13.6
2.1
–
15.7
5.9
3.4
9.3
9.3
3.4
12.7
4.3
3.0
0.9
2.1
3.0
1,579.1
32.1
1,611.2
1,611.2
38.6
–
1,649.8
766.1
100.1
866.2
866.2
98.8
965.0
745.0
684.8
98.7
586.1
684.8
(1,149.2)
(55.8)
(1,205.0)
(1,205.0)
(56.0)
(267.0)
(1,528.0)
(686.0)
(105.5)
(791.5)
(791.5)
(88.9)
(880.4)
(413.5)
(647.6)
(134.5)
(513.1)
(647.6)
10 years
9 years
4 years
4 years
14 years
6–14 years
14 years
6–14 years
31 December
2016
31 December
2015
£’Million
£’Million
10.1
3.7
13.8
10.1
–
10.1
Goodwill is reviewed at least annually for impairment or when circumstances or events indicate there may be uncertainty over this value. The
recoverable amount has been based on value in use calculations using pre-tax cash flows. Details of the assumptions made in these calculations are
provided below:
Key assumptions based on experience:
Projection period:
Long-term growth rate:
Pre-tax discount rate:
Value of new business
Five years of detailed forecasts extrapolated into perpetuity using a long-term growth rate
1.4%
3.0%
It is considered that any reasonably possible levels of change in the key assumptions would not result in impairment of the goodwill.
Acquired value of in-force business/DAC/computer software
Amortisation is charged to expenses in the statement of comprehensive income. Amortisation profiles are reassessed annually.
DIR
Amortisation is credited within fee and commission income in the statement of comprehensive income. Amortisation profiles are reassessed annually.
Annual Report and Accounts 2016
147
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
9. PROPERTY AND EQUIPMENT
Cost
At 1 January 2015
Additions
Disposals
At 31 December 2015
At 1 January 2016
Additions
Disposals
At 31 December 2016
Accumulated depreciation
At 1 January 2015
Charge for the year
Eliminated on disposal
At 31 December 2015
At 1 January 2016
Charge for the year
Eliminated on disposal
At 31 December 2016
Net book value
At 1 January 2015
At 31 December 2015
At 31 December 2016
Assets
held for Sale
– Land
Fixtures and
Fittings and
Office
Equipment
Computer
Equipment
Total
£’Million
£’Million
£’Million
£’Million
1.4
–
(1.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
1.4
–
–
34.7
3.2
(4.8)
33.1
33.1
16.5
(9.9)
39.7
28.4
2.2
(4.8)
25.8
25.8
3.5
(9.8)
19.5
6.3
7.3
20.2
6.1
0.8
(5.6)
1.3
1.3
3.1
–
4.4
5.9
0.3
(5.6)
0.6
0.6
0.9
–
1.5
0.2
0.7
2.9
42.2
4.0
(11.8)
34.4
34.4
19.6
(9.9)
44.1
34.3
2.5
(10.4)
26.4
26.4
4.4
(9.8)
21.0
7.9
8.0
23.1
Amortisation period (estimated useful life)
5 years
3 years
148
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 10. INVESTMENTS, INVESTMENT PROPERTY AND CASH
Net assets held to cover unit liabilities
Included within the statement of financial position are the following assets and liabilities comprising the net assets held to cover unit liabilities.
Assets
Investment property
Equities
Fixed income securities
Investment in Collective Investment Schemes
Derivative financial instruments
– Currency forwards
– Interest rate swaps
– Collaterised mortgage obligations
– Index options
– Contracts for differences
– Equity rate swaps
– Foreign currency options
– Total return swaps
– Other derivatives
Cash and cash equivalents
Other receivables
Total assets
Liabilities
Derivative financial instruments
– Currency forwards
– Interest rate swaps
– Fixed Income options
– Index options
– Contracts for differences
– Equity rate swaps
– Foreign currency options
– Total return swaps
– Other derivatives
Other payables
Total liabilities
Net assets held to cover linked liabilities
Investment contract benefits
Net asset value attributable to unit holders
Unit linked insurance contract liabilities
Consolidation adjustments
Net unit linked liabilities
31 December
2016
31 December
2015
£’Million
£’Million
1,462.4
46,598.7
12,397.8
2,997.4
86.5
40.0
510.2
17.7
8.2
26.2
18.7
18.7
2.9
7,067.2
187.2
1,344.9
37,960.8
8,850.9
2,736.9
33.8
13.5
238.7
20.3
10.7
16.1
22.8
6.6
1.6
5,091.6
603.9
71,439.8
56,953.1
176.4
38.3
–
5.9
2.9
30.2
10.1
8.1
10.0
383.5
665.4
168.6
5.9
6.1
3.6
4.3
5.8
19.6
0.2
7.0
585.2
806.3
70,774.4
53,307.1
17,032.0
435.3
–
70,774.4
56,146.8
43,159.8
12,556.4
376.5
54.1
56,146.8
Net assets held to cover linked liabilities, and third party holdings in unit trusts, are considered to have a maturity of up to one year since they are
actively traded and managed to facilitate immediate settlement.
See accounting policy (ae) for further information on current and non-current disclosure.
Annual Report and Accounts 2016
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St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
10. INVESTMENTS, INVESTMENT PROPERTY AND CASH continued
Investment property
Balance at 1 January
Additions
Capitalised expenditure on existing properties
Disposals
Changes in fair value
Balance at 31 December
31 December
2016
31 December
2015
£’Million
1,344.9
131.6
9.3
–
(23.4)
1,462.4
£’Million
1,031.4
247.9
5.9
(14.3)
74.0
1,344.9
Investment property is held within unit linked funds and is considered current.
Investment property is valued monthly by external chartered surveyors in accordance with the guidance issued by The Royal Institution of Chartered
Surveyors. The investment property valuation has been prepared using the ‘market approach’ valuation technique – using prices and other relevant
information generated by market transactions involving identical or comparable (i.e. similar) assets.
The rental income and direct operating expenses recognised in the statement of comprehensive income in respect of investment properties are set out
below. All expenses relate to property generating rental income.
Rental income
Direct operating expenses
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
72.4
6.3
60.4
5.8
At the year end, contractual obligations to purchase, construct or develop investment property amounted to £4.5 million (2015: £9.0 million) and to
dispose of investment property amounted to £nil (2015: £nil).
Cash and cash equivalents
Cash at bank
Cash held by third parties
Cash and cash equivalents not held to cover unit liabilities
Balances held to cover unit liabilities
Total cash and cash equivalents
All Cash and cash equivalents are considered current.
31 December
2016
31 December
2015
£’Million
£’Million
341.1
4.8
345.9
7,067.2
7,413.1
233.5
–
233.5
5,091.6
5,325.1
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St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 11. MOVEMENT IN INVESTMENT CONTRACT BENEFITS
Balance at 1 January
Deposits
Withdrawals
Movement in unit-linked investment contract benefits
Less: fees and other adjustments for reassessment of unit liability
Balance at 31 December
Current
Non-current
Movement in unit liabilities
Unit-linked investment contract benefits
Third party unit trust holdings
Movement in investment contract benefits in consolidated statement of comprehensive income
See accounting policy (ae) for further information on the current and non-current disclosure.
12. OTHER RECEIVABLES
Receivables in relation to unit liabilities
Other receivables in relation to insurance and unit trust business
Operational readiness prepayment
Advanced payments to Partners
Other prepayments
St. James’s Place Partnership loans
Renewal income assets
Miscellaneous
Total other receivables
Current
Non-current
31 December
2016
31 December
2015
£’Million
43,159.8
7,346.5
(3,536.0)
7,447.3
(1,110.5)
53,307.1
3,305.0
50,002.1
53,307.1
7,447.3
2,094.5
9,541.8
£’Million
38,851.2
6,039.1
(2,704.3)
1,545.7
(571.9)
43,159.8
3,237.0
39,922.8
43,159.8
1,545.7
216.8
1,762.5
31 December
2016
31 December
2015
£’Million
£’Million
834.1
147.3
121.1
31.2
45.1
212.2
58.9
23.1
1,473.0
1,137.9
335.1
1,473.0
478.4
111.7*
76.5
27.9
37.7
178.7
26.8
29.5
967.2
726.6
240.6
967.2
*
Balance includes £76.2 million of insurance and investment contract receivables previously disclosed as separate line items on the face of the consolidated statement of financial position in 2015. This
reclassification has been made in order to simplify the presentation of the consolidated statement of financial position.
All items within Other receivables meet the definition of financial assets with the exception of Other prepayments and Advanced payments to Partners.
Receivables in net assets held to cover unit liabilities and in relation to insurance and unit trust business are short term settlement receivables, typically
settled within three days.
The operational readiness prepayment relates to the new administration platform being developed by our key outsourced back-office administration
provider. Management has assessed the recoverability of this prepayment against the expected cost saving benefit of lower future tariff costs arising
from the new platform. It is believed that any reasonably possible change in the assumptions applied within this assessment, such as levels of future
business, the anticipated future service tariffs and the discount rate, would have no impact on the carrying value of the asset.
St. James’s Place Partnership loans are interest bearing (linked to Bank of England base rate plus a margin), repayable on demand and secured against
the future renewal income streams of the Partner. The St. James’s Place Partnership loans are shown net of a £3.3 million provision (2015: £3.0
million). During the year £0.4 million of the provision was utilised (2015: £1.2 million utilised) whilst new provisions and adjustments to existing
provisions increased the total by £0.7 million (2015: £1.3 million increase).
The fair value of loans and receivables included in other receivables is not materially different from amortised cost.
Annual Report and Accounts 2016
151
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
12. OTHER RECEIVABLES continued
Movement in renewal income assets:
At 1 January
Additions
Revaluation
Total renewal income at 31 December
The key assumptions used for the assessment of the fair value of the renewal income are as follows:
Lapse rate – SJP Partner renewal income*
Lapse rate – Non SJP renewal income*
Discount rate
2016
£’Million
2015
£’Million
26.8
38.2
(6.1)
58.9
29.1
1.4
(3.7)
26.8
31 December
2016
31 December
2015
6% – 10%
15% – 25%
5.0% – 7.5%
6% – 10%
9% – 32%
5.0%
*
Future income streams are projected making use of persistency assumptions derived from the Group’s experience of the business or, where insufficient data exists, from external industry experience.
These assumptions are reviewed on an annual basis.
These assumptions have been used for the analysis of each business combination classified within renewal income.
13. OTHER PAYABLES
Payables in relation to unit liabilities
Other payables in relation to insurance and unit trust business
Accruals
Accruals for future payments to Partners
Miscellaneous
Total other payables
Current
Non-current
31 December
2016
31 December
2015
£’Million
£’Million
558.7
300.0
146.9
74.2
93.8
1,173.6
1,123.7
49.9
1,173.6
311.0
134.0*
112.4
66.3
83.0
706.7
651.7
55.0
706.7
*
Balance includes £45.9 million of insurance and investment contract payables and £108.3 million of claims outstanding previously disclosed as separate line items on the face of the consolidated
statement of financial position in 2015. This reclassification has been made in order to simplify the presentation of the consolidated statement of financial position.
Included within miscellaneous is a Contract Payment of £49.8 million (2015: £48.3 million) which is non-interest bearing and repayable on a straight
line basis over the life of a twelve year service agreement commencing in 2017.
The fair value of financial instruments held at amortised cost within other payables is not materially different from amortised cost.
152
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 14. INSURANCE LIABILITIES AND REINSURANCE ASSETS
Risk
Insurance risk arises from inherent uncertainties as to the occurrence, amount and timing of insurance liabilities. The Group assumes insurance risk
by issuing insurance contracts under which the Group agrees to compensate the client (or other beneficiary) if a specified future event (the insured
event) occurs. The Group insures mortality and morbidity risks but has no longevity risk as we have never written any annuity business. The Group
has a medium appetite for insurance risk, only actively pursuing it where financially beneficial, or in support of strategic objectives.
Risk
Underwriting
Description
Failure to price appropriately for a risk, or the
impact of anti-selection.
Management
The Group ceased writing new protection business in April 2011. Experience
is monitored regularly. For most business the premium or deduction rates can
be re-set. The Group has fully reinsured the UK insurance risk.
Epidemic/disaster
An unusually large number of claims arising
from a single incident or event.
Protection is provided through reinsurance. The Group has fully reinsured
the UK insurance risk.
Expense
Administration costs exceed expense allowance. Administration is outsourced and a tariff of costs is agreed. The contract is
monitored regularly to rationalise costs incurred. Internal overhead
expenses are monitored and closely managed.
Retention
Unexpected movement in future profit due to
more (or less) clients than anticipated
withdrawing their funds.
Retention of insurance contracts is closely monitored and unexpected
experience is investigated. Retention experience has continued in line
with assumptions.
Insurance contract liabilities
Balance at 1 January
Movement in unit linked liabilities
Movement in liabilities
– New business
– Existing business
– Other assumption changes
– Experience variance
Total movement in liabilities
Balance at 31 December
Unit linked
Non-unit linked
Current
Non-current
See accounting policy (ae) for further information on the current and non-current disclosure.
2016
£’Million
463.5
58.9
2015
£’Million
474.4
(7.8)
–
(0.4)
3.2
(7.0)
(4.2)
518.2
435.4
82.8
518.2
81.0
437.2
518.2
0.2
(1.3)
(1.2)
(0.8)
(3.1)
463.5
376.5
87.0
463.5
102.5
361.0
463.5
Annual Report and Accounts 2016
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St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
14. INSURANCE LIABILITIES AND REINSURANCE ASSETS continued
Reinsurance assets
Reconciliation of the movement in the net reinsurance balance:
Reinsurance assets at 1 January
Reinsurance component of change in insurance liabilities
Reinsurance assets at 31 December
Current
Non-current
2016
£’Million
2015
£’Million
85.0
(4.5)
80.5
12.6
67.9
80.5
85.5
(0.5)
85.0
24.2
60.8
85.0
The overall impact of reinsurance on the profit for the year was a net charge of £5.7 million (2015: charge of £4.6 million).
Assumptions used in the calculation of Insurance liabilities and reassurance assets
The principal assumptions used in the calculation of the liabilities are:
Assumption
Interest rate
Mortality
Morbidity
– Critical Illness
Description
The valuation interest rate is calculated by reference to the long-term gilt yield at 31 December 2016. The
specific rates used are between 1.0% and 1.4% depending on the tax regime (1.7% and 2.2% at
31 December 2015).
Mortality is based on Company experience and is set at 72% of the TM/F92 tables with an additional loading
for smokers. There has been no change since 2006.
Morbidity is based on Company experience. There has been no change during 2016. Sample annual rates
per £ for a male non-smoker are:
Rate
Age
25
35
45
2016
2015
0.000760
0.001334
0.003189
0.000760
0.001334
0.003189
Morbidity
– Permanent Health Insurance
Morbidity is based on Company experience. Sample annual rates per £ income benefit p.a. for a male
non-smoker are:
Rate
Age
25
35
45
2016
0.00366
0.00965
0.02092
2015
0.00548
0.01447
0.03138
Contract liabilities are calculated allowing for the actual costs of administration of the business. The
assumption has been amended to allow for changes to the underlying administration costs.
Product
Protection business
Annual Cost
2016
£36.75
2015
£36.01
Allowance is made for a prudent level of lapses within the calculation of the liabilities. The rates have not
changed in 2016. Sample annual lapse rates are:
Lapses
2015 and 2016
Protection business
Year 1
7%
Year 5
9%
Year 10
8%
Expenses
Persistency
154
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Sensitivity analysis
The table below sets out the sensitivity of the profit on insurance business and net assets to changes in key assumptions. The levels of sensitivity tested
are consistent with those proposed in the EEV principles and reflect reasonably possible levels of change in the assumptions. The analysis reflects the
change in the variable/assumption shown while all other variables/assumptions are left unchanged. In practice variables/assumptions may change at
the same time, as some may be correlated (for example, an increase in interest rates may also result in an increase in expenses if the increase reflects
higher inflation). It should also be noted that in some instances sensitivities are non-linear. The sensitivity % has been applied to proportion the
assumption e.g. application of a 10% sensitivity to a withdrawal assumption of 8% will reduce it to 7.2%.
