The six employees quit Brewin’s Leicester office to join Charles Stanley last year, prompting Brewin to issue a writ claiming breach of contract and compensation for damages.
In the 41-page defence document, the Leicester six pull no punches in describing why they became ‘seriously disillusioned’ with their former employer.
The document reads like a template for the tensions that can exist between the HQs of national wealth management companies and their regional offices.
The six had all worked at Brewin for between eight and 13 years, but the defence claims a number of long-held grievances finally came to a head leading them to walk out of the office, which managed around £800 million, last March.
Divisional directors Christopher Hailes and David Coulson were the longest-serving, having moved across when Brewin acquired Hill Osborne in 2000.
Office head Ed Cufflin and divisional directors Simon Hopewell and Stephen Baker were hired as a team from Quilter in July 2005 and business development manager Adrian Sawyer joined the following month.
Of course this is just one side of the story and our report of Brewin’s High Court writ shows how Brewin views the dispute as multiple breaches of contract. However, the nature of the allegations may well resonate with many regional wealth managers across the industry.
‘Having to give up contacts to a new nearby regional branch’
Apparently all went well in the early years, but the team’s first major gripe arose in 2008 when ‘without any adequate warning or consultation’ Brewin opened a nearby Nottingham branch.
Sawyer claims he ‘was asked to relinquish his contacts with around 100 intermediary firms across the East Midlands and pass these to the new Nottingham office’. The six claim this not only caused ‘material harm’ to these existing relationships, but also resulted in ‘material damage’ to the Leicester office’s business.
They complained to the then finance director Robin Bayford and Brewin ‘provided a share package as compensation’ for the impact of the Nottingham branch, albeit the defence deemed this ‘inadequate’.
‘The exhausting internal suitability review’
The team’s discontent seemed to really ratchet up in 2010.
In or around the first quarter, the six claim Brewin instigated a ‘substantial ‘suitability review’…in the light of concerns expressed by the FSA’. The employees found the demands ‘exhausting’ as they ‘worked into the night over weekends’, which Hailes said he had to do despite being on paternity leave.
They said following the suitability review, Brewin mandated what they considered a ‘disorganised roll-out of further large-scale projects’, in particular around ‘Know Your Customer’.
They deemed the timescale ‘unrealistic’, backed by ‘inadequate guidance’ and with projects often being ‘revised/and or altered at a late stage’. The six believed it was the result of ‘confused (and disappointing) leadership from the then board of directors.’
‘Admin glitch costs Baker his CISI fellowship status’
Baker said that in the same year, Brewin cancelled his membership of the Chartered Institute of Securities and Investments (CISI) after an ‘administrative error’, causing him to lose his fellowship status. He said it took him almost four years to be fully reinstated, which caused him ‘considerable personal and professional embarrassment’.
‘Terminate your wife’s investment account’
The grievances continued to rack up in 2011 with Cufflin claiming Brewin decided to ‘terminate his wife’s investment account on account of her American citizenship’.
Around the same time, the team also began to be ‘increasingly concerned’ about the loss of local autonomy and branded the company’s IT services, ‘in particular its portfolio management tool, not fit for purpose’.
‘The external review and ‘Project Amethyst’’
The relationship worsened in late 2011 when following a review by external consultants, Brewin instigated a series of strategic changes dubbed ‘Project Amethyst’.
Each of the defendants considered the changes ‘shortsighted and damaging, both to clients and to their own individual businesses’ and a ‘regrettable and risky change in business strategy’.
The six said Brewin introduced a minimum fee for clients of £1,000 a year plus VAT, and instructed that ‘clients who were considered insufficiently profitable should be terminated.’
They said this made many younger clients ‘unviable’, despite their longer-term earning or inheritance prospects, and damaged existing relationships.
They bemoaned the lack of flexibility around the charges and said as a result ‘fee increases were on average in the region of 50%’ for its clients.
Furthermore the fee hike was communicated to clients through a centralised mailing, which the six considered ‘badly written and heavy-handed’.
