Brooks Macdonald Group plc Annual Report and Accounts for the year ended 30 June 2024
Reigniting growth
Annual Report and Accounts 2024
Brooks Macdonald Group plc Annual Report and Accounts for the year ended 30 June 2024
Reigniting growth
Contents
Financial statements 110
01 02 04
Highlights of the year Group at a glance
Consolidated statement of comprehensive income
Investment case
111
Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements
Strategic report 08
Chair’s statement
112
10 13 16 18 21 26 28 30 39 43 44 53
CEO’s review
113 114
Market overview Business model
Our services
How we engage with our stakeholders
Company financial statement s 162 Company statement of financial position 163 Company statement of changes in equity 164 Company statement of cash flows 165 Notes to the Company financial statements Other information 172 Non-IFRS financial information 173 Company information 174 Glossary 176 Our offices
Our strategy
Key performance indicators
Financial review Risk management
Viability statement Responsible business
Summary disclosure against TCFD recommendations
Governance report 60
Throughout my tenure as CEO, we have remained focused on our purpose of realising ambitions and securing futures, which means we keep our clients at the forefront of our minds, whilst also providing for all our stakeholders – employees, intermediaries and shareholders.” Andrew Shepherd CEO
Introduction to Corporate governance
62 65 66 67 70 71 75 78 97
Board of Directors
FY24 Company timeline
Board overview
Board and committee structure
Case study
Audit Committee report
Nomination Committee report Remuneration Committee report
Risk and Compliance Committee report
100 102
Report of the Directors
Statement of directors’ responsibilities of the financial statements
103
Independent Auditors’ report
Strategic Report
Governance Report
Financial Statements
Other Information
Highlights of the year
. Financial highlights
Strategic highlights
Funds under management (“FUM”) (£bn) £18.0bn (FY23: £16.8bn) Underlying profit margin before tax (%) 26.6% (FY23: 24.5%) Statutory basic earnings per share (p) 40.1p (FY23: 114.7p)
Revenue (£m)
Underlying profit before tax (£m) £34.1m (FY23: £30.3m)
Redefined our strategy to reignite growth with a renewed focus on excellent client service, broadening
Delivered a strategic review culminating in the proposed sale of our International Business and the Defensive Capital Fund (subject to regulatory approval).
£128.3m (FY23: £123.8m)
and deepening our client reach and exploring all
opportunities to drive scale and efficiencies.
Statutory profit before tax (£m) £11.6m (FY23: £22.2m) Total dividend per share (p) 78.0p (FY23: 75.0p)
Underlying basic earnings per share (p) 163.8p (FY23: 153.8p)
Creating a simplified business focused on multi-asset investment management and financial planning in the UK.
Strengthened the breadth and experience of the
leadership team with appointment of a new Chair, CEO, CFO and Interim COO.
The underlying figures represent the results for the Group’s activities excluding underlying adjustments as listed on page 36. These represent alternative performance measures (“APMs”) for the Group. Refer to the Non- IFRS financial information section on page 172 for a glossary of the Group’s APMs, their definition, and the criteria for how underlying adjustments are considered. A reconciliation between the Group statutory and underlying profit before tax is included on page 36.
Brooks Macdonald Group plc Annual Report and Accounts 2024
01
Group at a glance
What we do
Brooks Macdonald Group plc, through its various subsidiaries, provides leading wealth management services in the UK and internationally. The Group, which was founded in 1991 and began trading on AIM in 2005, had discretionary funds under management of £18.0 billion as at 30 June 2024. Brooks Macdonald offers a range of investment management services to private high-net-worth individuals, pension funds, institutions, charities and trusts. The Group also provides financial planning as well as international investment management, and acts as fund manager to a range of onshore and international funds.
Scotland
Isle of Man
Leeds
14 Locations Where we do it
Manchester
Nuneaton
Birmingham
With a network of 14 offices across the UK and Crown Dependencies, we are able to blend local knowledge with the advantages of national reach and insight.
East Anglia
Wales
London
Tunbridge Wells
Southampton
Exeter
Guernsey
Jersey
02 Brooks Macdonald Group plc Annual Report and Accounts 2024
Strategic Report
Governance Report
Financial Statements
Other Information
Our purpose is realising ambitions and securing futures Brooks Macdonald was founded to give clients wealth management driven by purpose and principles, and that remains as true as ever. We have multiple stakeholders – clients always come first, and if we look after our clients, our employees and our intermediaries, then our shareholders will get the returns they seek. For all of them, the
Read more about: • Our guiding principles • Our purpose, culture and values See pages 44 - 48 • Our strong delivery drivers • Our business model and strategy See pages 08 - 27 • Who we engage with and the value we create for them • Our stakeholders See pages 21 - 25 • Being a responsible business • Our corporate governance See pages 44 - 52
e s
c
Private clients
Trustees
reason Brooks Macdonald is here is to help them realise their ambitions and secure their futures. We work every day to protect and enhance our clients’ wealth through high-quality investment management and financial planning, underpinned by exceptional client service. We are dedicated to the highest professional standards, inspired by our guiding
Intermediaries
Pension funds
Our purpose Realising ambitions and securing futures
Shareholders
Employees
a
principles: we do the right thing, we are connected, we care, and we make a difference. We are proud of the powerful blend of talented people we have in Brooks Macdonald, and together, we are confident and ambitious in what we can achieve and the difference we can make for our clients.
