Brooks Macdonald shirks ‘IFA consolidator’ label but eyes more deals

In full-year results to June 30, 2022, the investment management firm said one of its key focuses was to grow through “selective, high-quality M&A”. 

In May, the group announced the purchase of Warwickshire-based IFA Integrity Wealth. The deal is expected to gain regulatory approval later this year.

Brooks Macdonald's chief executive, Andrew Shepherd, said the investment manager had worked closely with the IFA firm for almost a decade prior to the deal.

While the company has no intention of becoming an IFA consolidator, according to Shepherd, it said in its results today (September 15): “This [Integrity] was one of a number of M&A discussions and going forward we expect further acquisitions.”

Back in May, analyst Peel Hunt said more IFA buys on the radar for Brooks Macdonald.

Today, Shepherd said: “While we do not set out to be a consolidator of IFAs, we are keen to give the opportunity to successful financial advisers, like Integrity, to join a larger wealth management company, and we expect this to become an increasingly important part of our proposition.”

We’re not going out in the market and looking for IFAs.Andrew Shepherd, Brooks Macdonald

In a briefing with FTAdviser this morning, he said if Brooks Macdonald wants to get to the size and status of a top five wealth manager across the UK and crown dependencies, it will need to acquire firms in order to complement its eight to 10 per cent organic growth.

“These IFA deals will be for advisers already working with us who want to exit, or who want to grow their business without losing focus on the day-to-day financial planning.

“We’re not going out in the market and looking for IFAs.”

The group is not just on the hunt for IFAs. Shepherd said investment managers can also add real scale and assets to its platform.

“There’s a real raft of opportunities out there,” said the chief executive. “Wealth [as a sector] can only increase as inflation ravages on and values of pension pots get smaller. The opportunity for advisers and investment managers is huge.”

At the end of June, Brooks Macdonald’s funds under management sat at £15.7bn - down 4.8 per cent on last year.

Despite its five successive quarters of net inflows, declining and volatile markets have driven down the overall value of the group’s assets.

Investment performance for the year was down 9.6 per cent.

Meanwhile, the company’s revenue was up 3.4 per cent over the year, to £118mn, and its statutory profit before tax was £29.5mn, up 17.5 per cent from £25.1mn last year.

‘Market uncertainty will stall some client flows’

In its results, Brooks Macdonald also said the current market uncertainty is resulting in some clients taking longer to commit funds, as the war in Ukraine continues to impact economic growth.

The investment management firm said it had a “strong pipeline” going into the next financial year following five successive quarters of positive inflows.

But going into 2023, Shepherd said it’s taking longer to put clients’ money to work.

“We have a strong pipeline going into FY23, although market conditions are resulting in some clients taking longer to commit funds,” the chief executive explained.

“I understand why a client with ‘x’ amount of pounds to invest might decide not to invest all of it right now. 

“We don't know what Putin is going to do next. We don't know which way it's going to go. We don't know how hard that is going to hit economic growth, and therefore the growth of companies and what that might do to market valuations. 

“For someone taking a pound cost averaging approach, it would be totally understandable at this point in time.”

Brooks Macdonald stressed that the money will eventually be invested and put to work to meet outcomes, but that at the moment it is going to take a bit longer for the group to put that money to work.

Ukraine’s recent surprise counter-offensive recaptured some 3,800 sq km of territory in the north-east of the country, prompting Ukrainian officials to declare a flip in the battlefield dynamic in the Donbas region. Many are now waiting to see how Russia’s president Vladmir Putin will respond.

ruby.hinchliffe@ft.com