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TWST: Let’s start with a brief historical sketch and introduction to St. James’s Place Capital (London: STJ.L).

Sir Mark: This Group in its present form was started as a life assurance and unit trust (or mutual fund) group eleven years ago under the name of J. Rothschild Assurance. Five years ago we reversed into a quoted company called St. James’s Place Capital, which distributed the rest of its assets to another company. So effectively J. Rothschild Assurance became St. James’s Place. A couple of changes took place since then. First, three years ago Halifax, now called HBOS, took a 60% interest. So we remain a listed company, completely independently run, with 60% owned by a large banking group. Second, over those three years we have been successively changing ourselves from being a pure life assurance and unit trust group into being a wealth management group.

TWST: Can you outline the key principles of your business model?

Sir Mark: To give some of the history, we were a start-up by an established management team who had worked together at what is now known as Zurich Financial Services. We established J. Rothschild Assurance eleven years ago and we started on the principle that we would contract out everything that we could except where we could directly add value. We therefore contracted out all of our administration, and still do, and so from that point it was something of a virtual assurance group. A second principle was to contract out our investment management on the grounds that we wanted to have really good investment management and we didn’t believe we could recruit a wide range of top investment managers and indeed hold on to them. And a third fundamental decision we made was that we would distribute our products only through our own group of financial advisors who were exclusive to us. We called them “The Partnership” because we wanted them to feel that they had a common interest in protecting our image, and therefore their own images. We recruit only experienced people. We won’t recruit, for example, someone who’s been in financial services for less than three years. In fact, our average Partner – and we now have 1,100 of them - has had fourteen years in financial services and they tend to look after two-and-a-half times the amount of money or business than the average financial advisor in the business. So we’re only getting experienced and productive people.

TWST: Has that recruitment environment changed significantly for you over recent years?

Sir Mark: Yes, it has. During much of the past ten years there were other companies tending to run down their sales forces, so that the great majority of our people came from sales forces that were in decline, or even closed down. In the early days, we recruited about 10% of our people from Independent Financial Advisor (IFAs). But we were nervous of doing that over the last five years because there was what is known as a pension mis-selling issue, where people who transferred clients from corporate pension schemes into individual policies five or six years ago have had to compensate many clients for what is regarded as mis-selling. If we had taken IFAs into our sales force, we would be indirectly responsible for what could be their considerable pension transfer liabilities. So we voluntarily kept out of recruiting IFAs. Over the last year or so, one door’s closed but another has opened. Most of the other sales forces of the kind that we would recruit from have closed. There is just one major competitor left in the market, which is our old company, Zurich. They have a much larger sales force than us and we get a certain number from them, but at the same time the pension mis-selling issue is now pretty much gone, we have started actively recruiting IFAs, and we feel that our major recruiting will be from IFAs over the next five years. There are many thousands, so it is a significant pool, and there are also going to be changes in regulations, at the end of this year, which is another reason why we’ll think we’ll recruit IFAs.