Community and the environment
Regulations
i
n
Brooks Macdonald Group plc Annual Report and Accounts 2024
03
Investment case
Brooks Macdonald is a prominent investment management firm recognised for its wealth management services, particularly through its Managed Portfolio Service (“MPS”) and its Bespoke Portfolio Service (“BPS”). The Group excels in delivering personalised investment strategies and maintaining strong client relationships. With a consistent track record of financial performance, highlighted by 19 consecutive years of dividend increases, the Group continues to deliver value to its shareholders.
Financial performance
Strong distribution
Quality of leadership team
Brooks Macdonald remains a cash-generative business with a strong balance sheet and a long-standing record of increasing dividends, showcasing its financial resilience and commitment to shareholder returns. Market opportunity The Group is strategically positioned to capitalise on the ongoing demographic, regulatory, and technological shifts in the market. Its success in the high-growth Managed Portfolio Service (“MPS”) sector continues to be a significant driver of growth.
The Group maintains strong relationships within the intermediary channel and is well- positioned to benefit from the increasing demand for outsourced investment management. It aims to solidify its position as the leading investment manager for both Adviser Solutions and Direct Wealth. Centralised Investment Process Brooks Macdonald’s Centralised Investment Process continues to deliver robust investment returns, maintaining consistency and reliability for clients. Client-centric approach With a business model centred around both intermediaries and direct clients, Brooks Macdonald is renowned for its high level of service and client satisfaction.
Brooks Macdonald’s leadership team possess significant investment management expertise and strong capabilities in client and adviser engagement. The team’s commitment to innovation and operational excellence consistently drive performance, ensuring that strategic goals are achieved and client needs are prioritised, positioning Brooks Macdonald for continued success in 2024.
Comprehensive investment proposition
Brooks Macdonald offers a compelling and differentiated set of specialised Bespoke Portfolio Services (“BPS”) products, funds, and unitised solutions. These business- to-business investment solutions are tailored to meet the diverse needs of advisers, supporting clients throughout their investment journeys.
04 Brooks Macdonald Group plc Annual Report and Accounts 2024
Strategic Report
Governance Report
Financial Statements
Other Information
Top UK wealth managers by AUM (end 2023)
This bar chart illustrates the growth in dividends for Brooks Macdonald Group from 2005 to 2024. The chart highlights key years that demonstrate the Group’s substantial progress in increasing dividend payouts over time.
Growth of dividends for Brooks Macdonald Group 2005–2024
01 St. James’s Place £163.05bn 02 Rathbones + Investec £94.52bn 03 Schroders £81.4bn 04 Evelyn Partners £59.4bn 05 RBC Brewin Dolphin £55.8bn 06 Quilter £52.47bn 07 Canaccord Genuity £33.7bn 08 LGT WM £28.87bn 09 Charles Stanley £25.9bn 10 Ruffer £23.7bn 11 Sarasin £18.8bn 12 Close Brothers £17.7bn 13 Titan Wealth £16.6bn 14 Raymond James £16.15bn 15 Brooks Macdonald1 £15.36bn 16 Tatton £15.04bn 17 Omnis £11.81bn 18 Waverton £10.9bn 19 JM Finn £10.61bn 20 Premier Miton £10.36bn 21 Progeny £9bn 22 Parmenion £8.72bn 23 Hargreaves Lansdown £8.7bn 24 Killick & Co £8.57bn
78.0p
80
60
53.0p
2005 4.0p – Year of listing on AIM
40
30.5p
2010 12.5p – 5 years post-listing, marking early growth
20
12.5p
4.0p
2015 34.0p – 10 years post-listing, reflecting significant progress
0
2005
2010
2015
2020
2024
2020 51.0p – Continued growth
2024 78.0p – This year’s figure, our highest dividend to date
1 UK FUM only, excludes the Group’s International business.
Brooks Macdonald Group plc Annual Report and Accounts 2024
05
Brooks Macdonald is an excellent business that serves a critical need for individual saving and investment. The structural opportunity for our industry remains strong and we are well positioned to help clients navigate all market conditions. We remain focused on delivering consistently good investment returns for our clients and partners.”
