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Frenkel Topping issues profit warning

Frenkel Topping issues profit warning

Specialist financial advice firm Frenkel Topping has issued a profit warning because it has increased its marketing spend.

The business said its operating profit for the second half of 2018 is now expected to be half of that from 2017, and full year profits will be below market expectations.

This is because the firm took action to maintain its market share by increasing its marketing budget in light of changes in the marketplace - primarily surrounding the discount rate used to calculate compensation awards for serious personal injuries which has pushed court damages up.

Frenkel Topping is a specialist provider of independent financial advice and wealth management to those in receipt of personal injury or clinical negligence claims.

The company stated while its increased marketing efforts might lead to decreased profits in the short term, they would lead to an "acceleration" in assets under management (AUM), potentially on better terms than currently.

Paul Richardson, Frenkel Topping's executive chairman, said: "Whilst trading conditions have been tougher than anticipated in the first half of the year; the company continues to operate with healthy margins and cashflow with continued AUM growth.

"The investments made in the company and its staff will accelerate the growth profile of the business; both in terms of the core proposition and diversification into adjacent, highly relevant markets.

"We expect the second half to be significantly stronger and I look forward to updating further on the company's progress at time of publication of half-year results."

Last year the Ministry of Justice announced it would cut the Ogden discount rate, which is used to establish lump sum compensation to claimants, from 2.5 per cent to minus 0.75 per cent.

While the Association of British Insurers has labelled the change "crazy" and "reckless", Frenkel Topping said this was a significant market opportunity since court damages would probably increase "substantially".

In a trading update this morning (11 July), the firm said the change had led to its average mainstream case size increasing to £600,000.

The company reported: "This increase in case sizes, has resulted in both the company's sales cycles taking longer and the fee structures being altered. In many cases, there are smaller upfront payments to Frenkel Topping on appointment.

"Despite these alterations, the board believes the company is outperforming most of its direct peers and continues to win a steady stream of new mandates."

In response to this opportunity, Frenkel Topping put itself up for sale last year to seek a larger strategic partner, but it ended these attempts after a strategic review, saying it was in the firm's best interests to remain independent.

Frenkel Topping now has assets under management of £760m, with assets on a discretionary mandate of £313m.

The firm said it is "highly focused" on attracting new consultants and staff after several experienced staff left, which resulted in £35m of AUM being lost.