Brewin Dolphin said it had offered its help to the Financial Services Authority and the Treasury to improve standards as its share of the industry-wide £236m levy on the failure of Keydata specialist investment group put a £6.1m hole in interim pre-tax profits.
The independent wealth manager said that the one-off payment resulted in a pre-tax profit of £12m for the six months to March 27, down 21 per cent from the same period last year. Adjusted profit before tax rose 10 per cent.
Jamie Matheson, Brewin Dolphin’s chief executive, also said regulation “remains an issue of significant concern” for the industry. The need to hire new personnel in compliance, risk management and quality assurance had added extra costs.
It emphasised the need for “proper mechanisms to avoid in the future such substantial levies on the company and our peers” and said it was taking an active role in discussions with the authorities.
The Financial Services Compensation Scheme made fund management groups pay £236m ($378m) towards the cost of compensating investors who lost money in the collapse of Keydata which the FSA shut down in 2009 amid concerns it was selling savings products that were not in compliance with tax laws.
Mr Matheson, who has criticised increased regulatory costs again said that the charges had a “material bearing on the fortunes of the company”. However, he remained confident in the company’s growth prospects.
The company reported total revenues of £136m in the period up from £120.9m last year, in line with expectations.
The company announced a complete review of its operations, including client services, administration and support functions.
Stuart Duncan at Peel Hunt said: “While Brewin achieved superior revenue margins relative to Rathbones and Smith & Williamson, its operating margin significantly lagged the around 30 per cent achieved by these peers, at around 17 per cent.
“Their cost base is too high, due to factors such as inefficiencies in their IT system and the size of their office network all contributes to some extent,”.
It is expected that it will take up to three years for the full benefits of the review to flow through to shareholder value.
Brewin Dolphin announced the appointment of Henry Algeo as chief operating officer who will have responsibility for business support, ICT and facilities management.
Total funds under management increased 8 per cent to £25bn year-on-year alongside a 11 per cent rise in discretionary funds managed.
The company, which announced the sale of its corporate advisory and broking business in February, said that division would cease to be part of the group by the end of the year.
Brewin Dolphin will retain a 14 per cent stake in the business after a £5m deal with N+1, a Spanish financial advisory and asset management group.
Brewin Dolphin said it had been little affected by the pressure on corporate advisory businesses in the City, as most earnings from came from its wealth management business.
Brewin Dolphin said diluted earnings per share stood at 3.6p down from 4.6p last year. The company’s balance sheet remained strong with a cash position of £46.5m, although down from £51.5m in 2010.
The shares rose 1½p, or 0.9 per cent, to 167½p on Wednesday.