Sensitivity analysis
Withdrawal rates
Expense assumptions
Mortality/morbidity
Change in
profit/(loss)
before tax
2016
Change in
profit/(loss)
before tax
2015
Change in
assumption
%
£’Million
£’Million
-10%
-10%
-5%
(1.0)
0.3
0.0
(1.0)
0.3
0.0
Change in
net assets
2016
£’Million
(0.9)
0.2
0.0
Change in
net assets
2015
£’Million
(0.9)
0.3
0.0
A change in interest rates will have no material impact on insurance profit or net assets.
15. OTHER PROVISIONS AND CONTINGENT LIABILITIES
At 1 January 2016
Utilised during the year
Additional provisions
At 31 December 2016
Current
Non-current
Total
provisions
£’Million
15.4
(8.8)
10.5
17.1
7.5
9.6
17.1
Total provisions relate to the cost of redress for complaints and clawback of indemnity commission. The provision for the cost of redress for
complaints is based on estimates of the total number of complaints expected to be upheld, the estimated cost of redress and the expected timing of
settlement. The clawback provision is based on estimates of the indemnity commission that may be repaid.
As more fully set out in the summary of principal risks and uncertainties on pages 51 to 53, the Group could in the course of its business be subject to
legal proceedings and/or regulatory activity. Should such an event arise, the Board would consider their best estimate of the amount required to settle
the obligation and, where appropriate and material, establish a provision. While there can be no assurances that circumstances will not change, based
upon information currently available to them, the Directors do not believe there is any possible activity or event that could have a material adverse
effect on the Group’s financial position.
During the normal course of business, the Group may from time to time provide guarantees to Partners, clients or other third parties. However,
based upon the information currently available to them, the Directors do not believe there are any guarantees which would have a material adverse
effect on the Group’s financial position, and so the fair value of any guarantees has been assessed as £nil (2015: £nil).
Annual Report and Accounts 2016
155
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
16. BORROWINGS AND FINANCIAL COMMITMENTS
Borrowings
Bank borrowings
Loan notes
Total borrowings
Current
Non-current
31 December
2016
31 December
2015
£’Million
£’Million
231.3
50.1
281.4
1.3
280.1
281.4
132.0
49.8
181.8
1.0
180.8
181.8
In the prior year a £250 million revolving credit facility (repayable over five years with a variable interest rate) was entered into with a group of
UK banks. The Group initially drew down £125 million under the fully-committed facility, with an additional £100 million being drawn in the
current year.
In addition, during the prior year, the Group entered into a US Dollar $160 million private shelf facility. The Group authorised the issue of
£50 million of loan notes during the prior year in relation to the aforementioned facility. The notes were issued in Sterling, eliminating any Group
currency risk. The notes are repayable over ten years with a variable interest rate.
The Group also guarantees loans provided by third parties to Partners. In the event of default of any individual Partner loan, the Group guarantees to
repay the full amount of the loan, with the exception of Metro Bank plc, where 50% of the loan is guaranteed. These loans are secured against the
future renewal income streams of the Partner. The value of the loans guaranteed is as follows:
Bank of Scotland
Metro Bank plc
Santander plc
Total loans
Loans Drawn
Facility
31 December
2016
31 December
2015
31 December
2016
31 December
2015
£’Million
£’Million
£’Million
£’Million
54.0
35.6
47.2
136.8
77.2
44.8
19.4
141.4
80.0
95.0
50.0
225.0
90.0
50.0
25.0
165.0
The fair value of the outstanding borrowings and guarantees is not materially different from amortised cost.
Interest expense on borrowings is recognised within expenses in the statement of comprehensive income.
Financial commitments
The Group has commitments under non-cancellable operating leases in connection with the rental of office buildings and office equipment with
varying lease end dates ranging from 2017 to 2041. The following table represents the future minimum lease payments under non-cancellable
operating leases:
Not later than one year
Later than one year and not later than five years
Later than five years
Total financial commitments
31 December
2016
31 December
2015
£’Million
£’Million
15.6
53.8
65.0
134.4
14.9
50.1
67.4
132.4
As at 31 December 2016, there was £0.2 million (2015: £0.1 million) of future minimum sublease payments expected to be received under
non-cancellable subleases.
156
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 17. FINANCIAL RISK
Risk management objectives and risk policies
The Group’s financial risk can usefully be considered in two categories of assets:
1. Assets backing unit liabilities (see Note 10); and
2. Shareholder assets.
In general, the policyholder bears the financial risk on assets backing the unitised business, and risk from shareholder assets is minimised through
investment in liquid assets with a strong credit rating.
Exposure to the following risks for the two categories of assets is analysed separately in the following sections, in line with the requirements of IFRS 7:
• Credit risk
• Liquidity risk
• Market risk
• Currency risk
Credit risk is the risk of loss due to a debtor’s non-payment of a loan or other line of credit. Credit risk also arises from holdings of cash and cash
equivalents, deposits and formal loans with banks and financial institutions. The Group has adopted a risk averse approach to such risk and has a stated
policy of not actively pursuing or accepting credit risk except when necessary to support other objectives.
Risk
Shareholders’ assets
Description
Loss of assets or reduction in value Shareholder funds are predominantly invested in AAA rated unitised money market funds
Management
Reinsurance
Failure of counterparty or
counterparty unable to
meet liabilities
Partner loans and
advances
Inability of Partners to repay loans
or advances from St. James’s Place
and deposits with approved banks, but may be invested in sovereign fixed interest securities
such as UK gilts where regulatory constraints on other assets apply. Maximum
counterparty limits are set for each company within the Group and aggregate limits are also
set at a Group level.
Credit ratings of potential reinsurers must meet or exceed minimum specified levels.
Consideration is also given to size, risk concentrations/exposures and ownership in the
selection of reinsurers. The Group also seeks to diversify its reinsurance credit risk through
the use of a spread of reinsurers.
Loans and advances are managed in line with the Group’s secured lending policy. Loans are
secured on the future renewal income stream expected from a Partner’s portfolio and loan
advances vary in relation to the projected future income of the relevant Partner. Outstanding
balances are regularly reviewed and assessed on a conservative basis. Support is provided to
help Partners manage their business appropriately. Appropriate provision is made where there
is objective evidence of impairment.
Liquidity risk is the risk that the Group, although solvent, either does not have available sufficient financial resources to enable it to meet its
obligations as they fall due, or can secure such resources only at excessive cost. The Group is averse to liquidity risk and seeks to minimise this risk by
not actively pursuing it except where necessary to support other objectives.
Risk
Cash or expense
requirement
Description
A significant cash or expense
requirement needs to be met at
short notice.
Management
The majority of free assets are invested in cash or cash equivalents and the cash position and
forecast are monitored on a monthly basis. The Group also maintains a margin of free assets
in excess of the minimum required solvency capital within its regulated entities. Further,
the Group has established committed borrowing facilities (see Note 16) intended to further
mitigate liquidity risk.
Market risk is the impact a fall in the value of equity or other asset markets may have on the business. The Group adopts a risk averse approach to
market risk, with a stated solvency policy of not actively pursuing or accepting market risk except where necessary to support other objectives.
However, the Group accepts the risk that the fall in equity or other asset markets will reduce the level of annual management charge income derived
from policyholder assets and the risk of lower future profits.
Annual Report and Accounts 2016
157
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
17. FINANCIAL RISK continued
The table below summarises the main market risks that the business is exposed to and the methods by which the Group seeks to mitigate them.
Risk
Client liabilities
Tax
Retention
New business
Description
As a result of a reduction in
equity values, the Group may be
unable to meet client liabilities.
In adverse market conditions,
when the Group is realising
investment losses rather than
gains, the working of the I-E tax
regime can lead to short-term
capital inefficiencies, including the
deferral of the cash benefit arising
from tax relief on expenses.
Loss of future profit on
investment contracts due to
more clients than anticipated
withdrawing their funds,
particularly as a result of poor
investment performance.
Poor performance in the
financial markets in absolute
terms, and relative to inflation,
leads to existing and future
clients rejecting investment in
longer term assets.
Management
This risk is substantially mitigated by the Group’s strategic focus on unitised business, by not
providing guarantees to clients on policy values and by the matching of assets and liabilities.
The tax position is monitored closely, in particular the size and sources of relevant
income streams.
Retention of investment contracts is closely monitored and unexpected experience
variances are investigated. Retention has remained consistently strong throughout 2016,
despite volatile market conditions.
The benefit to clients of longer term equity investment as part of a diversified portfolio of
assets is fundamental to our philosophy. Advice and marketing become even more
important when market values fall, and greater attention is required to support and give
confidence to existing and future clients in such circumstances. This is taken account of by
the Group in its activities.
Currency risk
The Group is not subject to any significant direct currency risk, since all material shareholder financial assets and financial liabilities are denominated
in Sterling. However, since future profits are dependent on charges based on FUM, changes in FUM as a result of currency movements will impact
future profits.
158
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Shareholder Assets
Categories of financial assets and financial liabilities
The categories and carrying values of the financial assets and financial liabilities held in the Group’s statement of financial position are summarised in
the table below:
31 December 2016
Financial Assets
Fixed income securities
Investment in Collective Investment Schemes(2)
Other receivables(3)
– St. James’s Place Partnership loans
– Renewal income assets
– Other
Total other receivables
Cash and cash equivalents
Total financial assets
Financial Liabilities
Borrowings
Other payables
Total financial liabilities
31 December 2015
Financial Assets
Fixed income securities
Investment in Collective Investment Schemes(2)
Other receivables(3)
– St. James’s Place Partnership loans
– Renewal income assets
– Other
Total other receivables
Cash and cash equivalents
Total financial assets
Financial Liabilities
Borrowings
Other payables
Total financial liabilities
Financial
assets at
fair value
through
profit and
loss(1)
Financial
liabilities
measured at
amortised
cost
Loans and
receivables
Total
£’Million
£’Million
£’Million
£’Million
47.7
867.4
58.9
58.9
212.2
756.9
969.1
345.9
974.0
1,315.0
47.7
867.4
212.2
58.9
756.9
1,028.0
345.9
2,289.0
–
–
281.4
790.1
281.4
790.1
–
–
1,071.5
1,071.5
Financial
assets at
fair value
through
profit and
loss(1)
£’Million
83.1
531.0
26.8
26.8
640.9
Financial
liabilities
measured at
amortised
cost
Loans and
receivables
Total
£’Million
£’Million
£’Million
83.1
531.0
178.7
26.8
294.8
500.3
233.5
1,347.9
181.8
323.2
505.0
–
–
181.8
323.2
505.0
178.7
294.8
473.5
233.5
707.0
–
–
(1) All financial assets at fair value through profit or loss are designated as such upon initial recognition.
(2) All assets included as shareholder Investment in Collective Investment Schemes are holdings of high quality, highly liquid Money Market funds, containing assets which are cash and cash equivalents.
(3) Other receivables excludes prepayments and unearned commission, which are not considered financial assets.
Annual Report and Accounts 2016
159
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
17. FINANCIAL RISK continued
Income, expense, gains and losses arising from financial assets and financial liabilities
The income, expense, gains and losses arising from financial assets and financial liabilities are summarised in the table below:
Year Ended 31 December 2016
Financial Assets
Fixed income securities
Investment in Collective Investment Schemes
Other receivables
– St. James’s Place Partnership loans
– Renewal income assets
Total other receivables
Cash and cash equivalents
Total financial assets
Financial Liabilities
Borrowings
Other payables
Total financial liabilities
Year Ended 31 December 2015
Financial Assets
Fixed income securities
Investment in Collective Investment Schemes
Other receivables
– St. James’s Place Partnership loans
– Renewal income assets
Total other receivables
Cash and cash equivalents
Total financial assets
Financial Liabilities
Borrowings
Other payables
Total financial liabilities
Financial
assets at
fair value
through
profit and
loss(1)
Financial
liabilities
measured at
amortised
cost
Loans and
receivables
Total
£’Million
£’Million
£’Million
£’Million
2.3
2.9
(6.1)
(6.1)
(0.9)
6.3
6.3
1.2
7.5
–
–
–
(4.9)
(0.5)
(5.4)
Financial
assets at
fair value
through
profit and
loss(1)
Financial
liabilities
measured at
amortised
cost
Loans and
receivables
2.3
2.9
6.3
(6.1)
0.2
1.2
6.6
(4.9)
(0.5)
(5.4)
Total
£’Million
£’Million
£’Million
£’Million
(1.1)
3.0
(3.7)
(3.7)
(1.8)
5.9
5.9
1.4
7.3
–
–
(1.1)
3.0
5.9
(3.7)
2.2
1.4
5.5
(4.4)
(0.7)
(5.1)
–
–
(4.4)
(0.7)
(5.1)
(1) All financial assets and liabilities at fair value through profit or loss are designated as such upon initial recognition.
Losses have been recognised within the investment return line in the statement of comprehensive income.
160
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Fair value estimation
Financial assets and liabilities, which are held at fair value in the financial statements, are required to have disclosed their fair value measurements by
level of the following fair value measurement hierarchy:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
•
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly
(that is, derived from prices) (Level 2); and
Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
•
The following table presents the Group’s assets and liabilities measured at fair value:
31 December 2016
Financial Assets
Fixed income securities
Investment in Collective Investment Schemes(1)
Renewal income assets
Total financial assets
Financial Liabilities
Total financial liabilities
31 December 2015
Financial Assets
Fixed income securities
Investment in Collective Investment Schemes(1)
Renewal income assets
Total financial assets
Financial Liabilities
Total financial liabilities
Level 1
£’Million
Level 2
£’Million
Level 3 Total balance
£’Million
£’Million
47.7
867.4
867.4
47.7
47.7
867.4
58.9
974.0
58.9
58.9
–
–
–
–
Level 1
£’Million
Level 2
£’Million
Level 3
Total balance
£’Million
£’Million
83.1
531.0
531.0
83.1
–
–
83.1
531.0
26.8
640.9
–
26.8
26.8
–
(1) All assets included as shareholder Investment in Collective Investment Schemes are holdings of high quality, highly liquid unitised money market funds, containing assets which are cash and cash equivalents.
The fair value of financial instruments traded in active markets is based on quoted bid prices at the reporting date, as described in the accounting
policy (n). These instruments are included in Level 1.
Level 2 financial assets and liabilities are valued using observable prices for identical current arm’s length transactions.
The Renewal income assets are Level 3 and are valued using a discounted cash flow technique and the assumptions outlined in Note 12. The effect of
applying reasonably possible alternative assumptions of a movement of 100bps on the discount rate and a 10% movement in the lapse rate would result
in an unfavourable change in valuation of £5.4 million and a favourable change in valuation of £7.0 million, respectively.
There were no transfers between Level 1 and Level 2 during the year, nor into or out of Level 3.
Annual Report and Accounts 2016
161
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
17. FINANCIAL RISK continued
Movement in Level 3 portfolios
Renewal income assets
Opening balance
Additions during the year
Losses recognised in the statement of comprehensive income
Closing balance
Unrealised losses
Losses recognised in the statement of comprehensive income
31 December
2016
31 December
2015
£’Million
£’Million
26.8
38.2
(6.1)
58.9
(6.1)
(6.1)
29.1
1.4
(3.7)
26.8
(3.7)
(3.7)
Credit risk
The following table sets out the maximum credit risk exposure and ratings of financial and other assets which are susceptible to credit risk:
31 December 2016
Fixed income securities
Investment in Collective Investment Schemes(1)
Other receivables
Cash and cash equivalents
Total
AAA
AA
A
BBB
£’Million
£’Million
£’Million
£’Million
Unrated
£’Million
4.8
867.4
872.2
42.9
86.8
68.3
198.0
207.6
207.6
42.3
42.3
941.2
27.7
968.9
(1) Investment of shareholder assets in Collective Investment Schemes refers to investment in unitised money market funds, containing assets which are cash and cash equivalents.
31 December 2015
Fixed income securities
Investment in Collective Investment Schemes(1)
Other receivables
Cash and cash equivalents
Total
AAA
AA
A
BBB
£’Million
£’Million
£’Million
£’Million
Unrated
£’Million
3.9
531.0
79.2
85.0
22.1
534.9
186.3
177.8
177.8
25.4
25.4
415.3
8.2
423.5
Total
£’Million
47.7
867.4
1,028.0
345.9
2,289.0
Total
£’Million
83.1
531.0
500.3
233.5
1,347.9
Other receivables includes £212.2 million (2015: £178.7 million) of loans to St. James’s Place Partners, which are interest bearing (linked to Bank of
England base rate plus a margin), repayable on demand and secured against the future renewal income streams of the Partner.