Maarten Slendebroek Chair
06 Brooks Macdonald Group plc Annual Report and Accounts 2024
Strategic Report
Governance Report
Financial Statements
Other Information
Strategic report
A comprehensive review of our business and strategy
08 10 13 16 18 21 26 28 30 39 43 44 53
Chair’s statement
CEO’s review
Market overview Business model
Our services
How we engage with our stakeholders
Our strategy
Key Performance Indicators
Financial review Risk management
Viability statement Responsible business
Summary disclosure against TCFD recommendations
Brooks Macdonald Group plc Annual Report and Accounts 2024
07
Chair’s statement Focus on reigniting growth
Enhancing our strategy
I am delighted to present my first Annual Report as your new chair. I have spent recent months getting to know Brooks Macdonald and I have great first impressions. In particular, our client-centric culture - the service and commitment we provide to clients and advisers is exemplary, together with the strength of our relationships and the calibre of our people. I have also met shareholders, corporate advisers and competitors, and have gained a good understanding of Brooks Macdonald, and it’s position in the UK wealth market. Brooks Macdonald is an excellent business that serves a critical need for individual saving and investment. The structural opportunity for our industry remains strong and we are well positioned to help clients navigate all market conditions. We will continue to focus on delivering consistently good investment returns for our clients and partners. The Group delivered good financial results in the year to 30 June 2024. Underlying PBT increased by 12.5% to £34.1m, with our results reflecting the resilience of our business model and the added value of the services we provide. The financial review in this Annual Report contains detailed information on our performance. Since our financial year end, the Bank of England (“BOE”) has cut the interest base rate for the first time since the aggressive hikes that started late 2021 to stave off soaring inflation. As macroeconomic conditions stabilise, we are confident that our business is well positioned to benefit, with clients being more likely to commit funds for long-term investment. As a Board, we are focused on implementing our strategy and achieving the goals we have set for the Group.
We have set out our strategy to reignite growth with a renewed focus on: • Delivering excellent client service • Broadening and deepening client reach • Driving scale and efficiencies By focusing on these growth levers, which include enhancing our technology, scaling our products and being more data-led, and by carrying out targeted M&A (using strict criteria) we are confident that we will achieve the new medium-term targets that we have set. We recognise that we need to improve our flows, to attract new clients and to retain existing clients, and are committing to a medium-term target of 5% net inflows per annum. However, we also recognise the importance of doing this efficiently and will limit like-for-like cost growth to less than 5% per annum. Our tailored distribution, to advisers and direct to clients, and our broad proposition set that meets clients’ needs throughout their entire investment lifecycle give us an excellent base from which to grow. With an enhanced focus on our refined strategy, I look forward to seeing BM delivering enhanced returns for all our stakeholders. Dividend The Board has recommended a final dividend of 49.0p (FY23: 47.0p), which, subject to approval by shareholders, will result in total dividends for the year of 78.0p (FY23: 75.0p). This represents an increase of 4.0% in the total dividend on the previous year and underlines the Board’s confidence in the prospects for the Group. The final
With a stronger focus on our refined strategy, I look forward to seeing Brooks Macdonald delivering enhanced returns for all our stakeholders.” Maarten Slendebroek Chair
08 Brooks Macdonald Group plc Annual Report and Accounts 2024
Strategic Report
Governance Report
Financial Statements
Other Information
163.8p Underlying basic EPS up 6.5% from the FY23 figure of 153.8p 78.0p Dividend up 3.0p or 4.0% (FY23: 75.0p)
dividend will be paid on 1 November 2024 to shareholders on the register at the close of business on 20 September 2024. We have increased our dividend each year for 19 years, demonstrating the capital strength of our business through the cycle and our commitment to shareholder returns. Governance In March 2024, following a nine-year term on the Board, Richard Price stepped down after various positions including Chair of the Audit Committee, Senior Independent Director and Acting Chair. I would like to thank Richard for the significant contribution he made to Brooks Macdonald and for leaving the Group in a strong position. In June this year, we announced that Chief Executive Officer, Andrew Shepherd will be retiring after 22 years with the Group. From 1 October 2024, our Chief Financial Officer, Andrea Montague, will be appointed as Chief Executive Officer, subject to regulatory approval. Andrea has been working closely with Andrew since this announcement and has been in position as Chief Executive Officer Designate since 1 July 2024. I am confident of a smooth handover and that Andrea’s demonstrated experience, pace and leadership stand her in excellent stead to deliver our ambitious growth plans. I would like to take this opportunity to reiterate the gratitude of the Group to Andrew for the immense contribution he has made to Brooks Macdonald during his tenure as Chief Executive Officer and for the many years before. He has shown extraordinary dedication and commitment to the Group.
We will miss ‘Shep’ and wish him all the best in the future.
inflation stress seems to be behind us and a first BOE base rate reduction bodes well for the clients of wealth managers. The bank of mum and dad alongside the temptation of debt reduction has been and remains tough competition for wealth managers, but with further rate cuts on the horizon, prospects are looking up for long-term investment strategies as offered by Brooks Macdonald. Under Andrea’s leadership our redefined strategy, coupled with a strong balance sheet and robust cash generation will ensure we continue to be well positioned for the future. Finally I would like thank our shareholders for their continued support, our colleagues for their hard work and our clients and partners for their business and trust in our organisation.
