Spearpoint legacy pot wipes Brooks Macdonald profits

Brooks Macdonald saw its profits all but wiped out after setting aside more cash to cover legacy issues related to its acquisition of Spearpoint Capital.

Caroline Connellan, CEO, Brooks Macdonald

The AIM-listed investment group said it had set aside an additional £5.5m in goodwill offers to compensate clients of certain discretionary portfolios run by the Jersey and Guernsey manager, which it acquired back in 2012. The unexpected boost took the total legacy pot to £12m.

This ate into its statutory profits over the first half of the financial year, which fell 92% year-on-year from £8.1m to £600,000.

The firm previously announced last July that it had made a £6.5m provision to “deal proactively” with legacy issues stemming from the Spearpoint acquisition.

“These matters relate both to a number of discretionary portfolios formerly managed by Spearpoint, now managed by our Jersey office, and a Dublin-based fund, for which Spearpoint acted as investment manager,” the firm said. “While we accept no legal liability in these matters, we have a deep commitment to treating customers fairly and seeking to protect our clients’ best interests.”

However, the group said “it became apparent that the calculation of the goodwill offers for the discretionary portfolio clients was affected by quality issues with data derived from legacy systems,” prompting a “comprehensive review” that required “extensive use of third-party expertise”.

The firm confirmed in its latest update that the review has been concluded and final goodwill offer letters will be issued by 31 March 2018.

Excluding one-off items, underlying profit rose 3.2% from £8.24m to £8.50m, as funds under management (FUM) grew 12.3% to £11.7bn over the six months to December 2017.

Within the first half of the year, FUM grew by £1.3bn thanks to £808m of net organic inflows and an additional £474m from market movements and above benchmark performance.

The group is in the process of integrating its investment management and funds businesses as part of its organic growth strategy.

Over the period, Brooks Macdonald said it saw further “pressure on revenue yields” from reduced transactional income against a backdrop of lower market volatility and increased competition from other players offering all-in fees.

But it said its fee income from its UK investment management arm of 24.4% over the six months to 31 December 2017 was in line with the 25.0% increase in FUM for the annual period ended June 2017.

Management shake-up

The investment manager also announced a number of changes to its top brass in its half-year figures.

Former chief executive Chris Macdonald will be stepping down from the board after over 26 years at the end of the month. Caroline Connellan (pictured) replaced him as CEO last April, as the firm’s co-founder stepped into the role of deputy chairman.

The group has made a number of changes to its senior leadership over the past few months, hiring Brewin Dolphin’s head of finance Ben Thorpe to take over for Simon Jackson as group finance director.

On Tuesday, Brooks Macdonald announced that it had hired Priti Verma from Smith & Williamson as group chief risk officer and Adrian Keane-Munday from HSBC as managing director of its financial planning unit.

The appointments of Thorpe, Verma and Keane-Munday are still subject to regulatory approval.

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