Here’s why Abrdn, St. James Place shares are languishing

UK asset and wealth management companies have become unloved by City traders and investors. Hargreaves Lansdown (LON: HL) and Abrdn (ABDN) have become some of the most shorted companies in the UK. Together with St. James Place (LON: STJ), the biggest UK wealth manager, their stocks have plunged, costing investors billions of pounds in the past few months.

St. James Place stock has dropped by 60% from its highest point in January 2022 while Abrdn stock is down by over 40% since February 2021. Other companies in the industry like Hargreaves Lansdown and Quilter have also tumbled.

Abrdn vs St James Place stocks

Increased outflows

The main reason why St. James Place and Abrdn have plunged is that they are not growing as they used to in the past. This view was confirmed when the companies published their statements this year.

Abrdn, formerly known as Standard Life Aberdeen, said that its outflows soared to £12 billion in the second half of the year as it faced structural headwinds. As a result, the company is cutting about 500 jobs and closing some offices to cut costs.

Abrdn now has over £484 billion in assets under management (AUM) and analysts believe that the outflows will continue. A sharp decline in inflows also impacted the company’s profitability. Its loss jumped to £320 million.

Things are also not rosy for St James Place as its gross inflows dropped to £15.93 billion while its net inflows fell to £5.12 billion. It ended the year with £168.2 billion in assets. These assets rose because of the strong performance of equities.

Why these giants are languishing

Abrdn and St. James Place are languishing for two main reasons. First, the companies, especially STJ, have been under pressure from regulators about their fees. As a result, the company slashed its wealth management fees last year. Some of the new changes are that it will remove early withdrawal costs and change its upfront fees.

The second big problem is that many investors are now moving to passive income assets, which are seen as less complicated for most of them. Some of the most popular passive funds among investors in the UK were Vanguard LifeStrategy 80% Equity and Vanguard US Equity Index.

In line with this, many investors piled it UK gilts as their yields rose. Abrdn benefited slightly from this because most of these customers used Interactive Investor, a company it acquired Interactive Investor (II) in a £1.5 billion deal. II handles most of these purchases in the UK.

The outlook for St. James Place and Abrdn is a bit dark. The situation will change if investors see that these companies have started attracting cash in their funds. This is unlikely to happen in the near term.