Culture and colleagues Our people are our greatest strength and we are focused on developing them to be the best they can be. Throughout the year, we have evolved our People strategy to increase leadership and management capability, to drive high performance and to improve the employee experience. Each of these is underpinned by our ‘Inclusive by Design’ strategy which challenges us to ensure we adopt an inclusive approach to everything that we do, in turn fostering a culture that inspires motivation and engagement from our workforce. In July this year, we conducted a ‘Speak-up’ employee engagement survey and had a participation rate of 79%. We saw improved scores in Performance Management and Fulfilling Careers with employees commenting positively on our culture of continuous improvement. Based on this survey, we provide each business area with a report to enable managers to address specific needs of their teams. The Board and the Executive leadership team will ensure that we make Brooks Macdonald an even better place to work in the year ahead. Looking ahead Demographics in the form of an ageing population continue to underpin the strategic opportunity for Brooks Macdonald. With an ambitious new government in place we must hope that dis-incentivising pension savings does not become a new source of funding for the various state spending plans. The high
Read more about our corporate governance on pages 60 to 70
Read more
Maarten Slendebroek Chair
about our performance on pages 28 to 38
11 September 2024
Brooks Macdonald Group plc Annual Report and Accounts 2024
09
CEO’s review
As I present my final review as CEO of Brooks Macdonald, I reflect on the immense pride I have felt in holding this position. Brooks Macdonald is a great business that delivers excellent outcomes for our clients across their entire investment lifecycle. By generating consistently strong investment returns to support their long-term financial goals, we provide them with increased certainty and reassurance over their financial futures, regardless of the economic backdrop. Throughout my tenure as CEO, we have remained focused on our Purpose of realising ambitions and securing futures, which means we keep our clients at the forefront of our minds, whilst also providing for all our stakeholders – employees, intermediaries and shareholders. This year has been no different. Clients have benefitted from the close relationships with our investment managers and financial planners which is even more important when markets are challenging, and have further benefitted from strong returns from our rigorous investment process. Financial performance For much of our financial year, inflation remained high, together with persistently high interest rates. Clients remained under pressure in terms of higher costs of living and continued to be encouraged to pay down increasingly expensive debt. These factors impacted our industry and our Group, where we saw net outflows of £616 million, largely in our Bespoke and Funds products. MPS continued to be a driver of growth with net inflows of £388 million, reflecting the trend for MPS as a solution of choice for accumulation.
Gross inflows across our propositions were strong throughout the year, with £2.3 billion gross inflows at the Group level and we ended the year with the best-performing quarter. Platform MPS gross inflows contributed approximately half of these flows. Although outflows were stubbornly high, we saw signs of improvement in the fourth quarter. Given our internal efforts on client retention, combined with a more stable economic outlook, we are confident that outflows will decrease. We had a year of good financial performance in FY24, with underlying profit before tax increased to £34.1 million (FY23: £30.3 million). The underlying profit margin increased by 2.1 percentage points to 26.6% as we implemented cost efficiencies and benefited from increased interest and transactional income. Statutory profit before tax fell to £11.6 million from £22.2 million, primarily due to the impairment of the International goodwill balance announced in our half-year results. Our year-end closing FUM was a record £18.0 billion, up 7% in the year, with investment performance of £1.8 billion more than offsetting the impact of net outflows.
It has been a privilege to lead such a talented and dedicated team at Brooks Macdonald and I am immensely proud of what we have achieved together.” Andrew Shepherd CEO
Investment performance and market conditions
Our aggregate investment performance across all our risk profiles for the year was 10.7%. These strong returns have been generated through our robust Centralised Investment Proposition where we have constructed portfolios with a balanced approach utilising multiple asset classes and investment vehicles against a backdrop that has seen headline index returns dominated by a focussed set of large and mega cap stocks.
10 Brooks Macdonald Group plc Annual Report and Accounts 2024
Strategic Report
Governance Report
Financial Statements
Other Information
£34.1m Underlying profit before tax increased from the FY23 figure of £30.3m £18.0bn FUM up 7.0% in the year from £16.8bn at 30 June 2023
£330 million for the year. This reflects both the robust current and potential growth of this product at Brooks Macdonald and within the broader industry. BM Investment Solutions (“BMIS”), our business-to-business offering, collaborates with adviser firms to provide tailored services aligned to their objectives. Once again, BMIS demonstrated good performance, achieving net inflows of approximately £140 million. In our Bespoke Portfolio Service (“BPS”) product, UKIM has experienced significant growth in our specialist offerings – Responsible Investing Service, Decumulation, and Court of Protection, and especially with our Gilts product which was introduced to meet client demand for their portfolios to take advantage of higher interest rates whilst avoiding equity risk. However, beyond these specialist offerings, BPS saw net outflows due to a broader market trend, compounded by the impact of higher interest rates and macroeconomic uncertainty. Despite our funds business facing challenges this year, with net outflows similar to much of the sector, we remain optimistic about the potential for growth in our multi-asset funds. We are confident in the actions we have already taken to drive medium-term growth and are actively reviewing additional steps to further strengthen our position. International In our interim results in March 2024, we announced a strategic review of the International business following performance that had been behind plan. I would like to thank the International team for their unwavering commitment during this time.