Impairment of these loans is determined taking into account a range of factors including default history, the nature or type of the Partner loan,
exposure levels to individual Partners and whether the individual Partner is active or has left.
The loan balance is presented net of a £3.3 million provision (2015: £3.0 million). (See also Note 12.) The movement in the impairment provision will
reflect utilisation of the existing provision during the year, but the overall cost of impaired loans (including new provisions) recognised within
administration expenses in the statement of comprehensive income during the year was a charge of £1.8 million (2015: £1.4 million).
The value of the loans that are past due but not impaired is not considered to be material and has therefore not been aged.
There are no other financial assets that are impaired, would originally have been past due or impaired but whose terms have been renegotiated, or are
past due but not impaired.
162
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Contractual maturity and liquidity analysis
The following table sets out the contractual maturity analysis of the Group’s financial assets and financial liabilities as at 31 December 2016:
31 December 2016
Financial Assets
Fixed income securities
Investment in Collective Investment Schemes
Other receivables
– St. James’s Place Partnership loans
– Renewal income
– Other
Total other receivables
Cash and cash equivalents
Total financial assets
Financial Liabilities
Borrowings
Other payables
Total financial liabilities
31 December 2015
Financial Assets
Fixed income securities
Investment in Collective Investment Schemes
Other receivables
– St. James’s Place Partnership loans
– Renewal income
– Other
Total other receivables
Cash and cash equivalents
Total financial assets
Financial Liabilities
Borrowings
Other payables
Total financial liabilities
Up to 1
year
1 – 5
years
Over 5
years
Total
£’Million
£’Million
£’Million
£’Million
47.7
867.4
62.5
10.1
756.9
829.5
345.9
114.2
26.1
35.5
22.7
140.3
58.2
2,090.5
140.3
1.3
740.2
741.5
Up to 1
year
228.0
25.1
253.1
1 – 5
years
58.2
53.4
24.8
78.2
Over 5
years
47.7
867.4
212.2
58.9
756.9
1,028.0
345.9
2,289.0
282.7
790.1
1,072.8
Total
£’Million
£’Million
£’Million
£’Million
40.7
532.7
62.2
26.8
294.8
383.8
233.5
1,190.7
1.0
269.7
270.7
42.4
105.1
11.4
105.1
11.4
83.1
532.7
178.7
26.8
294.8
500.3
233.5
105.1
126.7
5.2
131.9
53.8
1,349.6
54.1
48.3
102.4
181.8
323.2
505.0
Sensitivity analysis to market risks
Financial assets and liabilities held outside unitised funds primarily consist of fixed interest securities, units in money market funds, cash and cash
equivalents, and other accounting assets and liabilities. The fixed interest securities are short term and are held as an alternative to cash. Similarly cash
held in unitised money market funds and at bank is valued at par and is unaffected by movement in interest rates. Other assets and liabilities are
similarly unaffected by market movements.
As a result of these combined factors, the Group’s financial assets and liabilities held outside unitised funds are not materially subject to market risk,
and movements at the reporting date in interest rates and equity values have an immaterial impact on the Group’s profit after tax and equity. Future
profits from annual management charges may be affected by movements in interest rates and equity values.
Annual Report and Accounts 2016
163
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
17. FINANCIAL RISK continued
Unit liabilities and associated assets
Categories of financial assets and financial liabilities
Assets held to cover unit liabilities are summarised in Note 10, and all are held at fair value through profit or loss. They are designated as such upon
initial recognition.
The carrying value of the unit liabilities may differ from the amount contractually required to pay at maturity. Maturity values of the financial
liabilities vary with future client investment and withdrawals as well as investment return. Future value also derives from credit for notional capital
losses in some life insurance (BLAGAB) funds. The contractual value required to be paid to unit holders as at 31 December 2016 would be
£17.1 million lower than the liability reflected in the statement of financial position (2015: £9.6 million lower).
Income, expense, gains and losses arising from financial assets and financial liabilities
The income, expense, gains and losses arising from financial assets and financial liabilities are summarised in the table below:
Financial Assets and Investment Properties
Investment properties
Other assets backing unit liabilities
Total financial assets and investment properties
Financial Liabilities(2)
Unit liabilities
Total financial liabilities
(1) All financial assets and liabilities at fair value through profit or loss are designated as such upon initial recognition.
(2) None of the change in the fair value of financial liabilities at fair value through profit or loss is attributable to changes in their credit risk.
Losses have been recognised within the investment return line in the statement of comprehensive income.
31 December
2016
31 December
2015
£’Million
£’Million
42.8
7,456.7
7,499.5
6,336.8
6,336.8
128.6
1,396.0
1,524.6
973.8
973.8
Fair value estimation
Financial assets and liabilities, which are held at fair value in the financial statements, are required to have disclosed their fair value measurements by
level of the following fair value measurement hierarchy:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
•
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly
(that is, derived from prices) (Level 2); or
Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
•
The following table presents the Group’s assets and liabilities measured at fair value:
31 December 2016
Financial Assets and Investment Properties
Investment property
Equities
Fixed income securities
Investment in Collective Investment Schemes
Derivative financial instruments
Cash and cash equivalents
Total financial assets and investment properties
Financial Liabilities
Investment contract benefits
Derivative financial instruments
Net asset value attributable to unit holders
Total financial liabilities
164
Level 1
£’Million
Level 2
£’Million
Level 3
£’Million
46,598.7
2,996.0
7,067.2
12,397.8
729.1
1,462.4
1.4
Total
balance
£’Million
1,462.4
46,598.7
12,397.8
2,997.4
729.1
7,067.2
56,661.9
13,126.9
1,463.8
71,252.6
53,307.1
281.9
17,032.0
53,307.1
281.9
17,032.0
17,032.0
53,589.0
–
70,621.0
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 31 December 2015
Financial Assets and Investment Properties
Investment property
Equities
Fixed income securities
Investment in Collective Investment Schemes
Derivative financial instruments
Cash and cash equivalents
Total financial assets and investment properties
Financial Liabilities
Investment contract benefits
Derivative financial instruments
Net asset value attributable to unit holders
Total financial liabilities
Level 1
£’Million
Level 2
£’Million
37,960.8
2,735.9
5,091.6
8,850.9
364.1
Level 3
£’Million
1,344.9
2.7
Total
balance
£’Million
1,344.9
37,960.8
8,850.9
2,738.6
364.1
5,091.6
45,788.3
9,215.0
1,347.6
56,350.9
43,159.8
221.1
12,556.4
43,159.8
221.1
12,556.4
12,556.4
43,380.9
–
55,937.3
In respect of the derivative financial liabilities, £171.1 million of collateral has been posted at 31 December 2016, comprising cash and treasury bills
(2015: £97.4 million), in accordance with the terms and conditions of the derivative contracts.
The fair value of financial instruments traded in active markets is based on quoted bid prices at the reporting date, as described in the accounting
policy (n). These instruments are included in Level 1.
The Group closely monitors the valuation of assets in markets that have become less liquid. Determining whether a market is active requires the
exercise of judgement and is determined based upon the facts and circumstances of the market for the instrument being measured. Where it is
determined that there is no active market, fair value is established using a valuation technique. The techniques applied incorporate relevant
information available and reflect appropriate adjustments for credit and liquidity risks. These valuation techniques maximise the use of observable
market data where it is available and rely as little as possible on entity specific estimates. The relative weightings given to differing sources of
information and the determination of non-observable inputs to valuation models can require the exercise of significant judgement.
If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. If one or more of the significant
inputs is not based on observable market data, the instrument is included in Level 3.
Note that all of the resulting fair value estimates are included in Level 2, except for certain equities and investments in Collective Investment Schemes
(CIS) and investment properties as detailed below.
Specific valuation techniques used to value Level 2 financial assets and liabilities include:
• The use of observable prices for identical current arm’s length transactions, specifically:
– The fair value of unit linked liabilities is assessed by reference to the value of the underlying net asset value of the Group’s unitised investment
funds, determined on a bid value, at the reporting date; and
– The Group’s derivative financial instruments are valued using valuation techniques commonly used by market participants. These consist of
discounted cash flow and options pricing models, which typically incorporate observable market data, principally interest rates, basis spreads,
foreign exchange rates, equity prices and counterparty credit.
Specific valuation techniques used to value Level 3 financial assets and liabilities include:
• The use of unobservable inputs, such as expected rental values and equivalent yields; and
• Other techniques, such as discounted cash flow and historic lapse rates, are used to determine fair value for the remaining financial instruments.
There were no transfers between Level 1 and Level 2 during the year.
Annual Report and Accounts 2016
165
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
17. FINANCIAL RISK continued
Transfers into and out of Level 3 portfolios
Transfers out of Level 3 portfolios arise when inputs that could have a significant impact on the instrument’s valuation become market observable;
conversely, transfers into the portfolios arise when consistent sources of data cease to be available.
Transfers in of certain equities and investments in Collective Investment Schemes (CIS) occur when asset valuations can no longer be obtained from an
observable market price i.e. become illiquid, in liquidation, suspended, etc. The converse is true if an observable market price becomes available.
The following table presents the changes in Level 3 financial assets and liabilities at fair value through the profit and loss:
Year Ended 31 December 2016
Opening balance
Transfer into Level 3
Additions during the year
Disposed during the year
Gains/(losses) recognised in the income statement
Closing balance
Realised losses
Unrealised gains
Gains/(losses) recognised in the income statement
Year Ended 31 December 2015
Opening balance
Transfer into Level 3
Additions during the year
Disposed during the year
Gains recognised in the income statement
Closing balance
Realised losses
Unrealised gains
Gains/(losses) recognised in the income statement
Investment
property
£’Million
1,344.9
–
140.9
–
(23.4)
1,462.4
–
(23.4)
(23.4)
Investment
property
£’Million
1,031.4
–
253.8
(14.3)
74.0
1,344.9
(5.8)
79.8
74.0
CIS
£’Million
2.7
0.4
–
–
(1.7)
1.4
–
(1.7)
(1.7)
CIS
£’Million
29.9
0.3
–
(27.4)
(0.1)
2.7
–
(0.1)
(0.1)
Gains/(losses) recognised in the statement of comprehensive income are included within investment return for certain equities and investments in
Collective Investment Schemes and investment property.
166
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Level 3 valuations
The principal assets classified as Level 3 are investment properties amounting to £1,462.4 million (2015: £1,344.9 million). Investment property is
initially measured at cost including related acquisition costs and subsequently valued monthly by professional external valuers at their respective fair
values at each reporting date. The fair values derived are based on anticipated market values for the properties in accordance with the guidance issued
by The Royal Institution of Chartered Surveyors, being the estimated amount that would be received from a sale of the assets in an orderly transaction
between market participants. The valuation of investment property is inherently subjective as it requires, among other factors, assumptions to be
made regarding the ability of existing tenants to meet their rental obligations over the entire life of their leases, the estimation of the expected rental
income in to the future, an assessment of a property’s ability to remain as an attractive technical configuration to existing and prospective tenants in a
changing market and a judgement to be reached on the attractiveness of a building, its location and the surrounding environment.
31 December 2016
Gross ERV (per sq ft)*
Range
Weighted average
True equivalent yield
Range
Weighted average
31 December 2015
Gross ERV (per sq ft)*
Range
Weighted average
True equivalent yield
Range
Weighted average
* Equivalent rental value (per square foot)
Investment property classification
Office
Industrial
Retail & leisure
All
£14.66 – £96.50
£31.63
£3.50 – £15.75
£6.94
£4.50 – £427.84
£15.05
£3.50 – £427.84
£13.74
3.9% – 8.4%
5.4%
5.3% – 7.3%
6.1%
4.8% – 13.6%
5.9%
3.9% – 13.6%
5.8%
£14.75 – £90.01
£30.18
£3.00 – £15.00
£6.59
£5.00 – £365.46
£14.73
£3.00 – £365.46
£13.22
3.7% – 8.0%
5.4%
5.4% – 7.1%
6.1%
4.7% – 13.1%
6.0%
3.7% – 13.1%
5.8%
Sensitivity of Level 3 valuations
The valuation of certain equities and investments in Collective Investment Schemes (CIS) are based on the latest observable price available. Whilst
such valuations are sensitive to estimates, it is believed that changing the price applied to a reasonably possible alternative would not change the fair
value significantly.
Investment property is initially measured at cost including related acquisition costs and subsequently valued monthly by professional external valuers
at their respective fair values at each reporting date. The fair values derived are based on anticipated market values for the properties in accordance
with the guidance issued by The Royal Institution of Chartered Surveyors, being the estimated amount that would be received from a sale of the assets
in an orderly transaction between market participants. The following table sets out the effect of applying reasonably possible alternative assumptions
to the valuation of the investment properties. Any change in the value of investment property is matched by the associated movement in the
policyholder liability and therefore would not impact on the shareholder net assets.
Investment property
significant unobservable inputs
31 December 2016
31 December 2015
Expected rental value/Relative yield
Expected rental value/Relative yield
Credit risk
Credit risk relating to unit liabilities is borne by the unit holders.
Effect of reasonable possible
alternative assumptions
Favourable
changes
Unfavourable
changes
£’Million
1,598.3
1,469.3
£’Million
1,341.9
1,235.2
Carrying
value
£’Million
1,462.4
1,344.9
Contractual maturity and liquidity analysis
Unit liabilities (and the associated assets) are deemed to have a maturity of up to one year since they are repayable and transferable on demand. In
practice the contractual maturities of the assets may be longer than one year, but the majority of assets held within the unit linked and unit trust funds
are highly liquid and the Group also actively monitors fund liquidity.
Sensitivity analysis to market risks
The majority of the Group’s business is unitised and the direct associated market risk is therefore borne by policyholders. (For completeness, we note
that there is an indirect risk associated with market performance as future shareholder income is dependent upon markets, however the direct risk has
been mitigated through the Group’s approach to matching assets and liabilities).
Annual Report and Accounts 2016
167
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
18. CAPITAL MANAGEMENT AND ALLOCATION
It is the Group’s policy to maintain a strong capital base in order to:
• Protect clients’ interests;
• Meet regulatory requirements;
• Protect creditors’ interests; and
• Create shareholder value through support for business development.
Within the Group, each subsidiary manages its own capital in the context of a Group capital plan. Any capital in excess of planned requirements is
returned to the Group’s Parent, St. James’s Place plc, normally by way of dividends. The Group capital position is monitored by the Finance Executive
Committee on behalf of the St. James’s Place plc Board.
The Group’s policy is for each subsidiary to hold the higher of:
• The capital required by any relevant supervisory body uplifted by a specified margin to absorb changes; or
• The capital required based on the Company’s internal assessment.
For our insurance companies, we hold capital based on our own internal assessment, albeit recognising the regulatory requirement. For other
regulated companies we generally hold capital based on the regulatory requirement uplifted by a specified margin.
The following entities are subject to regulatory supervision and have to maintain a minimum level of regulatory capital:
Entity
St. James’s Place UK plc
St. James’s Place International plc
St. James’s Place Unit Trust Group Limited
St. James’s Place Investment Administration Limited
St. James’s Place Wealth Management (PCIS) Limited
St. James’s Place Wealth Management plc
BFS Financial Services Limited
LP Financial Management Limited
St. James’s Place (Hong Kong) Limited
St. James’s Place (Singapore) Private Limited
Rowan Dartington & Co Limited
Regulatory Body and Jurisdiction
PRA and FCA: Long-term insurance business
Central Bank of Ireland: Life insurance business
FCA: UCITS Management Company
FCA: Investment Firm
FCA: Securities and Futures Firm
FCA: Personal Investment Firm
FCA: Personal Investment Firm
FCA: Personal Investment Firm
Securities and Futures Commission (Hong Kong): A Member of The Hong
Kong Confederation of Insurance Brokers
Monetary Authority Singapore:
A Member of the Association of Financial Advisers
FCA: Investment Firm
In addition, the St. James’s Place Group is regulated as an Insurance Group under Solvency II, with the PRA as the lead regulator.
As an insurance group, St. James’s Place is subject to the Solvency II regulations, which were implemented on 1 January 2016. More information about
the impact of the implementation of Solvency II is included in the Financial Review on page 43 and in the separate Solvency and Financial Condition
Report document. The overall capital position for the Group at 31 December 2016, assessed on the Standard Formula basis, is presented in the
following table:
31 December 2016
IFRS total assets
Less Solvency II valuation adjustments and unit linked liabilities
Solvency II net assets
Management Solvency Buffer (MSB)
Excess of free assets over MSB
Solvency II VIF
Risk margin
Standard formula SCR (A)
Sub-total
Solvency II Free Assets (B)
Solvency II ratio ((A +B)/A)
Group
£’Million
75,022.1
(73,952.1)
1,070.0
527.0
543.0
2,707.9
(779.2)
(2,046.5)
(117.8)
952.2
147%
An overall internal capital assessment is required for insurance groups. This is known as an ORSA (Own Risk and Solvency Assessment) and is
described in more detail in the section on Risk and Risk Management on page 49.
