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How wealth firms spend their profits

How wealth firms spend their profits

Making a profit is great, but what is the best way to invest it for future growth?

From acquisitions and hiring staff to improving systems and marketing, there are multiple competing causes when it comes to prioritising cash spending.

For many wealth firms, staff and systems are the current priorities, meeting the twin needs of ensuring their technology is future-proofed with Mifid II looming, and building growth.

Roddy Buchanan, head of wealth management at WH Ireland, says the prime concerns for the firm change annually, but put money into staff and systems has been a steady focus.

He stresses that good people are always at a premium and modern technology development is a must to stay on top of the game.

‘In the next 12 months, Mifid II and GDPR, which all point to spending money, will become a priority due to their deadlines,’ he says.

‘Just given the sheer volume of regulatory change there will be a combination of spending on systems, people and processes. The legislation is so widespread and wide-ranging that not a single stone will go unturned.’

Thomas Miller Investment managing director Matt Phillips (pictured below) says his firm’s focus is similarly on people and systems and this is something that he expects will not be changing any time soon.

With the firm slowly returning to profit after a restructure that left it with losses of £272,000 in 2015 and £65,000 the following year, he says: ‘We do not have an unlimited amount of funds, so we always have to balance the needs of what we have against what we want and where we want to be.

‘Before our purchase [of Broadstone in 2014], we spent a great proportion on staff, but through our restructuring of IT and support structure, costs have increased, while staff costs as a proportion of turnover have decreased.’

Now feeling stronger, the firm is however looking to hire experienced, senior staff in the near future.



New businesses

The profit spending plans for newer players can often differ significantly, given the relative immaturity of their businesses.

Tcam, which in 2017, its first year of full independence, more than doubled profits to £1.6 million, says that apart from people it has been investing considerably in technology since its 2015 management buyout.

‘Where possible, we insist on building our own bespoke systems from scratch to best match the requirements of our clients, in order to have the most flexibility with regard to updating our system and maintain full control of our processes,’ said investment manager Oliver Murray.

‘We believe the best way to achieve this is to develop tailored systems built upon the needs and feedback of our own clients.’

A solid base

For Patronus Partners the heavy lifting of IT spending has been done for the two-year-old firm, which in 2016 reported profits before tax of £107,000. For now the main focus is on people instead.

Chief executive Paul Kavanagh (pictured below) says the firm wants to spend the first two or three years of its existence building a solid financial base.

‘We are keeping things tight in the first few years until we get to a respectable level of profitability, until we take it to the next level,’ he said. ‘We are now investing in people and marketing. People who can bring results into the firm and revenue creation opportunities.’

The nine-strong team is currently in the market for two roles: one compliance and one a client-facing position.

Kavanagh said marketing is another focus. That is also true of Tcam, which is looking to build its network of clients and professional connections, particularly in its new London office, by staging a number of investment dinners.

‘These have been a great success and have served to engage with both existing and new clients as we look to grow the business south of the border,’ Murray said.




It is not just new firms eager to up their profile through increased marketing spend, with Buchanan saying this was an area previously somewhat neglected by WH Ireland.

‘Until three years ago, WH Ireland was inward-looking and that was built around the fact that there was a lot of new business coming through, but to go forward, we have spent heavily over these past three years to build our marketing infrastructure, which is vital for growing the business.’

Similarly, RC Brown, which has long maintained a conservative approach to its balance sheet management, is now looking to get its name out there.

The firm has a £1 million war chest, boosted by profits rising 17% to £222,000 over the 12 months to the end
of March.

Investment director Alan Beaney said RC Brown’s assets under management rose by 20% last year, but the company is keen to build on this and promote its fund.

‘We want to grow but we do not need to be aggressive. We are just trying to make ourselves better known,’ he said.

‘We have our own unit trust and we have put a lot of money behind the marketing of that this year.’ 

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