We conducted a thorough review aimed at determining how to maximise value from the business. It has been concluded that the sale of the International business is in the best interests of the Group as it simplifies the Group’s operations to focus on it’s core activities of high quality investment management and financial planning within the UK. Distribution We operate in a significant and growing market and have traditionally leveraged our relationships with advisers to distribute our products. In recent years we have recognised the growing opportunity in distributing direct to clients, especially where we have a financial planning relationship. As at 30 June 2024, the Group had £5.3 billion Funds under Management or Advice (“FUM/A”) with private clients who deal with the Group directly. £4.5 billion related to portfolios in the Group’s investment management and £0.8 billion to portfolios with third-party investment managers. We made two senior appointments to newly created roles in the year to reflect this targeted distribution with Alex Charalambous joining the Group as Head of Wealth and, since year end, Greg Mullins joining as Head of Adviser Solutions. Alex is leading the Group’s advice-led integrated wealth management offering for private clients and Greg will focus on delivering exceptional service to the adviser community, both supporting our ambitious growth plan.
During the second half of the year, we saw an improvement for UK companies benefitting from better sentiment, signs of political stability and economic improvement. Our clients continued to benefit from our rigorous investment process, which provides diversified portfolios for their long-term investment horizons. Our investment strategies outperformed their relevant ARC peer group indices for the year and maintained strong results over the 10-year period. Looking ahead, we are encouraged by the recent falls in inflation and anticipate interest rate cuts across Western economies that should be supportive of asset prices. Additionally, the change in government in the UK is seen to encourage international asset allocators to review exposure to the region. We are retaining our slight overweight position to equity markets but maintaining our balance between value and growth investment styles as we recognise diversification as critical in the current uncertain outlook. Review of business performance UK Investment Management Across UK Investment Management (“UKIM”), our people have once again worked incredibly hard to provide exceptional levels of support to their clients and intermediaries resulting in strong gross inflows of £2.0 billion in the year. The Platform Managed Portfolio Service (“PMPS”) was the strongest performer, achieving net inflows of approximately
Read more about how we engage with our stakeholders on pages 21 to 25 Read more about our people on pages 45 to 48
Brooks Macdonald Group plc Annual Report and Accounts 2024
11
CEO’s review
Investing in our people
Employee wellbeing remains at the forefront of our agenda, particularly during times of change. We continue to support our people through various initiatives, including enhanced employee assistance programmes, mental health support, and professional development opportunities. Our goal is to foster an environment where every employee can thrive, both personally and professionally. I would like to thank the clients and intermediaries we work with, and our people for their ongoing support. It has been a privilege to serve as CEO, and I am confident that the Group is in excellent hands moving forward. The Strategic report in its entirety has been approved by the Board of Directors and is signed on its behalf by:
Our commitment to a strong people agenda has been unwavering, and our client-centric culture continues to be one of our most valuable assets. This year, we have deepened our investment in our people, bringing in talented new hires and enhancing our team’s capabilities. We have made significant strides in our people strategy by advancing management training programmes, expanding professional development opportunities, and refining our performance management approach. These efforts are complemented by regular employee feedback, which we use to continuously improve our processes and ensure they align with the needs of our people. Leadership transitions are a critical moment in any organisation, and in June 2024, I announced my resignation alongside the Board’s decision to appoint Andrea Montague as our new CEO, effective 1 October 2024, subject to regulatory approval. As Chief Financial Officer since August 2023, Andrea has been a vital member of our leadership team. Her drive to redefine our strategy to reignite growth puts Brooks Macdonald in excellent hands and in a strong position for the future. This financial year, we also undertook necessary organisational changes to ensure the Group’s long-term competitiveness. These changes, which included a reduction in roles by approximately 10%, were difficult but necessary to align our resources with our strategic objectives. The resulting cost savings of approximately £4 million per annum have strengthened our commercial position and enhanced our ability to compete effectively in the market.
Andrew Shepherd CEO
11 September 2024
12 Brooks Macdonald Group plc Annual Report and Accounts 2024
Strategic Report
Governance Report
Financial Statements
Other Information
Market overview
Short-term trends UK and global economy
Proportion of advisers using strategy
More broadly, we continue to work closely with intermediaries and current and prospective private clients to manage sentiment to support our net flows. We have also increased the interest paid to clients on cash, in line with the increased base rate.
54%
Model portfolios outsourced to a DFM
The UK has experienced elevated inflation over the past couple of years during the post- pandemic period. This led to a rise in interest rates and increased costs for consumers, meaning the wealth management industry has faced a challenging period of increased outflows. At the same time, higher interest rates have increased the relative attractiveness of cash versus equities, as well as encouraging clients to pay down debt, further impacting net flows. Over the past year, we have seen inflation begin to fall and an improvement in investor sentiment, together with rising expectations for a reduction in interest rates in the next year. This has not yet resulted in a significant change in behaviour but with a more stable political backdrop, the outlook is more positive.