168
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 The capital requirement and the associated solvency of the Group are assessed and monitored by the Finance Executive Committee, a Committee of
the St. James’s Place plc Board. The regulatory requirements for the remaining companies within the Group are assessed and monitored by the
relevant subsidiary boards.
Although there has been a significant change in the approach to assessing ‘required capital’ during the year (as a result of Solvency II), there has been
no material change in the level of capital required, or in the Group’s management of capital. All regulated entities exceeded the minimum solvency
requirements at the reporting date and during the year.
Capital composition
The principal forms of capital are included in the following balances on the consolidated statement of financial position:
Share capital
Share premium
Shares in trust reserve
Miscellaneous reserves
Retained earnings
Shareholders’ equity
Non-controlling interests
Total equity
31 December
2016
31 December
2015
£’Million
£’Million
79.1
164.5
(20.9)
2.5
851.2
1,076.4
(0.8)
1,075.6
78.7
158.3
(18.5)
2.3
874.6
1,095.4
(0.3)
1,095.1
The above assets do not all qualify as regulatory capital. The required minimum regulatory capital and analysis of the assets that qualify as regulatory
capital are outlined in Section 4 of the Financial Review on page 39, which demonstrates that the Group has met its internal capital objectives. The
Group and its individually regulated operations have complied with all externally and internally imposed capital requirements throughout the year.
Annual Report and Accounts 2016
169
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
19. SHARE CAPITAL, EARNINGS PER SHARE AND DIVIDENDS
Share Capital
At 1 January 2015
– Issue of share capital
– Exercise of options
At 31 December 2015
– Issue of share capital
– Exercise of options
At 31 December 2016
Number of
Ordinary
Shares
Called up
Share Capital
519,447,391
206,366
5,011,455
524,665,212
108,819
2,708,317
527,482,348
£’Million
77.9
–
0.8
78.7
–
0.4
79.1
The total authorised number of ordinary shares is 605 million (2015: 605 million), with a par value of 15 pence per share (2015: 15 pence per share).
All issued shares are fully paid.
Included in the issued share capital are 3,954,525 (2015: 3,605,740) shares held in the Shares in Trust Reserve with a nominal value of £0.6 million
(2015: £0.5 million). The shares are held by the SJPC Employee Share Trust and the St. James’s Place 2010 SIP Trust to satisfy certain share-based
payment schemes. The trustees of the SJPC Employee Share Trust retain the right to dividends on the shares held by the Trust but have chosen to
waive their entitlement to the dividends on 1,330,156 shares during 2016 and 1,727,510 shares during 2015. No dividends have been waived on shares
held in the St. James’s Place 2010 SIP Trust in 2016 or 2015.
The number of shares reserved for issue under options and contracts for sale of shares, including terms and conditions, is included within Note 20.
Earnings per Share
Earnings
Profit after tax attributable to equity shareholders ( for both basic and diluted EPS)
Weighted average number of shares
Weighted average number of ordinary shares in issue ( for basic EPS)
Adjustments for outstanding share options
Weighted average number of ordinary shares ( for diluted EPS)
Earnings per share (EPS)
Basic earnings per share
Diluted earnings per share
Dividends
The following dividends have been paid by the Group:
Final dividend in respect of previous financial year
Interim dividend in respect of current financial year
Total dividends
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
112.2
Million
522.6
3.3
525.9
Pence
21.5
21.3
202.0
Million
519.1
5.2
524.3
Pence
38.9
38.5
Year Ended
31 December
2016
Year Ended
31 December
2015
Year Ended
31 December
2016
Year Ended
31 December
2015
Pence per
Share
Pence per
Share
£’Million
£’Million
17.24
12.33
29.57
14.37
10.72
25.09
90.4
64.8
155.2
74.8
56.0
130.8
The Directors have recommended a final dividend of 20.67 pence per share (2015: 17.24 pence). This amounts to £109 million (2015: £90.4 million) and
will, subject to shareholder approval at the Annual General Meeting, be paid on 12 May 2017 to those shareholders on the register as at 7 April 2017.
170
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 20. SHARE-BASED PAYMENTS
During the year ended 31 December 2016, the Group operated a number of different equity and cash settled share-based payment arrangements,
which are aggregated as follows:
• SAYE plan – this is a standard HMRC approved scheme that is available to all employees where individuals may contribute up to £250 per month
over three years to purchase shares at a price not less than 80% of the market price at the date of the invitation to participate;
• Share incentive plan (SIP) – this is an HMRC approved scheme which is available to all employees where individuals may invest up to an annual
limit of £1,500 of pre-tax salary in SJP shares, to which the Company will add a further 10%. If the shares are held for five years, then they may be
sold free of income tax or CGT;
• Executive deferred bonus schemes – under these plans the deferred element of the annual bonus is used to purchase shares at market value in the
Company. The shares are held by the Company until vesting after three years and, in addition to the performance targets, which apply prior to any
entitlement being granted, further performance conditions may also apply on vesting;
• Executive performance share plan – the Remuneration Committee of the Group Board may make awards of performance shares to the Executive
Directors and other senior managers. Two-thirds of shares awarded to Directors are subject to an earnings growth condition of the Group and one-third
of shares awarded to Directors are subject to a comparative total shareholder return (TSR) condition, both measured over a three-year period. Further
information regarding the vesting conditions of the earnings growth and total shareholder return dependent portions of the award is given in the
Remuneration Report on page 98. Awards made to senior managers are largely only subject to the earnings growth condition of the Group;
• Partner share option schemes – these were offered to the Partners of the St. James’s Place Partnership and vest over three to six years subject to
satisfying personal new business related performance criteria. The last award under these schemes was made in 2007;
• Partner performance share plan – under this plan Partners are entitled to purchase shares in the future at nominal value (15 pence). The number of
shares the Partners are entitled to purchase will depend on their personal business volumes in the year of the award and validation over the
following three years. The last award under this scheme was made in 2010;
• Partner and Adviser chartered plan - a new scheme was launched during 2015 as part of the Partner performance share plan whereby Partners and
Advisers are entitled to purchase shares in the future at nominal value (15 pence). The number of shares the Partners are entitled to purchase will
depend upon achieving specific professional qualifications and new business levels in a specified twelve month period and validation over the
following three years. The first award under these schemes was made in 2016; and
• Restricted share plan – upon acquisition of the Rowan Dartington Group a new scheme was launched for eligible employees. Employees were
granted shares, 50% of which vest after 18 months, and the remaining 50% vest after three years providing the individual remains in employment
within the SJP Group and maintains any applicable professional qualifications.
Share options outstanding under the various share option schemes, together with shares due under the deferred bonus schemes at 31 December 2016,
amount to 11.5 million shares (2015: 7.1 million). Of these, 5.4 million (2015: 1.1 million) are under option to Partners of the St. James’s Place
Partnership, 4.7 million (2015: 4.7 million) are under option to executives and senior management (including 1.3 million (2015: 1.5 million) under
option to Directors as disclosed in the Remuneration Report, on pages 108 to 110), 0.3 million (2015: nil) are under option to employees who became
employees of the Group on acquisition of the Rowan Dartington Group and 1.1 million (2015: 1.2 million) are under option through the SAYE and
SIP schemes. These are exercisable on a range of future dates.
Annual Report and Accounts 2016
171
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
20. SHARE-BASED PAYMENTS continued
The table below summarises the share-based payment awards made in 2015 and 2016:
Awards in 2015:
Date of grant
Number granted
Contractual life
Vesting conditions
Awards in 2016:
Date of grant
Number granted
Contractual life
Vesting conditions
SAYE
Share
Incentive Plan
Executive
Deferred
Bonus
Executive
Performance
Share Plan
Partner
and Adviser
Chartered Plan
Restricted
Share Plan
25 March and
25 September
637,327
3.5 years
3 year saving
period
26 March
26 March
5,245
3 years
3 year saving
period
675,097
3 years
3 years’ service
and achievement
of personal
targets in some
instances
24 March
24 March
24 March
460,065
3.5 years
3 year saving
period
5,591
3 years
3 year saving
period
613,382
3 years
3 years’ service
and achievement
of personal
targets in some
instances
26 March and
15 September
729,506
3.5 – 6 years
3 years’ service
and achievement
of earnings and
TSR targets
24 March and
26 September
857,125
3.5 – 6 years
3 years’ service
and achievement
of earnings and
TSR targets
–
–
–
–
–
–
–
–
29 July
29 July
5,374,449
3.5 years
3 year saving
period
323,300
3.5 years
3 year saving
period
Financial assumptions underlying the calculation of fair value
The fair value expense has been based on the fair value of the instruments granted, as calculated using appropriate derivative pricing models. The table
below shows the weighted average assumptions and models used to calculate the grant date fair value of each award:
Valuation model
Awards in 2015
Fair value (pence)
Share price (pence)
Exercise price (pence)
Expected volatility (% pa)(1)
Expected dividends (% pa)
Risk-free interest rate (% pa)
Volatility of competitors (% pa)
Correlation with competitors (%)
Awards in 2016
Fair value (pence)
Share price (pence)
Exercise price (pence)
Expected volatility (% pa)(1)
Expected dividends (% pa)
Risk-free interest rate (% pa)
Volatility of competitors (% pa)
Correlation with competitors (%)
SAYE
Black
Scholes
Share
Incentive Plan
Black
Scholes
263.3/161.4(2)
990.0/836.6
738.0/724.0
25/25
2.4/3.0
0.7/0.9
N/A
N/A
250.7
935.5
687.0
27.0
3.0
0.6
N/A
N/A
979.0
979.0
0.0
N/A
N/A
N/A
N/A
N/A
935.5
935.5
0.0
N/A
N/A
N/A
N/A
N/A
Executive
Deferred
Bonus
Black
Scholes
979.0/982.5
979.0
0.0
N/A
N/A(3)
N/A
N/A
N/A
935.5
935.5
0.0
N/A
N/A
N/A
N/A
N/A
Executive
Performance
Share Plan
Partner
and Adviser
Chartered Plan
Monte
Carlo
979.0(4)
979.0(5)
0.0
25
N/A
N/A
18 to 48
20
493.9/935.5
935.5
0.0
27.0
N/A
N/A
17 to 44
20.0
Black
Scholes
–
–
–
–
–
–
–
–
822.0
920.0
15.0
29.0
3.2
0.1
N/A
N/A
Restricted
Share Plan
Black
Scholes
–
–
–
–
–
–
–
–
894.0
894.0
0.0
N/A
N/A
N/A
N/A
N/A
Notes:
(1) Expected volatility is based on an analysis of the Company’s historic share price volatility over a period (typically three or five years) which is commensurate with the expected term of the options or
the awards.
(2) In 2015 and 2016, the vesting period for the SAYE plan was three years. The vesting period may be extended by up to six months in order to catch up on missed contributions.
(3) Dividends payable on the shares during the restricted period are paid out during the restricted period for the executive deferred bonus schemes and no dividend yield assumption is therefore required.
(4) The awards made under the executive performance share plan are dependent upon earnings growth in the Company (two-thirds of the award) and a total shareholder return of a comparator group of
companies (one-third of the award). This results in having two fair values for each of the awards made in the table above, the first being in relation to the comparator total shareholder return and the
second relating to the Company’s earnings growth.
(5) Awards were made under the executive performance share plan on two separate occasions during 2016 (2015: two).
172
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 SAYE
Outstanding at start of year
Granted
Forfeited
Exercised
Outstanding at end of year
Exercisable at end of year
Executive Share Options
Outstanding at start of year
Exercised
Outstanding at end of year
Partner Share Options
Outstanding at start of year
Granted
Forfeited
Exercised
Outstanding at end of year
Exercisable at end of year
Year Ended
31 December
2016
Year Ended
31 December
2016
Number of
options
Weighted
average
exercise price
Year Ended
31 December
2015
Number of
options
Year Ended
31 December
2015
Weighted
average
exercise price
1,162,588
460,065
(272,877)
(319,073)
1,030,703
786
£6.15
£7.48
£7.19
£3.53
£7.28
£4.04
1,458,774
637,327
(88,461)
(845,052)
1,162,588
108,103
–
–
–
–
–
–
54,270
(54,270)
–
1,146,226
–
–
(1,127,126)
19,100
19,100
£3.35
–
–
£3.33
£4.55
£4.55
3,407,365
–
–
(2,261,139)
1,146,226
1,146,226
£3.86
£7.30
£5.52
£2.82
£6.15
£2.75
£2.43
£2.43
–
£2.91
–
–
£2.69
£3.35
£3.35
The average share price during the year was 914.6 pence (2015: 921.5 pence).
The SAYE plan options outstanding at 31 December 2016 had exercise prices of 404 pence (786 options), 676 pence (207,521 options), 792 pence
(197,458 options), 669 pence (181,693), 748 pence (436,624) and a weighted average remaining contractual life of 2.1 years.
The options outstanding under the Partner share option schemes at 31 December 2016 had exercise prices ranging from 438 pence to 465 pence and a
weighted average remaining contractual life of 0.2 years.
Share Incentive Plan (nil cost option – no proceeds on exercise)
Outstanding at start of year
Granted
Forfeited
Exercised
Outstanding at end of year
Exercisable at end of year
Executive Performance Share Plan (nil cost option – no proceeds on exercise)
Outstanding at start of year
Granted
Forfeited
Exercised
Outstanding at end of year
Exercisable at end of year
Annual Report and Accounts 2016
Year Ended
31 December
2016
Year Ended
31 December
2015
Number of
options
Number of
options
24,892
5,591
(825)
(2,402)
27,256
13,134
23,069
5,245
(879)
(2,543)
24,892
3,711
Year Ended
31 December
2016
Year Ended
31 December
2015
Number of
options
3,187,940
857,125
(98,535)
(993,261)
2,953,269
514,297
Number of
options
5,212,411
729,506
(245,272)
(2,508,705)
3,187,940
310,188
173
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
20. SHARE-BASED PAYMENTS continued
Partner Performance Share Plan (15 pence per share on exercise)
Outstanding at start of year
Granted
Forfeited
Exercised
Outstanding at end of year
Exercisable at end of year
Partner and Adviser Chartered Plan (15 pence per share on exercise)
Outstanding at start of year
Granted
Forfeited
Exercised
Outstanding at end of year
Exercisable at end of year
Executive Deferred Bonus (nil cost option – no proceeds on exercise)
Outstanding at start of year
Granted
Forfeited
Exercised
Outstanding at end of year
Exercisable at end of year
Restricted Share Plan (nil cost option – no proceeds on exercise)
Outstanding at start of year
Granted
Forfeited
Exercised
Outstanding at end of year
Exercisable at end of year
174
Year Ended
31 December
2016
Year Ended
31 December
2015
Number of
options
Number of
options
15,000
–
–
(15,000)
–
–
95,500
–
–
(80,500)
15,000
15,000
Year Ended
31 December
2016
Year Ended
31 December
2015
Number of
options
–
5,374,449
(7,512)
5,366,937
–
Number of
options
–
–
–
–
–
–
Year Ended
31 December
2016
Year Ended
31 December
2015
Number of
shares
1,658,301
613,382
(12,789)
(425,458)
1,833,436
–
Number of
shares
1,676,958
675,097
(26,339)
(667,415)
1,658,301
–
Year Ended
31 December
2016
Year Ended
31 December
2015
Number of
shares
Number of
shares
–
323,300
(1,440)
–
321,860
–
–
–
–
–
–
–
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Early exercise assumptions
The following allowance has been made for the impact of early exercise once options have vested:
1. SAYE plan – all option holders are assumed to exercise halfway through the six month exercise window.
2. Executive, sales management and partner share option schemes – it is assumed that 10% of option holders exercise their options each year
irrespective of the level of the share price. For the remainder it is assumed that one-half will exercise their options each year if the share price is at
least 33% above the exercise price.
