Investors are delaying decisions to commit money to wealth management products because of market volatility, according to Brooks Macdonald (BRK:AIM) co-founder and chief executive Chris Macdonald.
Plans at Brooks to launch two new funds in the latter half of 2015 were deferred because of a lack of institutional take-up. And two funds which were launched failed to reach critical mass, incurring losses in the wealth management business' fund management division.
‘We will be looking to launch the two new funds in the first half of this year but there has been a case of investors sitting on their hands because of the volatility within markets over the last year,’ says Macdonald alongside results for the six months to 31 December 2015.
As well as nervy investors, which Macdonald says could be exacerbated further by Britain’s June EU referendum, the wealth manager also faced profitability headwinds in the first half of its financial year from another source.
Brooks continues to convert advisory mandates in its international business into discretionary funds under management, which weighs on short-term profitability.
‘The reason we’re doing this is because discretionary funds under management tend to be stickier than advisory mandates,’ Macdonald says.
‘Our track record shows that the average life span of a discretionary client to us is around 14 years while advisory clients tend to stick around for only two years on average.
‘So we are converting short-term trading income which is a little higher than what we earn through discretionary fees in the short term to that recurring income which has more value to us over the longer term.’
Despite tough markets, Brooks reported impressive numbers in the first half. Discretionary funds under management, a key measure of its fee earning capacity, increased 12% to £7.8 billion and compares to £340 million when Brooks first listed in 2005.
Revenue increased 3% to £38.7 million, pre-tax profit was up 6% to £7.1 million and underlying earnings per share gained 3% to 42.6p.
Shares in Brooks trade 0.3% higher at £18.18. The FTSE All-Share is down 0.4%.