45%
Multi-asset managed by third parties
35%
Bespoke portfolios (advisory basis)
Changing product preferences
31%
In-house model portfolios (advisory basis)
The competitive landscape continues to evolve with advisers increasingly moving away from their historic use of discretionary fund managers as providers of bespoke portfolio services in their custody to model portfolio services and funds delivered on third-party platforms. This changing product mix gives the industry a lower revenue yield per £ of funds under management, but has less impact or even positive impact at the level of profit margin, especially when considering the significant scalability of these services. Investment platform solutions are becoming increasingly popular with a substantial growth opportunity from both new assets entering the market and from non-platform assets to gradually move on to platforms. 200
30%
Bespoke portfolios outsourced to a DFM
25%
Multi-assets managed in-house
17%
In-house model portfolios (discretionary basis)
14%
Bespoke portfolios (discretionary basis)
established player with a strong track record. Within that, our B2B BM Investment Solutions offering, where we provide a range of support to the adviser, for example white-labelled or co-branded marketing materials, has been particularly successful. In line with Consumer Duty, and in recognition of the increasing popularity of MPS, we are transferring portfolios of less than £250,000 from BPS to MPS where appropriate for the client. This will offer a better value outcome to clients with the most appropriate investment solution for their needs.
Our response
Given market uncertainty, within our asset allocation, we advocate balance in portfolios, both between value and growth stocks and across geographies, including the UK. Our gilts offering has proven popular in the high interest rate environment, given the attractive yields on offer. Low coupon UK gilts can be tax efficient for UK taxpayers, so we continue to offer a range of portfolios investing in gilts, giving investors a low-risk alternative to cash.
Our response
We have strong offerings in both MPS and funds (our Blueprint and Risk Managed ranges), and we have made them available in different formats, e.g. our Responsible Investment MPS, across all major platforms (21 in total). This has enabled us to drive strong positive net flows, particularly in Platform MPS where the portfolios are held on third-party platforms, and where we are an
Brooks Macdonald Group plc Annual Report and Accounts 2024
13
Market overview
Long-term trends Demographic changes
Average portfolios by intermediaries
Investment Service, Decumulation, Court of Protection. We also offer model-based and unitised solutions, alongside Investment Solutions options more tailored to the needs and requirements of the IFA. The growth in our Platform MPS proposition reflects that these solutions are sought by IFAs as they fulfil their regulatory requirements as well as providing attractive solutions for their clients. Regulatory The Financial Conduct Authority (“FCA”) supervises the investment management and financial planning activities of Brooks Macdonald in the UK. Over time, the regulator has pivoted to outcomes-based regulation with a requirement for firms to show how they are set up to deliver good outcomes for clients. In particular, the Consumer Duty Principle in the FCA Handbook that requires companies to ‘act to deliver good outcomes for retail customers’, has set higher and clearer standards of consumer protection across financial services, and applies to our business in both investment management and financial planning. The FCA continues to focus on ensuring advice and investment management is conducted appropriately and professionally, and on giving transparency to clients on fees and charges. Consumer Duty represents a significant change and opportunity for the wealth management industry, highlighting the importance of delivering good outcomes for our clients. We are well positioned to do this with a strong client-centric culture. We are focused on fulfilling the Consumer Duty’s price and value outcome principle, in particular, by moving clients of an appropriate size from our bespoke offering to an MPS
about what standards these products observe and what certification regimes clients and advisers can trust. While there has been a decline in demand for ESG products across the industry over the last couple of years, we expect this to reverse when economic conditions improve. Advisers continue to forecast rapid growth in the proportion of client assets allocated to sustainable and ESG-based products and services over time.
£0.6m
The UK population continues to age with the proportion of people over 65 growing steadily. In parallel, the policy framework around retirement is favourable for the wealth management industry with people increasingly encouraged to make their own provision for retirement and pension freedoms adding to the need for advice. The total wealth of the UK population is projected to continue to grow, and over 70% of that wealth is held by those aged 55 and over. Increased life expectancy, wealth and pension freedoms all add to the increasing demand for advice as complex financial decisions are in the hands of individuals.
£0.5m
£0.4m
£0.3m
£0.2m
£0.1m
Our response
£0.0m
We offer a Responsible Investment Service (“RIS”) within our Bespoke Portfolio Service, which is also available in our Managed Portfolio Service and Investment Solutions offering. We have Advance and Avoid strategies available and investment performance has been strong since launch. As a Company, we have signed up to the UN Principles for Responsible Investing and consistently apply a sustainability lens to our core investment process. More clients working with Independent Financial Advisers (“IFAs”) and IFAs increasingly outsourcing Investors are increasingly working with IFAs, our primary distribution channel, as the need for clients to make complex financial decisions grows. In addition, advisers continue to look to outsource investment management to allow them to focus on advising their clients and to reduce their regulatory and administrative burden. We continue to help advisers serve their clients in ways that work for both parties, applying our investment management expertise to protect and enhance clients’ wealth. We are flexible in our approach, offering bespoke portfolios with more specialist variants, e.g. Responsible
Bespoke
MPS off platform
Execution only
MPS on platform
Average portfolios by direct
£2.5m
Our response
£2.0m
Brooks Macdonald continues to work with clients to support them in their retirement planning, reflecting the fact that retirement is the biggest trigger for people to seek financial advice. Our Decumulation service is aimed at people in the early years of retirement balancing the need for income with the need to stay invested to protect their future wealth. We are also improving our support to clients around intergenerational wealth transfer, as well as encouraging people to think about their retirement earlier. Growth of responsible investing Advisers and clients alike are increasingly looking for investment managers to provide products and services meeting their environmental, social and governance (“ESG”) criteria. Providers are bringing products to market, but there is widespread confusion
£1.5m
£1.0m
£0.5m
£0.0m
Charities / Corporates
Private clients
Clients with Independent Financial Advisers
£4.0m
£3.5m
£3.0m
2020
2021
2022
14 Brooks Macdonald Group plc Annual Report and Accounts 2024
Strategic Report
Governance Report
Financial Statements
Other Information
product. This will reduce the cost for clients whilst proving attractive investment options and complying with Consumer Duty.
