Chris Macdonald: we won't squeeze margins in price war

Brooks Macdonald chief executive Chris Macdonald says the company can maintain its current levels of service and profitability, despite expecting an industry-wide margin squeeze in 2013.

Macdonald (pictured) expects wealth manager margins to come under pressure as competitors drop prices to attract assets from clients and intermediaries. He said the firm will not engage in a price war as it does not intend to scrimp on the service it provides.

‘If you are doing bespoke portfolio management, you should not do it for under 75 basis points,’ said Macdonald.

‘If you went through what you are providing for 75 basis points, if you go below this level you have to [cut] what you are giving away to clients. This includes things like quarterly, daily valuations, reporting, face-to-face meetings, posting dividends.

‘You can say to the client, “anything you don’t want, we can reduce our fees”, but clients want all of it. I think that if you have a margin squeeze, you are going to fall over on service.’

Even if competitors’ growth strategies are based on building assets on lower margins, Macdonald remains confident that the company will see continued growth from the professional adviser channel in 2013.

While he describes December as a quiet month, as advisers scrabbled to carry out last-minute tweaks ahead of the oncoming retail distribution review, he is encouraged by a pick-up in activity in January.

His comments come in the wake of the company’s half-year trading update, in which it posted a 23.2% jump in assets to £4.6 billion, buoyed by the acquisition of Channel Islands-based firm Spearpoint in November. This has resulted in the acquisition of £686 million in assets, along with £357 million worth of advisory assets.

Through the deal, Brooks, traditionally a pure discretionary manager, will begin offering advisory – a factor that Macdonald is positive about in terms of further expanding its offshore presence.

‘Our view is that, in the UK, discretionary is the way forward, but offshore you have got to have discretionary, advisory and execution-only dealing because people want to park their money across different buckets. Advisory is a new area for us,’ he said.

Stripping out the acquisition, the firm has posted an organic growth rate of 3.5% on average across the past two quarters, with Macdonald describing underlying markets and regulation as two of the largest challenges facing the business this year.