(Update) The costs associated with Brewin Dolphin's strategy to improve profitability and make the business more efficient have weighed on pre-tax profit, with redundancy costs amounting to £4.8 million over the year.
The decision to bring about efficiencies and improved profitability under a strategy that has been implemented over the past two years helped to power a 22% rise in adjusted pre-tax profit to £52.3 million over the period, the group noted in its preliminary results. These figures were adjusted to exclude redundancy costs, additional FSCS levy, onerous contracts provision, amortisation of client relationships and disposal of available-for-sale investments.
When these factors are accounted for, pre-tax profit stood at £28.6 million, representing a 4% decline on the year. Brewin said this was down to restructuring costs and 'material provisions for onerous contracts'.The national wealth manager also paid out an additional FSCS levy of £1.1 million, up from £0.5 million in 2012.
The firm attributed the £4.8 million redundancy costs to two organisational restructures. Firstly in March when various head office roles were restructured, which Brewin said had been done to 'better service business needs' and reduce costs. This resulted in approximately £3 million in redundancy payments and reduced central functions headcount by approximately 100, leading to a £6 milllion saving in ongoing staff costs.
During the second half of the year, Brewin's rationalisation of its branch network, which saw offices in Inverness, Teesside, Hereford and Swansea close, led to a further £1.4 million of redundancy payments. The company said run rate savings to branch staff costs would be felt from 2014 onwards.
A £6.2 million outlay relating to onerous contracts also weighed on profit, with £5.7 million relating to 'surplus property space' that may not be continually sub-let.
On a more positive note, the national wealth manager has reaped the benefits of moving to a unified pricing structure with a 25% fee rise to £152 million over the year. Total income rose 5% over the 12 months to the end of September to £283.7 million.
The board has opted to up the final dividend by 40% to 5.05p, while the full year increased by 20% to 8.6p.
The group said it aims to achieve an operating margin of 25% by the end of the financial year in 2016. Its strategy is underpinned by initiatives to improve market competitiveness and drive organic growth, lower costs and achieve operational efficiency.
Total assets stood at £28.2 billion at the end of September, up from £25.9 billion in 2012. A 17% rise in discretionary assets to £21.3 billion helped to offset a £0.8 billion outflow out of advisory, representing a 10.4% decline on the year. Discretionary assets accounted for 76% of total funds under management.
The move to a unified pricing structure and the introduction of the retail distribution review in January weighed on the firm's advisory dealing and advisory managed services. The national wealth manager's execution-only arm prospered however, with assets up £1.3 billion representing a 24% increase on the year. Of this £900 million represented new inflows, while £700 million was transferred from advisory to execution-only, which the firm said had been as a result of a service review and move to standard pricing.
Move to new rate card
The board said a move to a unified pricing structure was progressing well, with around £20 billion of its assets now on the rate card. This has taken trail commission out of the business and allowed for a standardised yield across the services it offers. For example, the yield on advisory managed portfolios rose 0.1% to 0.56%, discretionary was up 0.5% to 0.96%, but advisory dealing was down 0.13% to 0.29%. Nonetheless, Brewin still needs to move 50% of advisory managed clients over to the structure in 2014.
The firm's discretionary business benefited from asset growth and improved yield, powering a 23% increase in income to £192.7 million. Despite lower levels of advisory managed assets, overall income rose by 18% due to the improved yield from repricing. Brewin put the decline in income from advisory dealing down to its service review and repricing initiative.
Brewin attributed the rise in fee income to growth in discretionary services and the ongoing introduction of fees to advisory clients. Income from financial planning also proved robust with growth of 26% to £11.7 million.
David Nicol, who came in as chief executive earlier in the year after a board reshuffle, commented: 'Our evolution must continue as we strive to become the leading provider of personal discretionary wealth management in the UK.'
The firm said it had reviewed the appointed representatives of the group as a result of its refocused strategy and concluded that the risks of self-employed agents providing advice under its brand, in return for half the commission they generated was an out-of-date approach and not in the best interests of clients. This resulted in several appointed representatives transferring their business elsewhere, with one becoming an employee over the year, the firm noted.
Another part of the firm's refocused strategy has been the development of new IT systems. Brewin said the first stage of its new core operating system had been implemented into Stocktrade, its execution-only service, in September 2013. It plans to roll out the new system out across the rest of the group during 2014 and implement new software to support investment management and financial planning services.
At 11:52 Brewin's share price was trading at 282.6p, up 2.24% on the day.