Our technological improvements are aligned with good practice from a Consumer Duty perspective whilst also ensuring efficient and appropriate record-keeping.
Technological change will continue to raise clients’ expectations of how we interact with them and our technology and services partnership with SS&C is designed to ensure that Brooks Macdonald is easy to do business with, and that we provide market-leading adviser experience and client service levels. Consolidation The investment management competitive landscape is complex with numerous types of player and varying business models addressing different, but overlapping, segments of the market. Types of player include integrated wealth managers, IFAs who may conduct some, or all, of their own investment management, platform providers who serve advisers, players focused on providing model portfolios and fund solutions, as well as the wealth arms of the major high street banks and high-end private banks. A major trend over recent years has been the increasing prevalence of vertical integration, with firms offering both financial planning and investment management. This is coming from both directions, with investment managers buying IFAs to get closer to the client and advice firms, particularly IFA consolidators, moving away from ‘whole of market’ advice
and taking on investment management as a further revenue stream.
The industry remains highly fragmented and we have seen considerable consolidation in recent years among both IFAs and investment managers. We expect to see consolidation continue, and even potentially accelerate, and selective, high-quality acquisitions remain part of our strategy. Pricing New entrants who are attracted by the scale of the MPS market opportunity continue to drive down pricing. We expect this trend to continue which highlights the need for scale and the balance that our business model provides from our specialist BPS products. Our scale, breadth of distribution, investment performance track record and the valued service that we provide our clients remain key differentiators for Brooks Macdonald.
Digital technology
What the market trends mean for Brooks Macdonald
Digital technology is increasingly a ‘must have’ enabler of financial services, with clients expecting digital to complement face-to-face relationships. The wealth management sector has been slow to adapt but the increased popularity of platform solutions means it must do so quickly.
The UK wealth market continues to grow significantly with an attractive outlook regardless of the underlying macroeconomic conditions. The fundamental opportunity for Brooks Macdonald remains strong and improving, with scope to increase market share in all products. Our distribution model means we are well placed to grow across both adviser solutions and direct wealth. Our core investment management and financial planning offering is well positioned to capture the market opportunity given financial freedoms and the increased need for financial advice. We are adapting our offering both to meet short-term challenges in the marketplace and to cater to advisers’ and clients’ changing needs, with a strong set of specialised BPS products, including our Gilts and Decumulation products, further development of funds and unitised solutions tailored to the adviser, and consistent business-to-business BM Investment Solutions delivery.
Our response
We continue to work to improve our client and adviser portal and other client-facing digital tools, focused on making Brooks Macdonald easy to do business with. In parallel, during the financial year we implemented the first phase of Salesforce client relationship management, focused on advisers, and the second phase, which addresses private clients, is under way. By replacing multiple legacy CRM systems with a single enterprise-level CRM, we are ensuring that our interactions with clients and advisers are timely and meet their needs. We also implemented Intelliflo advice software across our UK financial planning business to drive consistent service levels for our advice clients.
Brooks Macdonald Group plc Annual Report and Accounts 2024
15
Business model
Brooks Macdonald was founded to give clients wealth management, driven by purpose and principles, and that remains as true as ever. We have defined our purpose as realising ambitions and securing futures for all our stakeholders. We work every day to protect and enhance our clients’ wealth through high-quality investment management and financial planning, underpinned by exceptional client service.
Our key resources
Who we work with Financial advisers (Intermediated)
Expertise
Advisers select Brooks Macdonald because of the resources and capabilities we deploy in protecting and enhancing their clients’ wealth. The adviser determines which of the firm’s services is most suitable for the client, based on their risk profile and their financial objectives. We implement the service selected and work with the adviser to ensure the client’s portfolio is managed appropriately. In some cases, we provide a white-labelled service for the adviser, typically based on model portfolios or unitised solutions. We build strong relationships with our advisers and can, on occasion, provide a potential exit route for those looking to sell their business. Private clients (Direct) Some clients approach us directly for financial planning, where we work with the client directly to understand whether they need one-off advice or more regular financial planning. We can provide both ‘restricted’ advice, including the provision of our investment management services if they are suitable for the client, and independent ‘whole of market’ advice where appropriate to the client’s needs. In all cases where we provide an investment management service, we manage the client’s portfolio with the same investment rigour. We deliver consistent robust investment performance through our Centralised Investment Process and exceptional client service through the client-centric, ‘can-do’ attitude of the people we recruit.
