The acquisition of teams will no longer be part of Brewin Dolphin’s growth strategy, says head of investment management Stephen Ford, who questions the industry’s preoccupation with ‘buying assets off each other’.
It marks a change for the national wealth manager, which has traditionally proved opportunistic by hiring teams in new areas.
Ford says organic growth as a result of investing heavily in technology to drive efficiencies now takes precedence, alongside adapting the firm’s proposition to the needs of modern consumers.
His comments follow Brewin’s preliminary annual results, in which it revealed the costs associated with its strategy to improve profitability and efficiencies had weighed on earnings. Redundancy costs amounting to £4.8 million, a £1.1 million additional Financial Services Compensation Scheme levy, and £6.2 million paid out largely as a result of onerous contracts relating to property caused pre-tax profits to fall 4% to £28.6 million on the year.
More positively, Brewin has reaped the benefits of moving to a unified pricing structure with a 25% rise in fees to £152 million over the year, and its discretionary assets rose by 17% to £21.3 billion.
Ford said he was proud of what the business had achieved after a tough year. ‘We are pleased. Candidly, this business has been through a hell of a lot of change this year. We had a board reshuffle, we closed branches and we let 125 staff go, but we carried on repricing and delivered good results.’
While in March executive chairman Jamie Matheson stepped down to be replaced by David Nicol, accompanied by a number of departures from the board, Ford said the new management team had naturally reviewed the company’s strategy.
This was down to the significant changes in the market over the past 18 months. ‘All we have been doing is building on the foundations built by Jamie Matheson,’ he added.
As the company targets an operating margin of 25% by the end of the financial year in 2016, Ford said organic growth was top of the agenda. He noted new Financial Conduct Authority rules on incentives and conflicts of interest could represent a shot across the bows when it comes to team acquisitions.
‘I feel uncomfortable with some of the issues that team acquisitions can cause. We have got a great set of people and are always interested in talented people joining us,’ he said.
‘The challenge I would put out to the rest of the industry is why are we buying assets off each other? We have had to look hard at our proposition and ask ourselves, “how relevant is stockbroking to the needs of the modern financial consumer?”’
He said the team will aim to build a compelling proposition for new clients, simplifying its existing offering and investing in technology to deliver operational efficiencies to lower the cost of distribution.
This has meant reviewing the way Brewin engages with its clients, with plans to roll out a customer relationship management system to build efficiencies, for example, sending out a risk questionnaire and conducting money laundering checks before a meeting. ‘We all face the same challenges but what will separate the winners and losers is the whole changing world around them. As a sector we have been traditional, but we think we have got a strategy that addresses the needs of today’s consumers,’ Ford said.
The company has invested substantially in new software system Figaro, so far rolled out across its execution-only business Stock Trade, but not yet in the core investment management business.
While Ford was unable to disclose the total costs associated with rolling out the new system, he said that despite it being behind schedule, it remains on budget. The firm aims to roll out Figaro to the group by the second quarter, with two investment managers currently being used as ‘pathfinders’.
During the second half of the year, Brewin’s branch network rationalisation gathered pace and office closures in Inverness, Teesside, Hereford and Swansea followed those in Bradford and Dumfries last year.
Ford said the ‘days of five branches being shut in five days are behind us’, although further office moves could not be ruled out.
The business has also opted to withdraw investment management for clients with less than £50,000, arguing the costs of servicing these clients has become too high. They are being offered a move to execution-only as an alternative, although Ford said the firm is looking to develop a direct-to-consumer proposition that is lower cost, simplified and likely to have Brewin's Managed Funds Service at its core.