Brooks Macdonald warns of profit hit due to regulatory and risk costs

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Wealth manager Brooks Macdonald says there will be a hit to profits as it invests in risk management and sets aside £6.5m to deal with legacy issues relating to its Spearpoint acquisition.

In a trading update, the Aim-listed firm says discretionary funds under management have hit a record £10.5bn, up 26 per cent from £8.3bn a year ago.

Of the total growth, £951m came from net new business while £1.2bn came from investment performance.

Brooks Macdonald says it is investing to keep pace with regulatory reforms such as Mifid II, the General Data Protection Regulation and the senior managers regime.

The company says it is a priority to improve its risk management, and plans to hire a chief risk officer and a chief operating officer to help this. Initiatives to boost risk management are expected to add around £4m in operating expenses over the next financial year, with a further £2m recurring in future years.

Brooks Macdonald says its 2012 acquisition of Arch cru investment manager Spearpoint has led to a cost of £6.5m “to deal proactively with certain legacy matters”.

It will contact relevant clients to set out its plans to resolve these issues.

Brooks Macdonald chief executive Caroline Connellan says: “To position the business for future growth, we will be stepping up investment in our regulatory and risk management capabilities.

“While the associated costs will have an impact on profitability in the near term, this will result in a much stronger platform both now and for delivering sustainable growth in the future.

“We have also announced we are dealing decisively with certain legacy matters. This decision upholds our commitment to protect our clients’ best interests and supports our relationships with key intermediaries.”