Allowance for performance conditions
The executive performance share plan includes a market based performance condition based on the Company’s total shareholder return relative to an
index of comparator companies. The impact of this performance condition has been modelled using Monte Carlo simulation techniques, which involve
running many thousands of simulations of future share price movements for both the Company and the comparator index. For the purpose of these
simulations it is assumed that the share price of the Company and the comparator index are 20% (2015: 20%) correlated and that the comparator
index has volatilities ranging between 17% p.a. to 44% p.a. (2015: 18% p.a. to 48% p.a.).
The performance condition is based on the Company’s performance relative to the comparator index over a three-year period commencing on
1 January each year. The fair value calculations for the awards that were made in 2016 therefore include an allowance for the actual performance of the
Company’s share price relative to the index over the period between 1 January 2016 and the various award dates.
Charge to the consolidated statement of comprehensive income
The table below sets out the charge to the consolidated statement of comprehensive income in respect of the share-based payment awards:
Equity settled share-based payment expense
Cash settled share-based payment expense
Total share-based payment expense
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
22.7
1.2
23.9
14.7
1.0
15.7
Liability recognised in the statement of financial position
The liability recognised in the statement of financial position in respect of the cash settled share-based payment awards is as follows. This liability is
included within other payables on the face of the statement of financial position. None of the liability at 31 December 2016 or 31 December 2015 is in
respect of vested cash settled share-based payments:
Liability for cash settled share-based payments
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
3.1
1.6
Annual Report and Accounts 2016
175
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
21. BUSINESS COMBINATIONS AND DISPOSALS
Business combinations
During the year the Group acquired the following subsidiaries in line with the Group’s strategic objective of broadening the business model,
expanding the client proposition and growing the Partnership:
Subsidiary undertaking
Rowan Dartington Group
Rowan Dartington Holdings Limited
Rowan Dartington & Co Limited
Stafford House Investments Limited
Ardan International Limited
Dartington Portfolio Nominees Limited
Rowan Dartington Trustees Limited
RD Portfolio Nominees Limited
Colston Portfolio Nominees Limited
Cabot Portfolio Nominees Limited
Ardan Nominees Limited
Others
Technical Connection Limited
Now Financial Solutions Limited*
Principal activity
Holding Company
Stockbroker and Investment Manager
Independent Financial Adviser
Investment Platform
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
Tax and Advisory Services
Independent Financial Adviser
%
Shareholding
Date of
acquisition
100% 08/03/2016
100% 08/03/2016
100% 08/03/2016
92.5% 08/03/2016
100% 08/03/2016
100% 08/03/2016
100% 08/03/2016
100% 08/03/2016
100% 08/03/2016
100% 08/03/2016
100% 18/04/2016
100% 29/04/2016
*
Post acquisition, Now Financial Solutions Limited changed its name to Hale Financial Solutions Limited.
Acquisition-related costs of £0.2 million have been charged to administration expenses in the consolidated income statement for the year ended
31 December 2016.
Rowan Dartington Group
The Rowan Dartington Group acquisition contributed £9.8 million to revenue and a £3.9 million loss before income tax for the period between the
acquisition date and the statement of financial position date. Had the above acquisitions been consolidated from 1 January 2016, they would have
contributed £11.4 million to revenue and a £4.8 million loss before income tax to the consolidated statement of comprehensive income for the period.
The net assets, fair value adjustments and consideration for these acquisitions are summarised below (all values shown as at their acquisition dates):
Financial assets
Cash and cash equivalents
Financial liabilities
Total
Consideration
Cash consideration
Deferred consideration
Contingent consideration
Total consideration
Book value
£’Million
7.8
1.2
(7.6)
Fair value
adjustment
£’Million
39.1
–
(6.6)
1.4
32.5
Total
£’Million
46.9
1.2
(14.2)
33.9
19.9
7.2
6.8
33.9
It is expected that the contingent consideration will be paid in full with no changes to the amount initially recognised; however, should the target
number of Investment Executives not be met, the contingent consideration will decrease on a pro-rata basis down to a value of £nil. Of the remaining
balance to be settled at acquisition, a further £2.4 million was settled on 6 September 2016 and the Group expects that £2.4 million will be settled by
9 March 2017, £5.7 million by 6 September 2017 and £3.5 million by 8 March 2019.
176
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Other acquisitions
The net assets, fair value adjustments and consideration for these acquisitions are summarised below (all values shown as at their acquisition dates):
Financial assets
Cash and cash equivalents
Financial liabilities
Total
Consideration
Cash consideration
Deferred consideration
Contingent consideration
Total consideration
Goodwill
Book value
£’Million
0.3
0.9
(0.5)
Fair value
adjustment
£’Million
2.2
–
(0.4)
0.7
1.8
Total
£’Million
2.5
0.9
(0.9)
2.5
3.8
0.3
2.1
6.2
3.7
Goodwill comprises the value placed on the experience and expertise of the Technical Connection Limited management team within the tax and
advisory sector.
Of the £2.1 million contingent consideration, £1.2 million is in relation to the acquisition of Technical Connection Limited. It is expected that the
£1.2 million contingent consideration will be paid in full with no changes to the amount initially recognised; however, should the target number of
consultancy hours provided to SJP Partners and the level of Techlink subscriptions not be met, the contingent consideration will decrease on a
pro-rata basis down to a value of £nil.
The remaining £0.9 million contingent consideration is in relation to the acquisition of Now Financial Solutions Limited (now Hale Financial
Solutions Limited) and is payable if certain performance targets are met, being based on the individual Partner performance. It is expected that the
£0.9 million contingent consideration will be paid in full with no changes to the amount initially recognised; however, should the performance
targets not be met, the contingent consideration will decrease on a pro-rata basis down to a value of £nil.
Of the total remaining balance to be settled, the Group expects that £0.4 million will be settled by 29 April 2017, £0.8 million will be settled by
18 April 2018, £0.4 million will be settled by 29 April 2018 and £0.8 million will be settled by 18 April 2019.
Disposals
During the year the Group sold 100% of its investments in the following subsidiaries in line with the Group’s objective to simplify the Group
structure and remove non-core operations:
Subsidiary undertaking
Principal activity
Ardan International Limited
Ardan Nominees Limited
St. James’s Place Trust Company Jersey Limited
Investment Platform
Non-trading
Trustee Services
Date of
disposal
30/12/2016
30/12/2016
21/06/2016
Net assets
on date of
disposal
£’Million
4.0
–
0.1
Profit/(loss)
on disposal
£’Million
nil
nil
(0.1)
In line with IFRS 3, no gain or loss arose on the sale of Ardan International Limited and its subsidiary as it was sold within the twelve month
adjustment period following acquisition, resulting in a fair value adjustment being processed in the business combination note resulting in the reduction
of goodwill.
Annual Report and Accounts 2016
177
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
22. INTERESTS IN UNCONSOLIDATED ENTITIES
Unconsolidated structured entities
The Group operates investment vehicles, such as unit trusts, primarily to match unit holder liabilities. The investment vehicles are primarily financed
by investments from unit holders. Note 2 sets out the judgements inherent in determining when the Group controls, and therefore consolidates, the
relevant investment vehicles.
The majority of the risk from a change in the value of the Group’s investment in unconsolidated unit trusts is matched by a change in policyholder
liabilities. However, the maximum exposure to loss is equal to the carrying value of the investment, with the balance being included within
investments in Collective Investment Schemes. At 31 December 2016, the total net asset value of unconsolidated unit trusts in which the Group held a
beneficial interest was £2,857.5 million (2015: £2,702.4 million).
The following unit trusts are not consolidated within the Group financial statements; however, the Group does act as the manager of these unit trusts.
Name of entity
St. James’s Place Property Unit Trust
St. James’s Place UK High Income Unit Trust
2016
0.00
10.72
% of ownership interest
2015
Nature of
relationship
Measurement
method
0.00 Manager of
unit trust
9.64 Manager of
unit trust
N/A
Fair value
through
profit or loss
Net asset value as at
31 December
2016
2015
£’Million
1,005.0
£’Million
859.2
1,852.5
1,843.2
2,857.5
2,702.4
As at 31 December 2016 the value of the Group’s interests in the individual unconsolidated unit trusts were £nil (2015: £nil) in St. James’s Place
Property Unit Trust and £198.6 million (2015: £177.7 million) in St. James’s Place UK High Income Unit Trust.
Associates
The following unit trust, registered in England and Wales, is not consolidated within the Group financial statements; however it does meet the criteria
of an associate.
Name of entity
% of ownership interest
2016
2015
Nature of
relationship
Measurement
method
St. James’s Place UK High Income Unit Trust
10.72
9.64 Manager of
unit trust
Fair value
through
profit or loss
Net asset value as at
31 December
2016
2015
£’Million
1,852.5
£’Million
1,843.2
1,852.5
1,843.2
178
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 23. SUBSIDIARY UNDERTAKINGS
Principal subsidiaries:
Investment Holding Companies
Life Assurance
Unit Trust Management
Unit Trust Administration and ISA Management
Distribution
Management Services
IFA Acquisitions
Asia Distribution
Discretionary Fund Management
* Directly held by St. James’s Place plc.
** The Company also operates a branch in the Republic of Ireland.
# The Company also operates a branch in Singapore.
St. James’s Place Investments plc*
St. James’s Place Wealth Management Group plc*
St. James’s Place DFM Holdings Limited*
St. James’s Place UK plc
St. James’s Place International plc (incorporated in Ireland)#
St. James’s Place Unit Trust Group Limited
St. James’s Place Investment Administration Limited
St. James’s Place Wealth Management plc
St. James’s Place Management Services Limited**
St. James’s Place Acquisition Services Limited
St. James’s Place International Distribution Limited
Rowan Dartington & Co Limited
The Company owns either directly or indirectly 100% of the voting ordinary equity share capital of the above-named subsidiaries, as such they have
been appropriately consolidated.
Ongoing solvency requirements within the life assurance, unit trust and financial services companies of the Group restrict their ability to distribute all
their distributable reserves.
Annual Report and Accounts 2016
179
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
23. SUBSIDIARY UNDERTAKINGS continued
Included below and on the following page is a full list of the entities within the St. James’s Place plc Group at 31 December 2016:
Entity
Australian Expatriate Services Limited
BFS Financial Services Limited
Cabot Portfolio Nominees Limited
Chapman Associates Limited
Chapman Hunter Group Limited
Colston Portfolio Nominees Limited
Dartington Portfolio Nominees Limited
G.M.B. Financial Services Limited
Hale Financial Solutions Limited
Lansdown Place Group
Holdings Limited
Company
number
01954254
04609753
03636010
03047530
06034452
02763967
01489542
04074782
04373946
06390547
LP Auto Enrolment Solutions Limited
08257531
LP Financial Management Limited
02195886
LP Holdco Limited
08323278
Lansdown Place Wealth
Management Limited
M.H.S. (Holdings) Limited
PFPTime Limited
RD Portfolio Nominees Limited
Rowan Dartington & Co. Limited
Rowan Dartington Holdings Limited
Rowan Dartington Trustees Limited
SJP AESOP Trustees Limited
SJPC Corporate Investments Limited
Stafford House Investments Limited
St. James’s Place (Hong Kong) Limited
05458948
0559995
04047197
02752124
02752304
07470226
05224173
04089795
01476292
03866935
0275275
St. James’s Place (PCP) Limited
02706684
Registered office
1st Floor, Henley Building,
5 Queen’s Road Central,
Hong Kong
*
*
*
*
*
*
*
*
2 Oakfield Road, Clifton,
Bristol, England, BS8 2AL,
United Kingdom
2 Oakfield Road, Clifton,
Bristol, England, BS8 2AL,
United Kingdom
2 Oakfield Road, Clifton,
Bristol, England, BS8 2AL,
United Kingdom
2 Oakfield Road, Clifton,
Bristol, England, BS8 2AL,
United Kingdom
2 Oakfield Road, Clifton,
Bristol, England, BS8 2AL,
United Kingdom
*
*
*
*
*
*
*
*
*
1st Floor, Henley Building,
5 Queen’s Road Central,
Hong Kong
*
Country of
incorporation
Hong Kong
Principal activity
Overseas Distribution No
Audit
exemption
Financial Advice
Financial Advice
England and Wales
England and Wales Nominee Company
England and Wales
England and Wales Holding Company
England and Wales Nominee Company
England and Wales Nominee Company
England and Wales Non-trading
England and Wales
England and Wales Holding Company
Financial Advice
England and Wales
Pension Auto-
enrolment
England and Wales
Financial Advice
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
England and Wales Holding Company
No
England and Wales
Financial Advice
England and Wales Non-trading
England and Wales
England and Wales Nominee Company
England and Wales
Stockbroker and
Financial Advice
Yes
Yes
Yes
Yes
No
Investment Manager
England and Wales Holding Company
England and Wales Nominee Company
England and Wales Nominee Company
England and Wales Holding Company
England and Wales
Hong Kong
Yes
Yes
Yes
Yes
Financial Advice
Yes
Overseas Distribution No
England and Wales Transacts and Services
SJP Income Streams
No
St. James’s Place (Properties) Limited
St. James’s Place (Shanghai) Limited
06890166
310000400640051 Unit 2006-2007, Tower 1
*
England and Wales Non-trading
China
Yes
Overseas Distribution No
St. James’s Place (Singapore)
200406398R
Private Limited
St. James’s Place Acquisition
Services Limited
St. James’s Place Client
Solutions Limited
St. James’s Place Corporate
Secretary Limited
07730835
05487108
09131866
St. James’s Place DFM Holdings Limited 09687687
10110255
St. James’s Place EIS Limited
180
(North), 1515 West
Nanjing Road, Jing’an,
China
80 Raffles Place, #26-01
UOB Plaza, Singapore
048624, Singapore
*
*
*
*
*
Singapore
Financial Advice
England and Wales
IFA Acquisitions
No
Yes
England and Wales
Policy Administration
Yes
England and Wales Corporate Secretary
England and Wales Non-trading
England and Wales Non-trading
Yes
Yes
Yes
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Entity
St. James’s Place International
(Hong Kong) Limited
Company
number
2207694
St. James’s Place International Assurance
02727326
Group Limited
Registered office
1/F Henley Building, 5
Queen’s Road Central,
Hong Kong
*
Country of
incorporation
Hong Kong
Principal activity
Life Assurance
Audit
exemption
No
England and Wales Holding Company
St. James’s Place International
08798683
*
England and Wales Holding Company
Distribution Limited
St. James’s Place International plc
185345
St. James’s Place Investment
Administration Limited
08764231
Fleming Court, Flemings
Place, Dublin 4, Ireland
*
Ireland
Life Assurance
England and Wales Unit Trust
St. James’s Place Investments plc
St. James’s Place Management Services
01773177
02293151
(Asia) Limited
St. James’s Place Management
2661044
*
1st Floor, Henley Building,
5 Queen’s Road Central,
Hong Kong
*
Administration and
ISA Manager
England and Wales Holding Company
Hong Kong
Yes
Management Services No
England and Wales Management Services No
England and Wales Nominee Company
England and Wales Treasury Company
Luxembourg
Non-trading
England and Wales
England and Wales Unit Trust
Life Assurance
Management
Yes
No
Yes
No
No
Hong Kong
Overseas Distribution No
Firm
08764214
08201211
B17089
02628062
0947644
*
*
c/o Vistra (Luxembourg)
Sarl, 15 Rue Edward
Steichen, 4th Floor,
Luxembourg, L-2540
*
*
06604824
*
England and Wales
Securities and Futures
No
1511517
02627518
201323453N
04113955
1st Floor, Henley Building,
5 Queen’s Road Central,
Hong Kong
*
80 Raffles Place, #26-01
UOB Plaza, Singapore
048624, Singapore
*
England and Wales Holding Company
Singapore
Holding Company
England and Wales UK Distribution
Services Limited
St. James’s Place Nominees Limited
St. James’s Place Partnership
Services Limited
St. James’s Place S.A.
St. James’s Place UK plc
St. James’s Place Unit Trust
Group Limited
St. James’s Place Wealth
Management (PCIS) Limited
St. James’s Place Wealth
Management (Shanghai) Limited
St. James’s Place Wealth
Management Group plc
St. James’s Place Wealth
Management International Pte. Ltd
St. James’s Place Wealth
Management plc
No
Yes
No
No
No
No
No
Yes
Technical Connection Limited
03178474
*
England and Wales Tax and Advisory
Services
*
Indicates that the Registered Office is St. James’s Place House, 1 Tetbury Road, Cirencester, Gloucestershire GL7 1FP
Where indicated above, the subsidiaries of St. James’s Place plc have taken advantage of the exemption from statutory audit granted by section 479A of
the Companies Act 2006. In accordance with section 479C, St. James’s Place plc has therefore guaranteed all the outstanding liabilities as at
31 December 2016.
All Group companies have an accounting reference date of 31 December. Unless otherwise stated, the tax residency of each subsidiary is the same as
the country of incorporation.
