Brooks Macdonald has been tipped to become a major beneficiary of pension freedoms legislation in a bullish note by broker Liberum.
Ten years on from its initial public offering (IPO), the Aim-listed wealth manager can capitalise on the forthcoming “surge” in self-invested personal pension (Sipp) usage because of its strong background in the area, according to the broker.
Liberum said the impact of pension freedoms will mean the UK Sipp market grows from £150bn last year to £210bn by around 2017, and it predicts Brooks will at the very least maintain its 2 per cent share of the market.
Around 45 per cent of Brooks’ assets are held in Sipps, and the company manages the second ever such product launched in the UK.
Liberum added its forecasts “may prove conservative given Brooks is now in the strongest position in the company’s history in terms of relationships with [advisers], who are the gatekeepers to potential Sipp clients”.
Brooks already works with 775 adviser firms, though Liberum believes a saturation point would not be reached in terms of “suitable” relationships until this number is almost trebled.
The wealth manager’s share price has risen 43 per cent this year as other investors appear to draw similar conclusions. Brooks posted an 8 per cent rise in pre-tax profit in the year to June 30, its latest results show.
One fund manager backing the discretionary firm, in part for its future pensions strength, is Anthony Cross, co-manager of the Liontrust Special Situations fund.
Mr Cross has held the stock since its IPO and continues to back the company. He noted that the average age of Brooks’ bespoke service clients was typically lower than seen elsewhere, creating a pensions opportunity down the line.
“This will be a tailwind coming through for the group in future,” he said.
His view was echoed by Liberum, which said the firm’s average client was just under 50 years old, with an average onshore portfolio size of around £800,000.
“This is an important factor considering clients are still accumulating wealth at this age rather than drawing down… [It is] therefore easier for Brooks to achieve organic growth.”
Its view is also shared by Numis, whose analysts last month flagged Brooks’ higher-than-average organic growth rate as a sign of its strength in pensions.
“[A] higher growth rate is a reflection of its focus on the rapidly growing pension industry,” Numis said.
Liberum also noted the firm had managed to avoid raising its minimum investment requirements, unlike most discretionary peers.
The broker screened 21 wealth managers as part of its analysis, and found the average minimum portfolio size required for discretionary services has risen some 27 per cent since 2012 to £590,000.
Brooks, which has run a fee-based business model since 2012 and thereby avoided having to transition from a commission-led structure in the aftermath of the RDR, has kept its minimum portfolio requirement at £200,000 over the period.
“We believe this is providing an opportunity for Brooks,” Liberum added.
