Cheap Brewin in growth mode

Shifting its business towards fee-based discretionary wealth management work and away from commission-charging advisory business has helped attract new funds. Last year it gained record net discretionary inflows – including transfers – of £2.3bn, equivalent to 8 per cent organic growth. That meant it exceeded its target of increasing assets by 5 per cent organically. That’s in contrast to peer Rathbone Brothers (RAT), which has the same target but only achieved 3 per cent growth. Taken together with market returns, Brewin managed to grow its discretionary funds by 15 per cent to almost £34bn. That meant it handsomely outperformed the MSCI WMA Private Investor Balanced Index, which was up just 6 per cent during the same period.

The company has got off to a good start this financial year, too, adding £0.7bn in discretionary flows, once again equivalent to 8 per cent organic growth. Part of the way the wealth manager has managed to exceed its targets is by building its intermediary relationships, which is slightly lower-margin work. That’s been helped by the launch of its white-label Managed Portfolio Service (MPS), used by intermediaries outsourcing the management of their clients’ money, a practice that’s become more prevalent following the introduction of the retail distribution review (RDR) regulation. By the end of September 2017, MPS had £2.3bn in assets under management, up from just £0.6bn two years prior. That boosted assets from intermediaries to £10.4bn last year, or almost a third of total discretionary funds. This is up from 24 per cent in 2015.

Analysts at Shore Capital forecast 6.5 per cent organic discretionary asset growth this year and closing assets under management of £44bn. However, it has moderated its forecast for revenue yields slightly from 0.81 per cent to 0.795 per cent, as a greater proportion of business is expected to come via intermediaries, where Brewin gains less of a margin than it does from the direct-to-customer channel.

The benefit of discretionary funds is that they attract more stable fee income and are less dependent on transaction volume. Core fee income represented 71 per cent of overall core income last year, up from 68 per cent in 2016. That is just as well because lower market volatility has meant a reduction in transaction income across the wealth management sector during the past year.          

Brewin has also been gradually growing its financial planning business, with sales up almost a fifth last year to £21m, or 7 per cent of the group total. And it is stepping up activities in the advice market. The growth in ‘robo-advice’ products has been lauded by some as a threat to traditional wealth managers. While this is debatable, given the higher portfolio size typically managed by groups such as Brewin, the group is hedging against the risk. Last year it launched wealth planning and investment advice provider WealthPilot, a lower cost, simplified version of its core service, aimed at a broader audience. At the other end of the spectrum, it is developing a product for clients with more sophisticated wealth planning needs.