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Wealth Manager: Brooks Macdonald's joint MDs explain how to shine post-RDR

Wealth Manager: Brooks Macdonald's joint MDs explain how to shine post-RDR

The retail distribution review (RDR) and the potential for even more advisers to outsource investment is likely to further power growth at Brooks Macdonald, a firm known for its strong links with the adviser community.

But joint managing directors Andrew Shepherd and Nick Holmes – while aware of the opportunities the RDR will bring – view the self-invested pension plan (Sipp) market as having the greatest growth potential for the company.

‘The amount of money in poorly performing with-profits and managed funds is absolutely staggeringly enormous,’ Shepherd explains.

‘All of that business has to go through financial advisers because they need to give advice on pensions. For a proportion, Sipps will be the right route and we strongly believe we are in a great position to manage those assets,’ he adds, highlighting Brooks’ experience in the area, which amounts to over 15 years.

The chance to win more investment business from advisers should not be underestimated though, Shepherd says, given there are still ‘tens of thousands of advisers’ the firm does not yet know, alongside the potential for more referrals from existing adviser clients. But he is realistic about an increasingly competitive market.

‘We work very hard to ensure our proposition works within that [IFA] community, which is going through a huge amount of change at the moment, and therefore there are huge opportunities right now to talk to IFAs as they make decisions,’ he says.

‘The other side of that particular coin is that many will have made decisions by the middle of next year. We are finding a lot of IFAs are starting that decision-making process rather than finishing it, at this point in time.

‘The question is, once they have made decisions, does that means the potential for growth is limited for Brooks Macdonald? I don’t think so. I think service becomes more important.

‘The fact that we are on the ground throughout the UK hand-holding and talking to IFAs on a daily basis, I think they will get to understand the service levels available in the market. As I believe ours are as good as we can see out there, there will be more opportunities from that perspective.’

He describes the RDR as a ‘continued’ but not necessarily a ‘big bulk’ opportunity. This is shown by the trend towards panels within adviser firms when previously one discretionary manager may have been favoured.


Brooks’ dedicated new business team took on assets from 179 new introducing firms over the 12 months to June alone, bringing its total to 420. Eleven strategic partnerships with intermediaries were also signed, bringing in around £1 billion in assets over the period.

This contributed to a 19% rise in assets to £3.52 billion over the period, while pre-tax profits rose 17% to £8.5 million. In the third quarter the firm posted a 6.5% rise in assets to £3.75 billion.

While Shepherd and Holmes are aware of the benefits of having a fully centralised investment process, not least the efficiencies, they are unwilling to adopt it for many of their clients. Except for smaller clients who opt for their unitised offering or model portfolio service, they say a degree of tailoring and autonomy at the individual investment manager level is optimal, albeit within specific parameters.

‘We could move everything to a centralised investment process and we would probably be the FSA’s best friend, but at the same time we would not be offering an investment process that we feel in our hearts is best for the end-client,’ Shepherd says.

‘You need to have a centralised process, but you have got to have parameters within that that allow the investment managers to actually look after the clients.’

The management team is aware of the suitability issue, particularly in the wake of the FSA’s second Dear CEO letter, and is reviewing all client and introducer files.

This year, Brooks also invested £600,000 in the BITA Monitor system, which helps to manage volatility and risk in portfolios. It also launched a support unit, which acts as a conduit between its compliance and asset management divisions.

Including management time and other indirect costs associated with these activities, Holmes estimates the firm may spend over 10% of its income on regulatory costs this year.

He is keen to espouse the quality of the firm’s compliance department and believes having robust processes can support future growth. He also expects the sector to come under the regulator’s spotlight even more under the incoming regime.

‘The new regulator is certainly talking a tough game early on and there is no doubt that one of its primary focuses will be the wealth management industry. I think all businesses will need to get their house in order to prepare for that,’ he says.


Shepherd adds: ‘In a changing environment, we need to make sure we have a good relationship with the regulator and we are in constant communication, otherwise you can and will fall foul. If you have got a good relationship, you can keep working with them so we understand what it is they are looking for.’

Giving each manager input into the investment process through research contribution fits with Brooks’ historic focus of giving the team multi-faceted responsibilities, which helps to keep them motivated, the duo say. This perhaps goes some way to explaining why Brooks Macdonald has typically had low staff turnover.

Nonetheless, Holmes is aware that for all its benefits, low turnover can breed complacency.

‘Because we don’t lose people, it means a lot have been here for a long time, so one of the key dynamics for us running the business is to make sure those that do come in and bring new skills and experience are given a good voice,’ Holmes says.

‘You can say “we have been successful and this is the only way to do it” and that simply isn’t true. You fight all the time against complacency. There are a lot of firms that are doing things well and we should embrace any ideas we can generate from people.’

Shepherd adds: ‘It is a balance between the two. When you are bringing people from outside, you are bringing in new ideas and that is fantastic, but then getting them to buy into our ethos is more difficult than someone you brought in from university and taught in the ways of Brooks Macdonald. But you have got to have that balance, otherwise you become introspective.’

In fact, Holmes is perhaps better placed than anyone else at the company to comment on this subject, having started out as the first trainee at Brooks Macdonald in 1996, five years after it launched. Joining fresh from university with a degree in Greek politics and African studies, he gained back office experience as a trainee and went on to run one of the largest teams in London.

There are now 17 on Brooks’ trainee programme, in which the firm has invested a lot of time and money and which has proved a springboard for a number of individuals within the business.

‘The one thing we are very proud of is that we have only lost two trainees,’ Holmes says.


In 2010 he took on the role of joint managing director, alongside Shepherd, who arrived at Brooks Macdonald through a different route and acknowledges his skill set is quite different to Holmes’s.

‘It would be fair to say Nick is slightly stronger on micro and I am slightly stronger on macro,’ agrees Holmes.

The managing directors split the regional offices between them, with Shepherd overseeing new business development, strategic alliances and platforms, while Holmes focuses on investment proposition, compliance, investment services and chairs the asset management board.

Shepherd first got a taste for the industry after working for his father’s financial advisory business as an administrator, which led him to sit his exams to qualify as an investment director three years later.

This fitted the business’s broader shift from general practice to specialising in investment and by the time it was sold in 2000, it was fee-based.

Shepherd joined Brooks Macdonald in 2002, initially working alongside founder director Jonathan Gumpel. ‘The interesting thing here is because the ethos and culture has been the same for 21 years, things have not changed as much as you would think over time. Our fee structure is the same as when we started,’ he says.

‘The idea that all investment managers do four roles – as they are responsible for research, looking after client portfolios, the client relationship and new business – is the same as it was in 1995-96 when Nick joined.

‘The investment process is the same as it was 10 years ago. The difference is that it has become more sophisticated as the number of products in the market to select from has expanded exponentially.’

As the business invests for its next stage of growth, Holmes says a key focus is to ensure the firm’s investment proposition is robust for potentially volatile markets ahead.

Shifting some equity exposure from the US to Europe after identifying attractive entry points has helped drive performance, they say, alongside a focus on strong balance sheets and diversified revenue streams.

They also consider it prudent to have negligible exposure to gilts in a low rate environment with growing downside risk from repeated bouts of quantitative easing.

Over the three years to the end of September, Brooks’ medium risk model is up 18.7% compared to a 17.8% rise by the Arc Steady Growth index.

With the acquisition of Channel Islands-based Spearpoint under the firm’s belt and the management team eyeing a presence in the Midlands, Holmes says more of the same can be expected looking ahead.

‘Our strategy continues to be aggressive growth in a conservative manner.’ 


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