Chris Macdonald, the outgoing chief executive of Brooks Macdonald, has predicted the death of the small financial advice firm because of the twin strangleholds of regulation and capital requirements.
He announced last year that he would retire from full time work at the business to become deputy chairman in April.
Mr Macdonald said: “As a result of regulatory costs I don’t think we’ll see small firms going forward, which is a shame for the industry.
“That’s because of the cost of compliance, governance, risk, legal as well as the requirement for capital. We won’t see small firms being able to cope with the legislation.”
He said fewer small firms would harm the industry. “Having been a small firm you do add competitive juices, which can be a good thing for client outcome.
"There’s a servicing point as well, while we now have a regional footprint there are places that won’t be served if small firms aren’t there.”
He was speaking after Brooks Macdonald reported a 24 per cent increase in underlying pre-tax profit, to £8.87m, while revenue increased 17 per cent to £45.34m for the six months to December 31.
Total discretionary funds under management rose 19 per cent to £9.33bn and the company increased its dividend by 25 per cent to 15p from 12p.
He said investor sentiment had been “fragile” in the lead up to Brexit and its aftermath, but that it was “recovering remarkably”.
“It’s not bullish but not fragile either. It has picked up from quite a low point.”
The company recently formed a strategic alliance with a group in Dubai and Mr Macdonald said that there was also growth in South Africa, with large numbers of investors wanting to offshore money.
“We see significant opportunities in those two regions,” he said.
He said that the group was now seeing post-Retail Distribution Review advantages, as authorities across the globe put in place similar regulations.
“There is an advantage of coming from a highly regulated regime,” he said. “We’re seeing globally that RDR is being adopted, although in some cases watered down.
“Because we’ve been through RDR we can provide not just investment management solutions but also guidance on what the future holds.”
He said that the industry had “changed enormously” during his time at Brooks Macdonald.
“Robo is a very different world and I don’t think anyone has got their head round it yet. We support using technology to aid the advice process and have been through considerable IT spend to help with this. However, robo advice still very much unproven,” he said.
He said that, on the question of transparency of charges, he was fully supportive of vertical integraton is coming under a bit of pressure,” he said.
“If you are all the way though food chain you need to be able to break the charges down. You need to break down. Without mentioning other firms. This is something we are supportive of.”
Asked what he would do after he left his full-time post, he said “I won’t be just playing golf, though I would like to get my handicap down, and I am going on a three week holiday, which will be the first time in many years. After that I’ll come back and support this business where appropriate.”
rosie.murraywest@ft.com