We have deep expertise in investment management and financial planning. We apply that expertise through our investment process, whether working through intermediaries or directly with private clients, to ensure that each portfolio is managed to meet the client’s risk profile and requirements, and ultimately, to meet their long-term needs. People Our people are our greatest strength and we focus on attracting and retaining the best talent in the industry. We work to increase the capability of our people continuously, across all levels of the organisation, through a combination of developing our internal talent and making selective key hires, and we have a powerful mix of long-term Brooks Macdonald experience and fresh ideas from elsewhere. Culture Our client-centric culture is driven by our guiding principles: we do the right thing; we are connected; we care; and we make a difference. These principles underpin everything that we do.
Centralised Investment Process
Our Centralised Investment Process is core to delivering our best ideas consistently to all our clients through collective asset allocation and asset selection processes, supported by a set of investment rules that guide our decision-making. Financial resources Brooks Macdonald has a strong balance sheet and supportive shareholders. The business is highly cash‑generative and has zero debt.
16 Brooks Macdonald Group plc Annual Report and Accounts 2024
Strategic Report
Governance Report
Financial Statements
Other Information
How we do it
How we make a difference
Our competitive advantages 1. Robust Centralised Investment Process Consistent strong performance, ahead of ARC benchmarks across all risk profiles for one and ten years, in line with peers over the medium term. Rigorous process giving consistency of outcomes to clients with similar needs. 2. Compelling investment proposition Comprehensive range of investment products and services, addressing full scope of clients’ and intermediaries’ needs. Core and specialist bespoke services complemented by model- based and unitised services, plus our business- to-business BM Investment Solutions offering.
We have a robust product development and governance process to determine which solutions are appropriate to our clients and the broader market, and to ensure they remain appropriate. We deliver our services through a network of 14 offices across the UK and the Crown Dependencies. Consistency and efficiency Our Centralised Investment Process helps ensure both consistency of outcome for clients with similar requirements and economies of scale for the business. Client-centric innovation We use our knowledge of our clients and intermediaries to drive innovation, delivering products and services that meet their evolving needs. Collaboration Our investment management businesses work closely with professional advisers, both internally and externally.
We have multiple stakeholders – clients always come first, and if we look after our clients, our employees, and our intermediaries, then our shareholders will get the returns they seek. Clients We help our clients realise their ambitions and secure their futures by protecting and enhancing their wealth through our investment management and financial planning services.
Employees
We continuously improve our strong people proposition, underpinned by our ‘Inclusive by Design’ strategy which challenges us to ensure we adopt an inclusive approach to everything that we do, in turn fostering a culture that inspires motivation and engagement from our workforce. Advisers The professional advisers we work with receive a range of services to support their client relationships, and peace of mind that investment management is being conducted consistently, with deep market insight and in a robustly compliant manner. Shareholders Shareholders benefit from the performance of the Group through both capital growth and progressive dividends.
3. Best-in-class client and adviser service Quality and commitment of our people delivering consistently outstanding service, supported by a market-leading digital offering, delivered with our technology partner SS&C.
Geographic reach
We deliver our services through a network of 14 offices across the UK and the Crown Dependencies. Our network of offices puts us close to our clients, with the geographic reach to build strong relationships with clients and advisers alike. And the ‘Our competitive advantages’ column. This should also be on the grey background as it is the same level and info as the others, supporting the business model.
Brooks Macdonald Group plc Annual Report and Accounts 2024
17
Page i Page ii Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44 Page 45 Page 46 Page 47 Page 48 Page 49 Page 50 Page 51 Page 52 Page 53 Page 54 Page 55 Page 56 Page 57 Page 58 Page 59 Page 60 Page 61 Page 62 Page 63 Page 64 Page 65 Page 66 Page 67 Page 68 Page 69 Page 70 Page 71 Page 72 Page 73 Page 74 Page 75 Page 76 Page 77 Page 78 Page 79 Page 80 Page 81 Page 82 Page 83 Page 84 Page 85 Page 86 Page 87 Page 88 Page 89 Page 90 Page 91 Page 92 Page 93 Page 94 Page 95 Page 96 Page 97 Page 98 Page 99 Page 100 Page 101 Page 102 Page 103 Page 104 Page 105 Page 106 Page 107 Page 108 Page 109 Page 110 Page 111 Page 112 Page 113 Page 114 Page 115 Page 116 Page 117 Page 118 Page 119 Page 120 Page 121 Page 122 Page 123 Page 124 Page 125 Page 126 Page 127 Page 128 Page 129 Page 130 Page 131 Page 132 Page 133 Page 134 Page 135 Page 136 Page 137 Page 138 Page 139 Page 140 Page 141 Page 142 Page 143 Page 144 Page 145 Page 146 Page 147 Page 148 Page 149 Page 150 Page 151 Page 152 Page 153 Page 154 Page 155 Page 156 Page 157 Page 158 Page 159 Page 160 Page 161 Page 162 Page 163 Page 164 Page 165 Page 166 Page 167 Page 168 Page 169 Page 170 Page 171 Page 172 Page 173 Page 174 Page 175 Page 176 Page 177 Page 178Made with FlippingBook - professional solution for displaying marketing and sales documents online