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Magellan (ASX:MFG) shares price sinks 28% after losing its biggest client

The Magellan Financial Group Ltd (ASX: MFG) share price is down 28% after confirming St James’s Place (SJP) had terminated its mandate with the company.

Today’s news comes on the back of Magellan entering a trading halt on Friday afternoon pending further information regarding the termination of a material contract.

Magellan (ASX:MFG) share price set to sink as major client pulls funds

The first domino falls

In what was a somewhat anti-climatic announcement – since it was speculated SJP would pull its funds on Friday – Magellan issued a concise statement outlining it had lost its biggest client.

The withdrawal represents 12% of Magellan’s current annual revenues.

For its FY22 result, this will represent a 6% reduction but will not materially impact the half-year results ending this month.

“Magellan would like to thank SJP for its partnership and support over many years”

Magellan has been facing increasing pressure from the market for its lack of performance and relatively high fee structure.

The flagship global fund has underperformed 14.6% over the past 1-year and is now below its benchmark over three, five, and seven-year periods.

The business also announced the sudden departure of its Chief Executive last week, in addition to its Chief Investment Officer releasing a statement it was in the process of a divorce.

What next for the Magellan share price?

Given the lack of information, it’s somewhat surprising Magellan waited a whole weekend to provide just a two-paragraph response.

One could be forgiven for thinking the market has overreacted to the announcement. Magellan has lost 28% of its market value given SJP only accounts for 6% of revenue.

But it will be the risk of snowball effect that has the market rushing for the exit door.

If the biggest client is redeeming funds, why should we stay? 

Even if institutional clients remain, they will likely be banging on the door for a fee cut.

Additionally, it will now be near impossible for financial advisors to recommend Magellan funds and meet their best interest obligations.

All this bodes negatively for the Magellan share price, at least in the near term.

There are reasons to be positive about Magellan.

Here’s why I’m bullish on the Magellan (ASX:MFG) share price

But while it’s fighting to retain its funds under management, I’m steering clear for now.

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