Following the implementation of the first stage of JHC Figaro, the system it was applying to its execution-only service Stocktrade, Brewins uncovered a number of issues regarding "functionality and robustness".
The board has undertaken a full review of plans to roll out Figaro more broadly across the group and while it was considered suitable for Stocktrade, the board deemed the operating system unsuitable for rollout across the firm’s discretionary wealth business, claiming it would not be in client or shareholders’ best interests and would "not help drive future efficiency gains".
A statement to the stock exchange this morning (13 May) said: "The board believes that existing software deployed in the wealth management business can be upgraded to current versions commercially available, and that with appropriate enhancements will better support the strategy of seeking further efficiencies.
"Further, the board believes this can be achieved without additional capital expenditure beyond that already budgeted and with lower risk to the group."
No impact on dividend or margin targets
Figaro’s implementation started in 2011 under the previous executive team in a bid to improve operational efficiency by streamlining business processes, thereby helping improve the group's operating margin from 15% to 20%.
The board took the decision today to cease development of the project and its rollout across the business. Other client system developments are currently underway and remain unaffected by this decision.
The £32m exceptional pre-tax charge will be taken in the first half of this year and, as a non-cash item, will have no impact on the group’s regulatory capital position adjusted profits before tax.
Brewin Dolphin will need to address payments of approximately £15m before tax over the next 10 years which, under the original contracts, may be payable following implementation into the discretionary business although negotiations are currently taking place to "vary and settle" these arrangements.
There is no change to the group’s target to achieve a 25% operating margin run rate by the end of 2016 and no change to its stated dividend policy.
"The board believes the decision to cease the roll out of Figaro is in the best commercial interests of the group. Moreover, it remains confident that the 2016 operating margin target will be achieved through ongoing business improvements.
"A further update will be provided in conjunction with the interim results on 28 May," the statement said.