100% of the ordinary share capital is held for the above subsidiaries with the exception of LP Holdco Limited (08323278), where 43.32% of ordinary share
capital is held (comprising 100% of the nominal value of the Class A ordinary shares and 64% of the nominal value of the Class C ordinary shares, which
together confer 60% of voting rights), and Lansdown Place Group Holdings Limited (06390547), where 92.4% of the ordinary share capital is held by
LP Holdco Limited (comprising 95% of the nominal value of the Class A ordinary shares, 100% of the nominal value of the Class B and D ordinary shares,
and 71% of the nominal value of the Class C shares).
Annual Report and Accounts 2016
181
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
continued
23. SUBSIDIARY UNDERTAKINGS continued
In addition, the Group financial statements consolidate the following unit trusts, all of which are registered in England and Wales:
St. James’s Place Allshare Income Unit Trust
St. James’s Place Alternative Assets Unit Trust
St. James’s Place Asia Pacific Unit Trust
St. James’s Place Balanced Managed Unit Trust
St. James’s Place Continental European Unit Trust
St. James’s Place Corporate Bond Unit Trust
St. James’s Place Diversified Bond Unit Trust
St. James’s Place Emerging Markets Equity Unit Trust
St. James’s Place Equity Income Unit Trust
St. James’s Place Ethical Unit Trust
St. James’s Place Gilts Unit Trust
St. James’s Place Global Emerging Markets Unit Trust
St. James’s Place Global Equity Income Unit Trust
St. James’s Place Global Equity Unit Trust
St. James’s Place Global Smaller Companies Unit Trust
St. James’s Place Global Unit Trust
St. James’s Place Greater European Progressive Unit Trust
St. James’s Place Index Linked Gilts Unit Trust
St. James’s Place International Corporate Bond Unit Trust
St. James’s Place International Equity Unit Trust
St. James’s Place Investment Grade Corporate Bond Unit Trust
St. James’s Place Managed Growth Unit Trust
St. James’s Place Money Market Unit Trust
St. James’s Place Multi Asset Unit Trust
St. James’s Place North American Unit Trust
St. James’s Place Strategic Income Unit Trust
St. James’s Place Strategic Managed Unit Trust
St. James’s Place UK & General Progressive Unit Trust
St. James’s Place UK & International Income Unit Trust
St. James’s Place UK Absolute Return Unit Trust
St. James’s Place UK Growth Unit Trust
St. James’s Place UK Income Unit Trust
St. James’s Place Worldwide Income Unit Trust
St. James’s Place Worldwide Opportunities Unit Trust
182
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 24. RELATED PARTY TRANSACTIONS
Transactions with St. James’s Place unit trusts
In respect of the non-consolidated St. James’s Place managed unit trusts that are held as investments in the St. James’s Place life and pension funds,
there was a charge recognised of £0.3 million (2015: £10.1 million income) and the total value of transactions with those non-consolidated unit trusts
was £53.0 million (2015: £43.0 million). Net management fees receivable from these unit trusts amounted to £17 million (2015: £22.3 million). The
value of the investment into the non-consolidated unit trusts at 31 December 2016 was £198.6 million (2015: £176.5 million). These transactions are
all with the Group’s associate as set out in Note 22.
Transactions with key management personnel
Key management personnel have been defined as the Board of Directors and members of the Executive Board. The remuneration paid to the Board of
Directors of St. James’s Place is set out in the Remuneration Report on page 103, in addition to the disclosure below.
The Remuneration Report also sets out transactions with the Directors under the Deferred Bonus Scheme, the Performance Share Plan, the Executive
Share Option Scheme and the SAYE Share Option Schemes, together with details of the Directors’ interests in the share capital of the Company.
The remuneration paid to key management personnel is as follows:
Short term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payment
Total
Year Ended
31 December
2016
Year Ended
31 December
2015
£’Million
£’Million
3.5
0.4
1.9
1.9
7.7
3.2
0.4
1.6
1.6
6.8
The charge to the statement of comprehensive income in respect of the share-based payment awards made to the key management personnel of
St. James’s Place was £3.4 million (2015: £3.7 million).
The total value of St. James’s Place funds under management held by related parties of the Group as at 31 December 2016 was £26.5 million
(2015: £20.4 million). The total value of St. James’s Place plc dividends paid to related parties of the Group during the year was £1.4 million
(2015: £1.3 million).
Commission, advice fees and remuneration of £2.9 million (2015: £1.7 million) was paid, under normal commercial terms, to St. James’s Place
Partners and employees who were related parties by virtue of being connected persons with key management personnel. The outstanding amount
payable at 31 December 2016 was £0.3 million (2015: £0.1 million).
Outstanding at the year end were Partner loans of £1.6 million (2015: £0.4 million) due from St. James’s Place Partners who were related parties by
virtue of being connected persons with key management personnel. During the year £0.7 million (2015: £0.1 million) was advanced and £0.3 million
(2015: £0.1 million) was repaid by Partners who were related parties. St. James’s Place Partnership loans are interest bearing (linked to Bank of
England base rate plus a margin), repayable on demand and secured against the future renewal income streams of that Partner.
At the start of the year, related parties of key management personnel held nil (2015: 176,740) shares and options under various St. James’s Place plc
share option schemes. During the year 28,273 (2015: 23,413) shares and options were granted, nil (2015: 1,235) options lapsed and nil
(2015: 113,568) options were exercised.
Annual Report and Accounts 2016
183
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation 184
St. James’s Place plc
Annual Report and Accounts 2016
Registered No. 03183415
PARENT
COMPANY
CONTENTS
– Independent Auditors’ Report
– Parent Company Financial Statements (Financial Reporting Standard 101)
Annual Report and Accounts 2016
St. James’s Place plc
185
Strategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF
ST. JAMES’S PLACE PLC
REPORT ON THE PARENT COMPANY FINANCIAL STATEMENTS
In our opinion, St. James’s Place plc’s parent company financial
statements (the ‘financial statements’):
• give a true and fair view of the state of the parent company’s affairs as
at 31 December 2016;
• have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the
Companies Act 2006.
The financial statements, included within the Annual Report and
Accounts (the ‘Annual Report’), comprise:
•
the Parent Company Statement of Financial Position as at 31
December 2016;
the Parent Company Statement of Changes in Equity for the year then
ended; and
the notes to the financial statements, which include a summary of
significant accounting policies and other explanatory information.
•
•
Certain required disclosures have been presented elsewhere in the
Annual Report, rather than in the notes to the financial statements.
These are cross-referenced from the financial statements and are
identified as audited.
The financial reporting framework that has been applied in the
preparation of the financial statements is United Kingdom Accounting
Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and
applicable law (United Kingdom Generally Accepted
Accounting Practice).
OTHER REQUIRED REPORTING
Companies Act 2006 reporting
In our opinion, based on the work undertaken in the course of the audit:
the information given in the Strategic Report and the Directors’
•
Report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
the Strategic Report and the Directors’ Report have been prepared in
accordance with applicable legal requirements.
•
In addition, in light of the knowledge and understanding of the parent
company and its environment obtained in the course of the audit, we are
required to report if we have identified any material misstatements in the
Strategic Report and the Directors’ Report. We have nothing to report
in this respect.
ISAs (UK & Ireland) reporting
Under International Standards on Auditing (UK and Ireland) (‘ISAs (UK
& Ireland)’) we are required to report to you if, in our opinion,
information in the Annual Report is:
• materially inconsistent with the information in the audited financial
statements; or
• apparently materially incorrect based on, or materially inconsistent
with, our knowledge of the parent company acquired in the course of
performing our audit; or
• otherwise misleading.
We have no exceptions to report arising from this responsibility.
Under the Companies Act 2006 we are required to report to you if, in
our opinion:
• we have not received all the information and explanations we require
for our audit; or
186
• adequate accounting records have not been kept by the parent
•
company, or returns adequate for our audit have not been received
from branches not visited by us; or
the financial statements and the part of the Directors’ Remuneration
Report to be audited are not in agreement with the accounting
records and returns.
We have no exceptions to report arising from this responsibility.
Directors’ remuneration report - Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with the Companies
Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you if, in
our opinion, certain disclosures of directors’ remuneration specified by
law are not made. We have no exceptions to report arising from
this responsibility.
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND
THE AUDIT
As explained more fully in the Statement of Directors’ Responsibilities
set out on page 118, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and
fair view.
Our responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and ISAs (UK & Ireland).
Those standards require us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for
the parent company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not,
in giving these opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior
consent in writing.
We conducted our audit in accordance with ISAs (UK & Ireland). An
audit involves obtaining evidence about the amounts and disclosures in
the financial statements sufficient to give reasonable assurance that the
financial statements are free from material misstatement, whether caused
by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the parent
company’s circumstances and have been consistently applied and
adequately disclosed;
the reasonableness of significant accounting estimates made by the
directors; and
the overall presentation of the financial statements.
•
•
We primarily focus our work in these areas by assessing the directors’
judgements against available evidence, forming our own judgements,
and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing
techniques, to the extent we consider necessary to provide a reasonable
basis for us to draw conclusions. We obtain audit evidence through
testing the effectiveness of controls, substantive procedures or a
combination of both.
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 In addition, we read all the financial and non-financial information in the
Annual Report to identify material inconsistencies with the audited
financial statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we
become aware of any apparent material misstatements or inconsistencies we
consider the implications for our report. With respect to the Strategic
Report, Directors’ Report and Corporate Governance Statement, we
consider whether those reports include the disclosures required by
applicable legal requirements.
OTHER MATTER
We have reported separately on the group financial statements of St. James’s
Place plc for the year ended 31 December 2016.
Jeremy Jensen (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
27 February 2017
Annual Report and Accounts 2016
187
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation PARENT COMPANY STATEMENT OF FINANCIAL POSITION
Investment in subsidiaries
Current assets
Amounts owed by Group undertakings
Current liabilities
Corporation tax liabilities
Amounts owed to Group undertakings
Net current assets
Net assets
Equity
Share capital
Share premium
Share option reserve
Miscellaneous reserves
Retained earnings
Total shareholders’ funds
As at
31 December
2016
As at
31 December
2015
Note
2
6
6
3
£’Million
375.5
£’Million
352.8
484.9
242.1
(0.7)
(191.4)
292.8
668.3
79.1
164.5
130.0
0.1
294.6
668.3
(0.7)
–
241.4
594.2
78.7
158.3
107.3
0.1
249.8
594.2
The financial statements on pages 188 to 194 were approved by the Board of Directors on 27 February 2017 and signed on its behalf by:
David Bellamy
Chief Executive
Andrew Croft
Chief Financial Officer
The notes and information on pages 190 to 194 form part of these financial statements.
188
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
At 1 January 2015
Profit and total comprehensive
income for the year
Dividends
Issue of share capital
Exercise of options
Cost of share options expensed in
subsidiary
At 31 December 2015
Profit and total comprehensive
income for the year
Dividends
Issue of share capital
Exercise of options
Cost of share options expensed
in subsidiary
At 31 December 2016
Note
Share
Capital
£’Million
77.9
Share
Premium
Share Option
Reserve
Miscellaneous
Reserves
£’Million
147.4
£’Million
92.6
£’Million
0.1
Retained
Earnings
£’Million
190.4
Total
Shareholders’
Funds
£’Million
508.4
5
3
5
3
0.3
0.5
1.9
9.0
78.7
158.3
0.4
0.9
5.3
79.1
164.5
14.7
107.3
22.7
130.0
190.2
(130.8)
0.1
249.8
200.0
(155.2)
0.1
294.6
190.2
(130.8)
2.2
9.5
14.7
594.2
200.0
(155.2)
0.9
5.7
22.7
668.3
As at 31 December 2016 the total distributable reserves of the Company were £294.6 million (2015: £249.8 million). Information on the
Company’s dividend policy can be found within Note 5 on page 192.
The notes and information on pages 190 to 194 form part of these financial statements.
Annual Report and Accounts 2016
189
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation
NOTES TO THE PARENT COMPANY
FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of preparation
St. James’s Place plc (‘the Company’) is a limited liability Company
incorporated in England and Wales, domiciled in the United Kingdom
and whose shares are publicly traded. The Company offers a range of
insurance, investment and other wealth management services through its
subsidiaries, which are incorporated in the UK, Ireland and Asia.
Significant accounting policies
The following principal accounting policies have been applied
consistently to all the years presented.
(a) Investment return
Investment return comprises dividends from subsidiaries, which are
accounted for when received.
The financial statements have been prepared under the historical costs
convention, on a going concern basis and in accordance with Financial
Reporting Standard 101 (FRS 101) ‘Reduced Disclosure Framework’
and the Companies Act 2006 as applicable to companies using FRS 101.
(b) Taxation
Taxation is based on profits and income for the year as determined in
accordance with the relevant tax legislation, together with adjustments
to provisions for prior years.
(c) Investment in subsidiaries
Investments in subsidiaries are carried at cost stated after any
impairment losses, plus the cost of equity settled share awards granted
by the Company of its own shares.
(d) Receivables
Receivables are initially recognised at fair value and subsequently held at
amortised cost less impairment losses.
(e) Amounts owed to Group undertakings
Amounts owed to Group undertakings initially are recognised at fair
value and subsequently held at amortised cost.
(f) Impairment losses
Non-financial assets not ready to use are not subject to amortisation and
are tested annually for impairment. Assets that are subject to
amortisation are reviewed for impairment when circumstances or events
indicate there may be uncertainty over this value. An impairment loss is
recognised for the amount by which the asset’s carrying amount exceeds
its recoverable amount. The recoverable amount is the higher of an
asset’s fair value less costs to sell and value in use.
The preparation of financial statements in compliance with FRS 101
requires the use of certain critical accounting estimates. It also requires
management to exercise judgement in applying the Company’s
accounting policies. No significant accounting judgements have
been made.
FRS 101 – Reduced disclosure exemptions
The Company has taken advantage of the following disclosure
exemptions under FRS 101:
•
•
the requirements of IFRS 7 Financial Instruments: Disclosures;
the requirements of paragraphs 91 to 99 of IFRS 13 Fair Value
Measurement;
the requirement in paragraph 38 of IAS 1 Presentation of Financial
Statements to present comparative information in respect of paragraph
79(a)(iv) of IAS 1;
the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C,
38D, 40A, 40B, 40C, 40D, 111 and 134-136 of IAS 1 Presentation of
Financial Statements;
the requirements of IAS 7 Statement of Cash Flows;
the requirements of paragraph 17 and 18A of IAS 24 Related Party
Disclosures;
the requirements in IAS 24 Related Party Disclosures to disclose related
party transactions entered into between two or more members of a
group, provided that any subsidiary which is a party to the
transaction is wholly owned by such a member; and
the requirements of paragraphs 130(f)(ii), 130(f)(iii), 134(d) to
134(f) and 135(c) to 135(e) of IAS 36 Impairment of Assets, provided
that equivalent disclosures are included in the consolidated financial
statements of the group in which the entity is consolidated.
•
•
•
•
•
•
In publishing the Parent Company financial statements, the Company
has taken advantage of the exemption in Section 408 of the Companies
Act 2006 not to present its individual income statement and related
notes that form part of these financial statements. The Company is not
required to present a statement of comprehensive income. The
Company’s profit after tax for the financial year was £200.0 million
(2015: £190.2 million) which can be seen in the statement of changes in
equity on page 189.
Going concern
The Company is non-trading and has positive net assets, therefore the
Company continues to adopt the going concern basis in preparing these
financial statements.
190
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 2. INVESTMENT IN SUBSIDIARIES
At 1 January 2015
Movements in the year
Impairment expense
Share awards granted
At 31 December 2015
Movements in the year
Eliminated on derecognition of subsidiaries dissolved in the year
Share awards granted
At 31 December 2016
Share Awards
Granted
Impairment
Provision
Cost
£’Million
311.4
£’Million
92.6
£’Million
(1.9)
Net Book
Value
£’Million
402.1
–
–
311.4
(42.0)
–
269.4
–
14.7
107.3
–
22.7
130.0
(64.0)
–
(65.9)
42.0
–
(23.9)
(64.0)
14.7
352.8
–
22.7
375.5
The Directors believe that the carrying value of the investments is supported by their underlying net assets.
