September 11, 2013 6:50 pm

Brooks Macdonald predicts wealth management consolidation

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Brooks Macdonald has said regulatory costs in the wealth management sector have peaked, but that further consolidation will probably occur in the industry.

The discretionary wealth manager, which on Wednesday said its funds under management had reached £5.1bn, predicted that costs linked to complying with the Retail Distribution Review and other regulation would begin to tail off.

“I think we’re in this period of [regulatory costs] levelling out,” said Chris Macdonald, chief executive. He said regulatory costs as a percentage of the company’s turnover had doubled to 8 per cent in the past four years, but would likely drop to 6-7 per cent in the next two years.

The AIM-traded wealth manager said its revenue increased 19 per cent year-on-year to £63.2m, in the year ending June 30.

Its pre-tax profit jumped 22 per cent year on year to £10.4m in the period. When amortisation and costs of its acquisition of Channel Islands-based fund manager Spearpoint were excluded, its adjusted pre-tax profit increased by 47 per cent year-on-year.

Mr Macdonald said the company would seek to grow organically, but did not rule out making further acquisitions.

“At the moment there is no shortage of opportunities [for acquisitions], partly because smaller firms are facing very steep regulatory costs ... will we take them? It completely depends on the opportunity, the business and the price,” he said.

Mr Macdonald added: “You have to have a large back office and compliance function and capability. A lot of those are fixed costs. It’s bound to lead to further consolidation in the wealth management space.”

Brooks Macdonald’s funds under management grew 45 per cent year-on-year, or 15 per cent when funds gained through its acquisitions and market growth were stripped out.

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