‘I imagine it won’t be too long before someone makes us an offer we can’t refuse,’ says Brewin Dolphin’s divisional director Rob Burgeman contemplatively, as he gazes out from the rooftop atrium of the company’s Smithfield HQ at the gentrification-in-waiting of the old vacant market buildings below.
In the interest of full disclosure, it is only fair to point out that Burgeman is referring to the redevelopment potential of the real estate beneath him, once CrossRail opens just a few hundred meters away in Farringdon at the end of 2018, and the Museum of London moves into the Victorian gothic hulk of the market, three years later.
Wags may be quick to draw a subliminal link to the mooted saleability of Brewin Dolphin, however. Speculation about its potential attractions as a bid target has been a regular source of City gossip almost from the moment it emerged from a multi-year restructure in 2015, not least in these pages.
‘Brewin would be attractive because it is changing from a story of margin enhancement to top-line revenue growth,’ Panmure Gordon analyst Jeremy Grime suggested to Wealth Manager a year ago.
While its prior year price-to-earning multiple of 15.6x is much improved from a low below 12x, it still sits well below the peer average of 17.8x. On a forward basis, the discount is even steeper, at 21x versus 27x, according to Reuters data.
While the company may have little immediate control over how the market values it, the restructure has solidly paid off in terms of balance sheet self-help. Having dropped into single digits at a low in 2013, the company’s net margin has steadily been rebuilt to 19.6%, a figure the company has not reported since 2008 and putting it squarely alongside or ahead of its competitors.
The company took in £500 million in net new client commitments over the final three months of 2016, taking its total assets under management to £36.4 billion. The company’s managed portfolio service doubled over the full year to reach £1.6 billion.
Worrying about such issues is somewhat in the rear view mirror for Burgeman, however. Following just over two years as co-head of the company’s London office alongside veteran Peter Long, the duo handed over operational responsibilities in mid-2015.
That has enabled him to return to the coal face of client management, which he says has always been what motivates him to get out of bed before six every morning, to catch the early service into London from his home in the pretty coastal town of Leigh-on-Sea in Essex.
‘With the greatest possible respect for those [at an executive level], this is the bit of the job that I enjoy,’ he says. While he continues to serve on a number of investment and risk-related committees, he estimates that approximately four out of every five days of his week are now client business. ‘It’s a people business. I prefer to emphasise the service part of the term financial services.’
Across the London office which shares a geographical location with the company HQ, Burgeman and his team run approximately £1.2 billion for a client base split roughly 75% between direct clients and institutional accounts and 25% adviser mandates.
While his interest in client outcomes is obvious, he is clearly no less interested in the changing landscape of wealth management as technology has broadened the scope – and the due diligence responsibilities – of its practitioners in the 30 years of his career.
‘When I started, life was essentially black and white, or monochrome – you invested in stocks and bonds. The granularity of what we do now, and the level we are able to look through to underlying risk, is now more like ultra-high definition,’ he says.
Some traditionalists of his generation bridle at the perceived herding and homogenisation of suitability and the regulator’s insistence on replicable outcomes, and hold onto a romantic nostalgia for the days of heroic individualism. But he chooses to describe it in slightly more diplomatic and pragmatic terms.
‘Suitability provides the palette that we work with. It’s still up to us how we choose to use the range of colours we have. How we get from A to B may be more defined than it previously was, but the outcomes are still generally the same.’
More definitive than regulation, in his view, has been the closer integration of planning and investment management which has followed from it, as the removal of commission has more closely correlated interests, whether this has been through direct vertical integration of services or the more arms-length convention of outsourcing.
‘That has been the big step in lifting what we do from investment management to wealth management. It is always a source of surprise to me that people can go online on Hargreaves or wherever and have a Sipp set up more or less right away.
‘It seems like the kind of thing where you should ask if that is the best use of that money – do you have credit card debts, a mortgage or would you be better off in another wrapper, which is the single biggest factor on post-tax returns?
‘I have to add, I am totally unqualified to answer these questions, but it’s important to ask someone who does.’
Within the areas he is qualified to comment on, house performance has been strong. The company’s balanced mandate returned 18.9% over the three years to the end of 2016, the most recent data audited by performance analyst ARC, versus the ARC GBP Balanced return of 15.7%.
Key calls which have contributed to that outperformance have included a consistent overweight to US equities, although the company has booked some profits over the course of this year. It also entered a BNP Paribas structured product on European equity at the bottom of the market rout in early 2016, which the company has since exited on an appreciation of around 19%, net currency.
Other than holding the UK’s blue chip oil & gas titans, the company steered clear of the jagged, V-shaped move in commodities, however. ‘Something like Glencore may be interesting and may even be quite fun if you get it right, but it’s not really one for granny,’ he notes dryly.
While those were both fairly binary decisions, much more of his time has been spent puzzling over the challenge of generating a consistent, risk-balanced yield.
‘The UK is increasingly a bar-bell,’ he notes. ‘There are still the big mega caps, but a lot of the upper-end of the middle caps have now been revalued upwards, so there is not really the spectrum that you used to get.
‘We have increasingly turned international, and turned to ETFs, to get the range of income that we need. For instance, in oil & gas we would now be weighing on Total or Chevron. Or if you want tech, what is there in the UK apart from Sage?’
He adds that the company’s fund research team, headed by Ben Gutteridge, has been invaluable in a squirrelling out new sources of comparatively secure yield, pointing to sizeable positions in less–heralded mandates, such as healthcare property trust MedicX (currently yielding 6.7%) and Princess Private Equity trust (5.6%). These are in addition to comparatively mainstream funds, such as 3i and HICL.