During the year St. James’s Place Partnership Limited, a subsidiary of the Company, was dissolved. The investment in this subsidiary was carried
at nil net book at 31 December 2015, with the cost of £42.0 million having been fully provided for in previous years.
Principal Subsidiary Undertakings at 31 December 2016
Investment Holding Companies
Life Assurance
Unit Trust Management
Unit Trust Administration and ISA Management
Distribution
Management Services
IFA Acquisitions
Asia Distribution
Discretionary Fund Management
* The Company operates a branch in Singapore.
** The Company operates a branch in the Republic of Ireland.
St. James’s Place Investments plc
St. James’s Place Wealth Management Group plc
St. James’s Place DFM Holdings Limited
St. James’s Place UK plc
St. James’s Place International plc (incorporated in Ireland)*
St. James’s Place Unit Trust Group Limited
St. James’s Place Investment Administration Limited
St. James’s Place Wealth Management plc
St. James’s Place Management Services Limited**
St. James’s Place Acquisition Services Limited
St. James’s Place International Distribution Limited
Rowan Dartington & Co. Limited
The Company owns, either directly or indirectly, 100% of the voting ordinary equity share capital of the above-named subsidiaries. A full list of
the St. James’s Place Group subsidiary undertakings can be found on pages 180 and 181 of the St. James’s Place Annual Report and Accounts.
All of these companies are registered in England and Wales and operate principally in the United Kingdom except where otherwise stated.
Annual Report and Accounts 2016
191
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE PARENT COMPANY
FINANCIAL STATEMENTS continued
3. SHARE CAPITAL
At 1 January 2015
– Issue of shares
– Exercise of options
At 31 December 2015
– Issue of shares
– Exercise of options
At 31 December 2016
Number of
Ordinary
Shares
Called up
Share Capital
519,447,391
206,366
5,011,455
524,665,212
108,819
2,708,317
527,482,348
£’Million
77.9
0.3
0.5
78.7
–
0.4
79.1
The total authorised number of ordinary shares is 605 million (2015: 605 million), with a par value of 15 pence per share (2015: 15 pence per
share). All issued shares are fully paid.
2,817,136 shares (2015: 5,217,821) were issued in the year at a nominal value of £0.4 million (2015: £0.8 million), for which the Company
received consideration of £6.6 million (2015: £11.7 million).
4. AUDITORS’ REMUNERATION
The total audit fee in respect of the Group is set out in Note 5 on page 141 of the consolidated financial statements. The audit fee charged to the
Company for the year ended 31 December 2016 is £1,000 (2015: £1,000).
5. DIVIDENDS
The following dividends have been paid by the Group:
Final dividend in respect of previous financial year
Interim dividend in respect of current financial year
Total
Year Ended
31 December
2016
Year Ended
31 December
2015
Year Ended
31 December
2016
Year Ended
31 December
2015
Pence per
share
Pence per
share
£’Million
£’Million
17.24
12.33
29.57
14.37
10.72
25.09
90.4
64.8
155.2
74.8
56.0
130.8
The Directors have recommended a final dividend of 20.67 pence per share (2015: 17.24 pence). This amounts to £109 million (2015: £90.4
million) and will, subject to shareholder approval at the Annual General Meeting, be paid on 12 May 2017 to those shareholders on the register as
at 7 April 2017.
Dividend resources
The Company’s policy is to increase the dividend in line with the underlying performance of the business, measured with reference to the cash and
underlying cash result. The capacity of the Company to make dividend payments to shareholders is determined by the availability of distributable
reserves and cash resources.
Distributable reserves
The Company is a non-trading investment holding Company which derives its distributable reserves from dividends paid by its subsidiaries. The
primary subsidiary which pays dividends to the Company is St. James’s Place Wealth Management Group plc, an intermediate holding Company
which in turn receives dividends primarily from St. James’s Place UK plc, St. James’s Place Unit Trust Group Limited and St. James’s Place
Investment Administration Limited. Ongoing solvency requirements within the life assurance, unit trust and financial services companies of the
Group limit their ability to distribute all their distributable reserves. (Analysis of solvency requirements is included in the Solvency section of the
Financial Review on page 43 and further information about regulation and capital requirements is included in Note 18 on page 168.)
The Directors review the distributable reserves of the Company ahead of each interim and final dividend being proposed to ensure the Company
has sufficient distributable reserves to allow a lawful dividend to be paid. As at 31 December 2016, the total distributable reserves of the Company
were £294.6 million (2015: £249.8 million). The Directors are satisfied that this is sufficient to support the proposed dividend of £109 million.
192
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 Cash resources
The shareholder cash resources within the Group at 31 December 2016 were £345.9 million (2015: £233.5 million) as set out in Note 10 to the
consolidated financial statements. These cash resources are held by the operating entities within the Group. The cash generated by the Group during
the year attributable to shareholders was £199.5 million on an underlying cash basis (2015: £182.1 million), and £175.4 million on a cash basis (2015:
£171.5 million) as set out in the Financial Review on page 41. Under both bases the cash generated during the year is sufficient to cover the total
proposed dividend for 2016 of £109 million.
The cash and underlying cash bases should not be confused with the IFRS Statement of Cash Flows, which is presented in accordance with IAS 7
on page 130.
6. RELATED PARTY TRANSACTIONS AND BALANCES
At the year end the following related party balances existed. All related parties in the tables below are subsidiaries of the Company, whether directly
or indirectly held:
Investments in Group companies
St. James’s Place Wealth Management Group plc
St. James’s Place Investments plc
St. James’s Place DFM Holdings Limited
Total
Intra group debtors
St. James’s Place Wealth Management Group plc
St. James’s Place Partnership Services Limited
St. James’s Place DFM Holdings Limited
St. James’s Place Investments plc
St. James’s Place Management Services Limited
St. James’s Place International Distribution Limited
Total
Intra group creditors
St. James’s Place Management Services Limited
St. James’s Place Investments plc
Total
31 December
2016
31 December
2015
£’Million
£’Million
216.6
157.9
1.0
375.5
423.2
60.7
1.0
–
–
–
484.9
0.7
190.7
191.4
194.9
157.9
–
352.8
–
–
–
238.8
1.4
1.9
242.1
–
–
–
During the year, the Company received £200.7 million (2015: £254.9 million) dividends from subsidiary undertakings.
The total value of St. James’s Place funds under management held by related parties of the Company as at 31 December 2016 was £26.5 million (2015:
£20.4 million). The total value of dividends paid to related parties of the Company during the year was £1.4 million (2015: £1.3 million).
Annual Report and Accounts 2016
193
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation NOTES TO THE PARENT COMPANY
FINANCIAL STATEMENTS continued
6. RELATED PARTY TRANSACTIONS AND BALANCES
continued
The following wholly-owned subsidiaries of St. James’s Place plc have
taken advantage of the exemption from statutory audit granted by
section 479A of the Companies Act 2006. In accordance with section
479C, St. James’s Place plc has therefore guaranteed all the outstanding
liabilities as at 31 December 2016 of:
BFS Financial Services Limited
Cabot Portfolio Nominees Limited
Chapman Associates Limited
Chapman Hunter Group Limited
Colston Portfolio Nominees Limited
Dartington Portfolio Nominees Limited
G.M.B. Financial Services Limited
Hale Financial Solutions Limited
Lansdown Place Group Holdings Limited
LP Auto Enrolment Solutions Limited
LP Financial Management Limited
Lansdown Place Wealth Management Limited
M.H.S. (Holdings) Limited
PFPTime Limited
RD Portfolio Nominees Limited
Rowan Dartington Holdings Limited
Rowan Dartington Trustees Limited
SJP AESOP Trustees Limited
SJPC Corporate Investments Limited
Stafford House Investments Limited
St. James’s Place (Properties) Limited
St. James’s Place Acquisition Services Limited
St. James’s Place Client Solutions Limited
St. James’s Place Corporate Secretary Limited
St. James’s Place DFM Holdings Limited
St. James’s Place EIS Limited
St. James’s Place International Distribution Limited
St. James’s Place Investments plc
St. James’s Place Nominees Limited
Technical Connection Limited
04609753
03636010
03047530
06034452
02763967
01489542
04074782
04373946
06390547
08257531
02195886
05458948
00559995
04047197
02752124
07470226
05224173
04089795
01476292
03866935
06890166
07730835
05487108
09131866
09687687
10110255
08798683
01773177
08764214
03178474
7. DIRECTORS’ EMOLUMENTS
The Directors’ responsibilities relate primarily to the trading companies
of the Group and accordingly their costs are charged to those companies
and none are met by the Parent Company. Disclosure of the Directors’
emoluments is made within the Remuneration Report on page 103.
8. COMPANY INFORMATION
In the opinion of the Directors there is not considered to be any ultimate
controlling party.
Copies of the consolidated financial statements of St. James’s Place plc
may be obtained from the Company Secretary, St. James’s Place plc,
St. James’s Place House, 1 Tetbury Road, Cirencester, Gloucestershire,
GL7 1FP.
194
St. James’s Place plc
Annual Report and Accounts 2016
Registered No. 03183415
S
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OTHER
INFORMATION
CONTENTS
– Shareholder Information
– How to Contact us and Advisers
– St. James’s Place Partnership Locations
– Glossary of Alternative Performance Measures
– Glossary of Terms
Annual Report and Accounts 2016
St. James’s Place plc
195
St. James’s Place Foundation
SHAREHOLDER INFORMATION
ANALYSIS OF NUMBER OF SHAREHOLDERS
Analysis by Number of Shares
1 – 999
1,000– 9,999
10,000 – 99,999
100,000 and above
2017 FINANCIAL CALENDAR
Ex-dividend date for final dividend
Record date for final dividend
Announcement of first quarter new business
Annual General Meeting
Payment date for final dividend
Announcement of Interim Results and second quarter new business
Ex-dividend date for interim dividend
Record date for interim dividend
Payment date for interim dividend
Announcement of third quarter new business
Holders
% Shares Held
2,401
2,105
572
332
5,410
44.38
38.91
10.57
892,083
6,231,838
18,108,979
6.14 502,249,448
%
0.17
1.18
3.43
95.22
100.00
527,482,348
100.00
Thursday, 6 April 2017
Friday, 7 April 2017
Tuesday, 25 April 2017
Thursday, 4 May 2017
Friday, 12 May 2017
Thursday, 27 July 2017
Thursday, 31 August 2017
Friday, 1 September 2017
Friday, 29 September 2017
Tuesday, 24 October 2017
The above dates are subject to change and further information on the 2017 financial calendar can be found on the Company’s website, www.sjp.co.uk.
DIVIDEND REINVESTMENT PLAN
If you would prefer to receive new shares instead of cash dividends, please complete a Dividend Reimbursement Plan (DRIP) Form, which is available
from our Registrars, Computershare Investor Services PLC. Their contact details are on page 197.
SHARE DEALING
A telephone share dealing service has been established with the Registrars, Computershare Investor Services PLC, which provides shareholders with a
simple way of buying or selling St. James’s Place plc shares on the London Stock Exchange. If you are interested in this service, telephone 0370 703 0084.
An internet share dealing service is also available. Further information about share dealing services can be obtained by logging on to:
www.computershare.com/dealing/uk.
ELECTRONIC COMMUNICATIONS
If you would like to have access to shareholder communications such as the Annual Report and the Notice of General Meeting through the internet
rather than receive them by post, please register at www.investorcentre.co.uk/ecomms.
196
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 HOW TO CONTACT US AND ADVISERS
HOW TO CONTACT US
Registered Office
St. James’s Place House
1 Tetbury Road
Cirencester
Gloucestershire
GL7 1FP
Tel: 01285 640302
www.sjp.co.uk
Chair
Sarah Bates
email c/o: liz.kelly@sjp.co.uk
Chief Executive
David Bellamy
email: david.bellamy@sjp.co.uk
Chief Financial Officer
Andrew Croft
email: andrew.croft@sjp.co.uk
Company Secretary
Elizabeth Kelly
email: liz.kelly@sjp.co.uk
Customer Service
Caroline Hallat
Tel: 01285 878140
email: caroline.hallat@sjp.co.uk
Analyst Enquiries
Tony Dunk
Tel: 020 7514 1963
email: tony.dunk@sjp.co.uk
Media Enquiries
Bell Pottinger
Tel: 020 3772 2566
email: SJP@BellPottinger.com
ADVISERS
Bankers
Bank of Scotland
150 Fountainbridge
Edinburgh
EH3 9PE
Barclays Bank PLC
1 Churchill Place
London
E14 5HP
Metro Bank plc
One Southampton Row
London
WC1B 5HA
Santander UK plc
2 Triton Square
Regents Place
London
The Royal Bank of Scotland
135 Bishopsgate
London
EC2M 3UR
Brokers
JPMorgan Cazenove Limited
25 Bank Street
London
E14 5JP
Bank of America Merrill Lynch
2 King Edward Street
London
EC1A 1HQ
Independent Auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
7 More London Riverside
London
SE1 2RT
Registrars & Transfer Office
Computershare Investor Services PLC
The Pavilions
Bristol
Bridgwater Road
BS13 8AE
email: webqueries@computershare.co.uk
Tel: 0370 702 0197
www.investorcentre.co.uk/contactus
Annual Report and Accounts 2016
197
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation ST. JAMES’S PLACE PARTNERSHIP LOCATIONS
UNITED KINGDOM
1 ABERDEEN
Mark Wyllie
mark.wyllie@sjp.co.uk
Tel: 0122 420 2400
2 GLASGOW
Ross Cameron
ross.cameron@sjp.co.uk
Tel: 0141 304 1700
3 EDINBURGH
Steve Herkes
steve.herkes@sjp.co.uk
Tel: 0131 459 9200
4 NEWCASTLE
Philip Pringle
philip.pringle@sjp.co.uk
Tel: 0191 260 5373
5 BELFAST
Keith Willett
keith.willett@sjp.co.uk
Tel: 028 9072 6500
6 LEEDS
Tim Willis
tim.willis@sjp.co.uk
Tel: 0113 244 4054
7 MANCHESTER
Frank Gorrie
frank.gorrie@sjp.co.uk
Tel: 0161 834 9480
8 LIVERPOOL
John Ronan
john.ronan@sjp.co.uk
Tel: 0151 224 8700
9 NOTTINGHAM
Andy Marks
andy.marks@sjp.co.uk
Tel: 0115 924 2899
10 SOLIHULL
Sean McKillop
sean.mckillop@sjp.co.uk
Tel: 0121 733 6733
ASIA
198
1
2
3
5
4
6
9
7
8
10
13
12
16
11
14
15
12 NEWBURY
Chris Faerber
chris.faerber@sjp.co.uk
Tel: 01635 582424
13 BRISTOL
George Hills
george.hills@sjp.co.uk
Tel: 01454 618700
14 CANARY WHARF
Paolo Payne
paolo.payne@sjp.co.uk
Tel: 020 7516 5700
CITY
Roger McKibbin
roger.mckibbin@sjp.co.uk
Tel: 020 7638 2400
ELSTREE
Mark Newman
mark.newman@sjp.co.uk
Tel: 020 8207 4000
HAMILTON PLACE
Nick Brett
nick.brett@sjp.co.uk
Tel: 020 7495 1771
KINGSWAY
Ryan McDonald
ryan.mcdonald@sjp.co.uk
Tel: 020 7744 1600
PICCADILLY
Damien Bradbury
damien.bradbury@sjp.co.uk
Tel: 020 7399 6889
15 WESTERHAM
David McIntosh
david.mcintosh@sjp.co.uk
Tel: 01959 561 606
11 WITHAM
Daniel Giacomelli
daniel.giacomelli@sjp.co.uk
Tel: 01376 501947
16 SOLENT
Ian Grant
ian.grant@sjp.co.uk
Tel: 01489 881400
17 SHANGHAI
Oliver Wickham
Email: Shanghai.info@sjp.asia
Tel: +86 21 6045 2688
19 SINGAPORE
Nigel Preston
Email: Singapore.info@sjp.asia
Tel: +65 6536 0121
18 HONG KONG
Ian Burns
Email: Hongkong.info@sjp.asia
Tel: +852 2824 1083
17
18
19
St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 GLOSSARY OF ALTERNATIVE PERFORMANCE MEASURES
Within the Annual Report and Accounts various alternative performance measures (APMs) are disclosed. An APM is a measure of financial
performance, financial position or cash flows which is not defined by the relevant financial reporting framework, which for the Group is International
Financial Reporting Standards (IFRS) as adopted by the European Union. APMs are used to provide greater insight into the performance of the Group
and the way it is managed by the Directors. The table below defines each APM, explains why it is used and, if applicable, where the APM has been
reconciled to IFRS:
Reconciliation to the
financial statements
Refer to page 39.
