Newcastle United may be scrapping for survival in the top flight, but the Brooks Macdonald Group’s place in the premier league is not under question.
Chris Macdonald, the firm’s Newcastle-supporting chief executive, has watched his football team and business move in opposite directions since the summer, with the firm going from strength to strength while the Toon battle against the drop.
Newcastle could certainly learn something about the importance of having stable, long-term management from Macdonald, who has headed the business since
he co-founded it in 1991.
The proof of the pudding is certainly in the eating, particularly against such a difficult economic backdrop. Brooks Macdonald grew its assets under management from £1.18 billion to £1.21 billion in the second half of last year, while pre-tax profits soared by 46% to £1.26 million, which is a great result in the current climate. It also opened its fourth office, in Tunbridge Wells, and has upped its headcount, taking on five new trainee fund managers in January.
Clearly proud of his firm’s performance he sums it up by saying, ‘The market has changed but we haven’t.’
The company is now in its 18th year, having been founded in 1991 with two divisions, asset management and financial consulting, its advisory arm.
After a decade spent in the City, Macdonald believed there was a gap in the marketplace for a fee-based private client business that put as much emphasis on client service as it did on performance.
‘We felt that the opportunity was twofold: to launch an investment management business that was completely transparent and that charged fees for everything we did,’ he says.
‘At the time some people said fees wouldn’t work but for us it was one of the key drivers of the business and essential to offering a high quality service-led investment management company. Those beliefs are still firmly held by us and if anything have hardened over the years.
‘Secondly, we wanted to be a pure private client manager. We felt a lot of institutions flitted between being an institutional asset management firm and a private client manager, but we believe they are like oil and vinegar, to the extent that we have turned down any institutional mandates.’
Brooks Macdonald has not been short of offers on that front, he says, but the business did not want to give in to any asset-gathering temptations, which could cause it to lose focus and even undermine its very ethos.
‘The service levels are very different because institutional mandates are not relationship-driven like in the private client world,’ he says. ‘A lot of institutions tend to want quasi-trackers and minimal contact, but we manage every portfolio on a bespoke basis based on long-term relationships and surprise, surprise it gets much better results.’
In the early days, the firm’s client base was predominantly inherited wealth and the landed gentry,
but it has widened in recent years to include a large percentage of young professionals.
For a private client manager offering a bespoke portfolio management service, its minimum requirement of £150,000 of investable assets may seem low, but Macdonald says the average has around £700,000 and those at the bottom of the range tend to be younger professionals who are likely to be very affluent in the future.
Much of this new business has come through the firm’s growing network of professional connections. It has agreed 15 more arrangements this year alone, taking its total number of tie-ups with accountants, solicitors and IFAs to almost 100, and these now account for around 75% of new clients coming through its doors.
A lot are attracted to its Sipp offering, which has been up and running since 1995 but really started to take off after A-Day three years ago.
‘Sipps have been a major growth area for us and will continue to be as there is still so much pensions money washing around in poor-performing insurance funds or, worse still, closed funds,’ Macdonald says. ‘I actually think our average client size will come down because of this as a lot of the Sipps we are taking on are in the £150,000 to £200,000 range.’
He is not too perturbed by the Budget proposals to restrict the tax relief paid on high earners’ pensions contributions as the benefits of consolidation, the ability to access a wider choice of investments and the rise in popularity of income drawdown will continue to underpin demand.
Macdonald adds that the Sipp market is still relatively untapped by private client wealth managers and his firm generally only finds itself pitted against the insurance companies or smaller niche pension providers when competing for this money.
The wider private client market remains as competitive as ever, however, but he says the fallout from the credit crunch has had a significant impact.
‘The dynamics have changed somewhat – before you would be up against the big investment banks but since last summer there has been a lot of unease around the banking sector and a lot of them have all but disappeared from the pitching process,’ he says.
‘A couple of years ago we were tagged with being a boutique private client fee-based investment manager. Some people liked it but others didn’t because they wanted a big institution behind them.
‘We have found it hugely beneficial though. There is no question that the market has helped us in that sense. Clients’ perceptions of the big banks have changed, but we haven’t.’
Brooks Macdonald has taken on a number of new clients who were previously with the traditional houses and he puts this down to the firm’s dual focus on service and performance.
‘You have got to deliver service and performance in equal measure and if you deliver just one but not the other, then the client will leave,’ he says. ‘Our referral rate from existing clients is 7-8%, which is a great endorsement of our offering.’