It has been a challenging year for wealth management firms on all fronts. While regulatory pressures and costs have increased, led by the £326 million Financial Services Compensation Scheme interim levy, volatile markets have also impacted on asset bases and revenue growth.
Yet despite the headwinds, inflows at the majority of listed firms have held up reasonably well, according to KBW analyst Tom Mills.
‘In terms of asset flows, I have been pretty encouraged about how resilient these guys have been and the proportion of discretionary funds [under management], which continues to increase. We view this as higher quality income,’ he said.
Mills’ enthusiasm does not extend to next year, however. ‘In the near term, I am questioning where people will have the money to invest with these guys. It may be more challenging to bring in new funds over the next year or so,’ he said.
We placed asset flows, share price performance and the profitability of leading wealth management firms under the spotlight to identify the firms that have shone during a challenging year.
Brooks Macdonald appears to be a standout winner across the different categories, followed by Rathbones, while analysts remain divided on Charles Stanley and Brewin Dolphin.
Share price performance
With a 10% rise in its share price year-to-date Brooks Macdonald has outperformed its peers, while Rathbones is almost flat over the period, Charles Stanley down around 10% and Brewin Dolphin down 17% in comparison.
‘This portrays what the market thinks to an extent and the market’s views in terms of next year’s earnings. We have seen Brooks Macdonald power along. During the calendar third quarter, we saw assets decline by a little bit, which is to be expected given the volatility in August and September, but they have still backed themselves to deliver 20% growth in a flat market,’ Mills said. ‘There is still growth there and I believe in their message over the next couple of years. They have certainly been a winner year-to-date.’
His sentiments are echoed by Numis Securities’ David McCann, who also highlights Brooks Macdonald as an outperformer.