Why is this measure used?
Our ability to satisfy our liabilities to clients,
and consequently our solvency, is central to our
business. By removing the liabilities which are
fully matched by assets, this presentation allows
the reader to focus on the business operation.
It also provides a simpler comparison with other
wealth management companies.
Refer to page 34 and
also see Note 3 -
Segment Profit.
IFRS methodology recognises non-cash items
such as deferred tax and share options. By
contrast, dividends can only be paid to
shareholders from appropriately fungible assets.
The Board therefore uses the cash results to
monitor the level of cash generated by the
business.
While the Cash result gives an absolute measure
of the cash generated in the year, the
Underlying and Operating cash results are
particularly useful for monitoring the expected
long-term rate of cash emergence, which is
particularly useful in considering the
supportability of dividends and sustainable
dividend growth.
APM
Solvency II net assets Based on IFRS Net Assets, but with the
Definition
following adjustments:
Cash reults,
Operating cash result
and Underlying cash
result.
1. Reflection of the recognition requirements of
the Solvency II regulations for assets and
liabilities. In particular this removes, DAC,
DIR, PVIF, other intangibles and some other
small items which are treated as inadmissible
from a regulatory perspective; and
2. Adjustment to remove the matching client
assets and the liabilities as these do not represent
shareholder assets.
No adjustment is made to deferred tax as this is
treated as an allowable asset in the Solvency II
regulation.
The Cash result is defined as the movement
between the opening and closing Solvency II net
assets adjusted for the following items:
1. The movement in deferred tax is removed to
reflect just the cash realisation from the deferred
tax position;
2. The movements in goodwill and other
intangibles are included; and
3. Other changes in equity, such as dividends
paid in the year and share option costs, are
excluded.
The Operating cash result reflects the regular
emergence of cash from the business operations.
The Underlying cash results additionally reflects
the cash impact of the strategic investments we
are making.
Finally, the Cash result reflects all other cash
items, including those whose emergence is
volatile, varying over time and often influenced
by markets, together with the short term costs
associated with the back-office infrastructure
project.
Neither the cash result nor the underlying cash
result should be confused with the IFRS
consolidated statement of cash flows which is
prepared in accordance with IAS 7.
Annual Report and Accounts 2016
199
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation GLOSSARY OF ALTERNATIVE PERFORMANCE MEASURES
continued
APM
Underlying cash basic
and diluted earnings
per share (EPS)
Definition
These EPS measures are calculated as
Underlying cash divided by the number of shares
used in the calculation of IFRS basic and
diluted EPS.
Why is this measure used?
As Underlying cash is the best reflection of the
cash generated by the business, Underlying cash
EPS measures allow analysis of the shareholder
cash generated by the business by share.
Total embedded value A discounted cash flow valuation methodology,
assessing the long-term economic value of the
business.
Our embedded value is determined in line with
the EEV principles, originally set out by the
Chief Financial Officers (CFO) Forum in 2004,
and amended for subsequent changes to the
principles, including those published in April
2016, following the implementation of
Solvency II.
EEV profit
Derived as the movement in the Total EEV
during the year.
EEV operating profit A discounted cash flow valuation methodology,
assessing the long-term economic value of the
business.
Our embedded value is determined in line with
the EEV principles, originally set out by the
Chief Financial Officers (CFO) Forum in 2004,
and amended for subsequent changes to the
principles, including those published in April
2016, following the implementation of
Solvency II.
The EEV operating profit reflects the total EEV
result with an adjustment to strip out the impact
of stock market and other economic effects
during the year.
EEV operating profit
basic and diluted
earnings per share
(EPS)
These EPS measures are calculated as EEV
operating profit after tax divided by the number of
shares used in the calculation of IFRS basic and
diluted EPS.
Net asset value per
share (EEV)
EEV net asset value per share is calculated as the
EEV net assets divided by the year end number of
ordinary shares.
Life business and wealth management business
differ from most other businesses, in that the
expected shareholder income from the sale of a
product emerges over a long period in the
future. We therefore complement the IFRS and
cash results by providing additional disclosure
on an Embedded Value basis, which brings into
account the net present value of expected future
cash flows, as we believe that a measure of total
economic value of the Group is useful to
investors.
Both the IFRS and Cash results reflect only the
cash flows in the year. However, our business is
long-term, and activity in the year can generate
business with a long-term value. We therefore
believe it is helpful to understand the full
economic impact of activity in the year, which
is the aim of the EEV methodology.
Both the IFRS and cash results reflect only the
cash flows in the year. However, our business is
long-term, and activity in the year can generate
business with a long-term value. We therefore
believe it is helpful to understand the full
economic impact of activity in the year, which is
the aim of the EEV methodology.
Within the EEV, many of the future cash flows
derive from fund charges, which change with
movements in stock markets. Since the impact
of these changes is typically unrelated to the
performance of the business, we believe that the
EEV operating profit (reflecting the EEV profit,
adjusted to reflect only the expected investment
performance and no change in economic basis)
provides the most useful measure of embedded
value performance in the year.
As EEV operating profit is the best reflection
of the EEV generated by the business, EEV
operating profit EPS measures allow analysis of
the long-term value generated by the business
by share.
Total embedded value provides a measure
of total economic value of the Group, and
assessing the NAV per share allows analysis
of the overall value of the Group by share.
Reconciliation to the
financial statements
Not applicable.
Not applicable.
See Note 3 – Segment
Profit.
See Note 3 – Segment
Profit.
Not applicable.
Not applicable.
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St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415 APM
Policyholder and
shareholder tax
Profit before
shareholder tax
Definition
Shareholder tax is estimated by making an
assessment of the effective rate of tax that is
applicable to the shareholders on the profits
attributable to the shareholders. This is
calculated by applying the appropriate effective
corporate tax rates to the shareholder profits.
In effect the shareholder tax is assessed by
calculating the expected level of tax implied by
the post-tax result, but with explicit adjustment
in the calculation for any significant one-off tax
adjustments.
The remainder of the tax charge represents tax
on policyholder’s investment returns.
This calculation method is consistent with the
legislation relating to the calculation of the tax
on shareholder’s profits.
A profit measure which reflects the IFRS result
adjusted for policyholder tax, but before
deduction of shareholder tax. Within the
consolidated statement of comprehensive income
the full title of this measure is ‘Profit before tax
attributable to shareholders’ returns.’
Underlying profit
A profit measure which reflects the IFRS result
adjusted to remove the DAC, DIR and PVIF
adjustments.
Net asset value per
share (IFRS)
IFRS net asset value per share is calculated as the
IFRS net assets divided by the year end number
of ordinary shares.
Why is this measure used?
The UK tax regime facilitates the collection of
tax from life insurance policyholders by making
an equivalent charge within the corporate tax of
the Company. The total tax charge for the
insurance companies therefore comprises both
this element and an element more closely
related to normal corporation tax.
Life insurance business impacted by this tax
typically includes policy charges which align
with the tax liability, to mitigate the impact on
the corporate. As a result when policyholder
tax increases, the charges also increase. Given
these offsetting items can be large, and typically
don’t perform in line with the business, it is
beneficial to be able to identify the two
elements separately. We therefore refer to that
part of the overall tax charge, which is deemed
attributable to policyholders, as policyholder
tax, and the rest as shareholder tax.
The IFRS methodology requires that the tax
recognised in the financial statements should
include the tax incurred on behalf of
policyholders in our UK life assurance
Company. Since the policyholder tax charge is
unrelated to the performance of the business,
we believe it is useful to separately identify the
profit before shareholder tax, which reflects the
IFRS profit before tax, adjusted for tax paid on
behalf of policyholders.
The IFRS methodology promotes recognition of
profits in line with the provision of services and
so, for long-term business, some of the initial cash
flows are spread over the life of the contract
through the use of intangible assets and liabilities
(known as DAC – Deferred Acquisition Costs and
DIR – Deferred Income). Due to the retail
distribution review (RDR) regulation change in
2013, there was a step change in the progression
of these items in our financial statements, which
resulted in significant accounting presentation
changes despite the fundamentals of our
vertically-integrated business remaining
unchanged. We therefore believe it is useful to
consider the IFRS result having removed away the
impact of movements in these intangibles as it
better reflects the underlying performance of
the business.
Total IFRS net assets provides a measure of
value of the Group, and assessing the NAV per
share allows analysis of the overall value of the
Group by share.
Reconciliation to the
financial statements
Disclosed as separate
line items in the
statement of
comprehensive
income on page 127.
Disclosed as a separate
line item in the
statement of
comprehensive
income on page 127.
Refer to page 34.
Not applicable.
Annual Report and Accounts 2016
201
St. James’s Place plcStrategic ReportGovernanceFinancial StatementsOther InformationSt. James’s Place Foundation GLOSSARY OF TERMS
Adviser or Financial Adviser
An individual who is authorised by an appropriate regulatory authority to
provide financial advice. In the UK our advisers are authorised by
the FCA.
Administration Platform, also Bluedoor
A new client-centric administration system, being developed in
conjunction with our third party outsourced administration
provider, IFDS.
Capita
A provider of business process outsourcing and integrated professional
support service solutions, which is our third party outsourced provider,
responsible for the administration of our Dublin-based life insurance
company, SJPI.
Chief Operating Decision Maker
The Executive Committee of the Board (Executive Board) which is
responsible for allocating resources and assessing the performance of the
operating segments.
Client Advocacy
The Company requests feedback from clients each year through a survey
distributed with the annual Wealth Account. Advocacy is measured by
the response to the question ‘Would you recommend SJP services to
others?’. The potential responses distinguish between ‘Yes, and have
done so already’, ‘Yes, but have yet to do so’ and ‘No’.
Client Numbers
The number of individuals who have received advice from a
St. James’s Place Partner and own a St. James’s Place wrapper.
Client Retention
Client retention is assessed by calculating the proportion of clients at
1 January in the year who remain as a client throughout the year and are
still a client on 31 December of the same year.
Company
The Company refers to St. James’s Place plc, which is also referred to as
‘St. James’s Place’, ‘St. James’s Place plc’ and ‘SJP' throughout the
Annual Report and Accounts.
Deferred Acquisition Costs (DAC)
An intangible asset required to be established through the application of
IFRS to our long-term business. The value of the asset is equal to the
amount of all costs which accrue in line with new business volumes. The
asset is amortised over the expected lifetime of the business.
Deferred Income (DIR)
Deferred income which arises from the requirement in IFRS that initial
charges on long-term financial instruments should only be recognised
over the lifetime of the business. The initial amount of the balance is
equal to the charge taken.
Discretionary Fund Management (DFM)
A generic term for a form of investment management in which buy and
sell decisions are made (or assisted) by a portfolio manager for a client’s
account. Within St. James’s Place, the services provided by Rowan
Dartington (including investment management, advisory stockbroking
and wealth planning) are collectively referred to as Discretionary Fund
Management, distinguishing them from the services provided by our
Partners and from the IMA.
Field Management Team
The team of managers within St. James’s Place with day to day
responsibility for support and supervision of the Partnership.
Financial Conduct Authority (FCA)
The FCA is a company limited by guarantee and is independent of the
Bank of England. It is responsible for the conduct of business regulation
of all firms (including those firms subject to prudential regulation by the
PRA) and the prudential regulation of all firms not regulated by the
PRA. The FCA has three statutory objectives: securing an appropriate
degree of protection for consumers, protecting and enhancing the
integrity of the UK financial system, and promoting effective
competition in the interests of consumers.
Financial Services Compensation Scheme (FSCS)
The FSCS is the UK’s statutory compensation scheme for customers of
authorised financial services firms. This means that the FSCS can pay
compensation if a firm is unable, or is likely to be unable, to pay claims
against it. The FSCS is an independent body, set up under the Financial
Services and Markets Act 2000 (FSMA), and funded by a levy on
‘authorised financial services firms’. The scheme covers deposits,
insurance policies, insurance brokering, investments, mortgages and
mortgage arrangement.
Funds under Management (FUM)
Represents all assets actively managed or administered by or on behalf of
the Group, including all life insurance and unit trust assets, but not assets
managed by third parties where we have only introduced or advised on
the business. Assets managed by Rowan Dartington count as funds under
management from the date of acquisition.
Gross Inflows
Total new funds under management accepted in the period. New funds
accepted by Rowan Dartington count for Gross Inflows from the date of
acquisition.
Group
The Group refers to the Company together with its subsidiaries as listed
in Note 23.
International Financial Data Services (IFDS)
A provider of investor and policyholder, administration and technology
services. IFDS is our third party outsourced provider, responsible for the
administration of our UK life insurance company, SJPUK, our unit trust
manager, SJPUTG, and our investment administration company, SJPIA.
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St. James’s Place plcAnnual Report and Accounts 2016 Registered No. 03183415
Rowan Dartington
A wealth management business providing investment management,
advisory stockbroking and wealth planning services acquired by
St. James’s Place during 2016.
Solvency II
New insurance regulations designed to harmonise EU insurance
regulation which became effective on 1 January 2016. The key concerns
of the regulation are to ensure robust risk management in insurance
companies and to use that understanding of risk to help determine the
right amount of capital for European insurance companies to hold to
ensure their ongoing viability in all but the most severe stressed
scenarios.
St. James’s Place Foundation
The independent grant making charity established at the same time as the
Company in 1992. More information about the Foundation can be found
on page 61 or on the website www.sjpfoundation.co.uk.
St. James’s Place Partner
A member of the St. James’s Place Partnership. Specifically, the
individual or business that is registered as an Appointed Representative of
St. James’s Place on the FCA website. St. James’s Place Partner
businesses vary in size and structure. Many are sole traders but there are
also a growing number of businesses employing many advisers.
St. James’s Place Partnership
The collective name for all of our advisers, who are Appointed
Representatives of St. James’s Place.
State Street
State Street is a global financial services holding company offering
custodian services, investment management services, and investment
research and trading services. State Street is responsible for the custody
of the majority of the St. James’s Place assets, and also provides other
investment management services.
International Financial Reporting Standards (IFRS)
These are accounting regulations designed to ensure comparable
preparation and disclosure of statements of financial position, and are the
standards that all publicly listed companies in the European Union are
required to use.
Investment Management Approach (IMA)
The IMA is how St. James’s Place manages clients’ investments. It is
managed by the St. James’s Place Investment Committee, which in turn
is advised by respected independent investment research consultancies,
including Stamford Associates, Redington and AON Consulting. The
Investment Committee is responsible for identifying fund managers for
our funds, selecting from fund management firms all around the world.
They are also responsible for monitoring the performance of our fund
managers, and, if circumstances should change and it becomes necessary,
then they are responsible for changing the fund manager as well.
Net Inflows
Gross inflows less the amount of funds under management withdrawn by
clients during the same period. The net inflows is the growth in funds
under management not attributable to investment performance.
Policyholder and Shareholder tax
The UK tax regime facilitates the collection of tax from life insurance
policyholders by making an equivalent charge within the corporate tax of
the Company. This part of the overall tax charge, which is attributable to
policyholders, is called policyholder tax. The rest is shareholder tax.
Prudential Regulatory Authority (PRA)
The PRA is a part of the Bank of England and is responsible for the
prudential regulation of deposit taking institutions, insurers and major
investment firms. The PRA has two statutory objectives: to promote the
safety and soundness of these firms and, specifically for insurers, to
contribute to the securing of an appropriate degree of protection for
policyholders.
Purchased Value of In-force (PVIF)
An intangible asset established on takeover or acquisition, reflecting the
present value of the expected emergence of profits from a portfolio of
long-term business. The asset is amortised in line with the emergence of
profits.
Registered Individuals (RI)
An individual who is registered by the FCA, particularly an individual
who is registered to provide financial advice. See also Adviser and
St. James’s Place Partner.
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ST. JAMES’S PLACE PLC
St. James’s Place House
1 Tetbury Road
Cirencester
Gloucestershire
GL7 1FP
T: 0800 01 38 137
www.sjp.co.uk