Added to this, a change to the group’s branch cost and funding structure hit the Leicester office hard, they claim, due its substantial IFA and dealing business. The defence said Brewin did make ‘transitional payments’ to the Leicester office in 2011/2012, but claimed that the changes were still to its ‘long-term detriment’.
‘Footing the bill for the FSCS levy’
Around the same time, the defence said Brewin implemented new changes to the office’s bonus pool, which was shared between all of the six barring Sawyer.
The six believed that most wealth management companies paid the Financial Services Compensation Scheme levy centrally and were aggrieved to be charged 10% of its bonus pool to cover the costs.
Their perception was that Brewin ‘expected its more profitable offices –including the Leicester office- thereby unfairly to subsidise less successful and profitable offices.’ The result being it hit all of the defendants' remuneration.
‘The IFA conflict of interest’
The six said the fallout from Project Amethyst, particularly the fee hike, undermined their IFA intermediary relationships and their concerns mounted through 2012 into the first quarter of 2013.
Furthermore the company’s decision to increase their presence in the financial planning market with a view to offering an integrated proposition, risked causing ‘irremediable damage to and/or an immediate conflict of interest with the employee defendants’ valuable long-standing IFA and intermediary relationships’.
‘The loss of clients in the move away from advisory dealing’
At the same time, Brewin’s move away from advisory dealing meant the team had to convert long-standing and significant clients over to ‘higher valorem annual management fees and subject to wider commission bands’.
Brewin’s Leicester office had around £200 million of money from execution-only clients. The defendants felt ceasing to offer this service was not in its clients best interests and by also increasing the ad valorem fee from 0.5% to 0.75% Brewin made their offering ‘less competitive…and impacted their ability to write new business.’
‘Baker takes a 13% income hit following change to office charges’
Again around the same period, the six claim ‘fundamental changes’ to the way individual offices are charged for centralised functions from a ‘per contract’ to ‘per account’ charge hit their bonus pool.
‘Baker projected that these changes would cause a reduction in his personal income in the region of 13% at least in the short- to medium-term,’ the defence said.
This further contributed to their growing belief that the company was ‘indifferent to the views of its investment managers and was prepared to sacrifice customers in order to charge higher fees and maximise shareholder returns’.
‘Failure to engage with Citywire’
Citywire got a name-check in the defence when Sawyer said Brewin was ‘reluctant adequately to engage or fund projects with third party organisations which could have helped penetration with intermediaries, such as Asset Risk Consultants or the 2011 or 2012 Citywire Best Large DFM Awards.’
They also claimed there was a failure to ‘ensure co-ordinated dialogue with national IFAs and networks’ to get on their panels and branded its managed funds service ‘poorly targeted’ and said it ‘generated negligible new business’.
All of this Sawyer found ‘demoralising’. Sawyer also claimed he was offered a new regional business development manager role, but this never materialised.
‘Dissatisfaction after frequently raising issues with board members’
The six claim that they had several meetings with board members throughout 2011 and 2012 to express their concerns about the fee hike and general dissatisfaction.
They said that at one meeting with head of investment management Stephen Ford and regional director Robin Beer at their Leicester office, it was ‘indicated that ‘they felt the pain’ of the Leicester divisional directors.
However, Sawyer, Cufflin and Hopewell all had subsequent meetings with different board members, but said none of their grievances were addressed.
‘The hunt for a new home’
Cufflin admits he was in on/off talks with Charles Stanley from 2010 which became more serious in 2012/2013. In early 2012 Cufflin also had ‘advanced discussions’ with both Smith & Williamson and Barclays Wealth.
Coulson and Hailes were approached by headhunters for Quilters in late 2011 with Coulson actually meeting the company’s head office.
Meanwhile Sawyer said he turned down an ‘alternative role’ around October 2012 because he ‘wrongly believed’ he was to be promoted.
By March 2013 all six were in advanced discussions with Charles Stanley and in the end were placed on gardening leave on 26th of the month after accepting new roles. They said only Sawyer received a counter-offer from Brewin, which he rejected.
Ford said: ‘We will always act to protect our business where our clients’ interests have been threatened and where we have been advised that contractual obligations have been broken. We are not able to make any further comment while the matter is subject to court proceedings.’
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