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Private client managers enjoy time to grow

PRIVATE client investment managers and stockbrokers have had a good recession but challenges remain as they seek to strengthen their positions against future uncertainties such as increased regulation. Last year’s massive influx of funds from the private client arena was likened to a “sugar rush” by the head of one small City stockbroker. Millions of pounds flowed into investment firms and wealth managers which were regarded as a safe haven away from the turmoil that continued to grip the banking sector.

David Bennett, chief executive of the Association of Private Client Investment Managers and Stockbrokers, explains that this shift helped his larger member firms to do very well – a trend that has been evident from the financial results of those that have recently reported.

Bennett identifies three reasons for this surge: “Firstly, individuals shifted away from more exotic investments; secondly, money that was in banks was switched into private client investment managers and stockbrokers; and thirdly, people wanted to be with firms which had been through it all before, had some grey hairs and knew how to handle a crisis.”

In essence, those with experience benefited. Yesterday wealth manager St James’s Place announced a record quarter for new business with total new investments of £1.1bn and chief executive David Bellamy said he remained optimistic about the future.

Further down the size scale, Merchant Securities yesterday said it expected annual revenues to grow by 40 per cent to £7.62m, with chief executive Patrick Claridge highlighting three main growth areas. He said: “Firstly, private client wealth management; secondly, our institutional business has been good and we have got a fantastic technical strategy product; and, thirdly, the Aim market has seen renewed interest, particularly with secondary fundraising that have been successful, boosting our corporate finance department.”

St James’s Place and Merchant Securities typify the level of performance private client investment managers and stockbrokers have achieved during the past year or so. Yet there remains a major challenge for medium to small-sized firms in the form of the Financial Services Authority’s ongoing Retail Distribution Review (RDR). Apart from the costs of the review and increasing costs of regulation generally, the FSA proposals threaten to do a real disservice to those firms slapped with a “restricted” label.

It means they will be unable to offer advice on certain products unless they have independent financial advisers or other staff qualified to give investment advice. Increasing costs of regulation means there are already around five to six consolidations a year. That figure could easily increase once the true cost of meeting the RDR becomes clearer.

In the short-term, some firms are also finding markets slowing down amid the General Election campaign and the threat of a new government.
ben.griffiths@cityam.com