Brewin Dolphin’s decision to take a £32 million hit after ditching a project to implement Figaro software across the business leaves a number of important questions unanswered.
The company shocked the industry when it recently told the stock market it had decided Figaro was no longer ‘an appropriate operating system for the group’s discretionary wealth management business’. The move is significant after what is understood to be a 17-month delay in its full implementation.
Brewin said instead it will look to upgrade its existing internal systems, and stressed that improving its IT strategy remains important.
It is understood this is not the first time the wealth management business has decided not to proceed with a significant IT project. Three years ago it axed a system upgrade by Eximius, which was likely to have had a cost associated.
Brewin declined to comment on the decision or its transition plans, but a source close to the situation said the likely solution would be for it to stick with its core system, Fiscal.
This should not prove too much of a challenge, as Brewin did not completely move off the system and says it still runs well without issue.
However, Brewin might also need to grapple with the costs associated with locking back into a longer term or more meaningful contract with Fiscal, on top of charges it may have paid to the company as part of its planned move to Figaro.
The group said it will pay an exceptional pre-tax impairment charge to Figaro of £32 million in the second half of this year, and a further £15 million over the next 10 years under the original contract.
While Brewin said it is ‘engaged in negotiations to vary and settle these arrangements’, it has certainly proved an expensive decision and one that would not have been taken lightly.
So what went wrong? The source believes it was down to the range of services, flexibility and functionality that Brewin sought to roll out across the business, underpinned by Figaro.
It should also be noted that Brewin’s IT transition project is one of the biggest of its kind in the UK’s wealth management sector to date.
The source also highlights the use of external consultants. This meant key roles were filled by non-Brewin Dolphin staff, making accountability more complicated.
‘Their approach was naïve, to unpick 40 years of a stockbroking evolution in terms of the deployment of it by giving it to consultants,’ the source said.
So what will lie at the core of Brewin’s system? Fiscal was traditionally a disk operating system (Dos) that has been around since the 1960s. While it is understood that enhancements have been made to it in recent years, the source said the system has historically struggled with aggregating different accounts belonging to the same client or family, for example their Sipp, Isa or investment accounts.
Nonetheless, he noted the system can cope with bulk transactions and is effective at providing quality data.
Operating margin boost
Brewin’s plan to boost operating margins remains on course, the group noted.
The decision to implement Figaro in 2011 under the leadership of Jamie Matheson (pictured) formed part of the company’s drive to improve its operating margins from 15% to 20% and Brewin said its goal remains to raise this to 25% by 2016.
At the time of the announcement that Brewin would not go ahead with Figaro, the board said the business is on track to move above 20% in the first half of the year, up from 18.5% in the first half of 2013.