* Net inflow of funds under management of 1.2 bln pounds
* FuM up 3.4 pct in 2014 to 45.8 bln pounds
* Says well-placed to meet mid-term growth targets (Adds CEO comment, share reaction, analyst comment)
By Jemima Kelly and Simon Jessop
LONDON, April 29 (Reuters) - British wealth manager St. James's Place said retail investors' improved confidence in the economic recovery - despite stock market volatility - helped it start 2014 strongly.
The investment firm, which outsources management of its funds, said it took in 1.2 billion pounds ($2.02 billion) in new money to help total first-quarter funds under management rise to 45.8 billion pounds. That marked an increase in assets of 17 percent since a year ago and 3.4 percent since the start of the year, boosted by a 95 percent retention of client funds.
Changes to last month's budget - giving savers more flexibility in how to use their pension pots and put more money into tax-free Individual Savings Accounts (ISAs) - also boosted sentiment, said Chief Executive David Bellamy.
"The 30 percent increase in the ISA limit is quite staggering," Bellamy told Reuters. "It's a very sizeable shift."
Investors cheered the results, which beat analysts' expectations, and sent St James's Place shares up more than 1 percent by 0945 GMT.
The firm's assets under management were 2 percent higher and net inflows 9 percent ahead of consensus, with JPMorgan among the analysts calling the share undervalued.
Shore Capital said the company's growth in assets and its ability to hold on to its clients was good for dividend prospects. St James's Place reiterated on Tuesday its intention to increase its dividend by 30 to 40 percent this year, following a 50 percent increase last year.
Demand for advice, as well as flows into its mutual funds, meant the firm, which recently joined the FTSE 100 index, was "well placed to maintain momentum in our business in line with our medium-term growth objectives", said Bellamy.
Bellamy said the company was "days away" from completing its acquisition of Singapore-based Henley Group, which sells investment products to a largely British expatriate clientele.
The range of funds offered by St James's Place was recently extended to include, among others, that of star fund manager Neil Woodford, who is leaving Invesco Perpetual to set up his own fund as part of Oakley Capital Management.
In response, St James's Place said it would transfer three mandates worth a combined 3.65 billion pounds to Woodford's new venture. ($1 = 0.5950 British Pounds) (Reporting by Simon Jessop; editing by Sophie Walker)