Brooks Macdonald chief executive Chris Macdonald has all but ruled out further acquisitions of IFA businesses and dismissed concerns that it will lose share of outsourced assets as other wealth managers buy up adviser client banks.
With a number of advisers expected to retire ahead of the retail distribution review (RDR) deadline, many wealth managers are circling overhead waiting to pick up their assets. Although many of the acquiring firms would be expected to migrate these into their own businesses, Macdonald (pictured) is confident his business can maintain its dominant position in the market.
His comments follow the firm’s acquisition of Park Street London, a retiring financial adviser that was a long-term introducer of funds and clients to the group, for an initial cash payment of £2.3 million plus £700,000 net assets of cash.
This will be paid in instalments over three years, dependent on client retention. Macdonald describes the acquisition as a one-off transaction, aimed at buying out the income stream.
‘Are we going to buy retirees? We are almost certainly not going to, because we almost certainly have 100% of the clients there [at Park Street],’ he said. ‘Is it a threat to our distribution in terms of individuals retiring? We don’t think so because largely we are dealing with firms as opposed to individuals.’
Brooks said its 13-strong team dedicated to new business has taken on assets from 179 new introducing firms this financial year, upping its total to 420. Eleven strategic partnerships with intermediaries were also signed, bringing in around £1 billion in assets over the 12 months to the end of June.
This helped to contribute to a 19% rise in assets under management to £3.52 billion over the same period, while pre-tax profits rose 17% to £8.5 million.
In the wake of the acquisitions of Park Street and the investment management division of Clarke Wilmott last year, Macdonald said the firm continues to look at acquisitions but also sees ‘enormous opportunities’ for organic growth.
Meanwhile, Nick Holmes, joint managing director, added that obvious gaps where the business does not have a presence remain in the Midlands and the Channel Islands.
‘How many opportunities do we look at per month? Between five and 10. How many do we take? Four in the past 25 years, it just happens that two have been in the past 12 months… I can’t guarantee [we] will be doing them, but also wouldn’t rule them out,’ he said.
Macdonald said the firm is investing for the future, with a strong focus on developing its product and service offering for clients, having developed a custody and administration service while also providing data links to third parties. ‘I think if we stand still we will die. We have to deliver more for our clients the whole time,’ Macdonald said.
Nonetheless, regulation and compliance represents a significant outgoing for the business, not least a substantial outlay for this year’s Financial Services Compensation Scheme levy, while Macdonald estimates that around 15%-20% of Brooks’ senior management time is currently spent on regulation and compliance.
The firm has also invested £600,000 in the BITA Monitor system, which gives managers the ability to manage volatility and risk in portfolios. This is linked to a planned review in the fourth quarter of all client and introducer files to ensure FSA suitability, although Macdonald estimated the costs of this should not be significant.
With just over three months until the RDR comes into force, Macdonald anticipates significant changes for the industry.
‘I’m a believer that the RDR will be the biggest bit of financial legislation in this country since the Big Bang in 1987. I think it is going to change a number of things,’ he said.
The firm is positive about the removal of trail commission, although its enthusiasm runs dry when it comes to the FSA’s definitions of restricted and independent advice. Under the RDR guidelines, the asset management business will be restricted, while Brook’s financial planning division will be independent.