27566 17 September 2020 8:16 am proof 6Brooks Macdonald Group plc Annual Report and Accounts 2020Realising ambitionsSecuring futuresAnnual Report and Accounts for the year ended 30 June 2020Brooks Macdonald AR2020 Strategic.indd 317/09/2020 13:08:55 27566 17 September 2020 8:16 am proof 6Our Purpose“Realising ambitions and securing futures”We have multiple stakeholders – clients, intermediaries, employees, and shareholders. For all of them, the reason Brooks Macdonald is here – our purpose – is to help them realise their ambitions and secure their futures.Our Vision“To be the leading investment manager for intermediaries”We are an investment manager focused on working with intermediaries to support their clients and to help them build successful businesses. We also have complementary private client and financial planning businesses.Our Mission“To protect and enhance our clients’ wealth through the provision of investment management and advice underpinned by excellent client service.”Brooks Macdonald AR2020 Strategic.indd 317/09/2020 13:08:5627566 17 September 2020 8:16 am proof 6ContentsIntroductionHighlights of the year02Our investment case03Our history04Strategic reportChairman’s statement08CEO’s review12Our business model18Our services20Marketplace24Our strategy26Key performance indicators28Financial review30Risks40Viability statement46How we engage with our stakeholders48Corporate responsibility report52Corporate governanceIntroduction to Corporate governance60Board overview61Board and Committee structure62Board of Directors64Executive Committee66Audit Committee68Nominations Committee72Remuneration Committee74Risk and Compliance Committee90Report of the Directors94Statement of Directors’ responsibilities96Independent auditors’ report98Financial statementsConsolidated statement of comprehensive income106Consolidated statement of financial position107Consolidated statement of changes in equity108Consolidated statement of cash flows109Notes to the consolidated financial statements110Company financial statementsCompany statement of financial position156Company statement of changes in equity157Company statement of cash flows158Notes to the Company financial statements159Company information166Glossary167Our offices168StrategyOur vision for Brooks Macdonald is as the leading investment manager for intermediaries realised through three value drivers:• Market-leading organic growth• Service and operational excellence• Selective high-quality acquisitions Read more on the next stage of our Strategy on pages 26 and 27Read more about our response to COVID-19on page 16Read more about our engagement with our stakeholderson pages 48 to 5023Read more on our full year resultson pages 30 to 391In this ReportIntroductionStrategic reportCorporate governanceFinancial statements01Brooks Macdonald Group plc / Annual Report and Accounts 2020Brooks Macdonald AR2020 Strategic.indd 117/09/2020 13:08:58 Highlights of the year
Our investment case
Introduction
Strategic report
Corporate governance
Financial statements
Financial highlights1
1. Funds under
management
(“FUM”) (£bn)
2. Total
revenue (£m)
3. Underlying2
profit before tax (£m)
13.1
13.7
12.3
105.7
108.6
98.6
23.0
20.7
18.5
4. Underlying2
profit margin
before tax (%)
21.2
18.8
19.6
FY18
FY19
FY20
FY18
FY19
FY20
FY18
FY19
FY20
FY18
FY19
FY20
5. Statutory profit before
tax from continuing
operations (£m)
6. Underlying2
diluted earnings
per share (p)
7. Statutory diluted
earnings per share
from continuing
operations (p)
8. Total dividend
per share (p)
10.0
121.1
123.5
123.7
42.6
43.1
39.1
51.0
53.0
47.0
8.3
6.5
FY18
FY19
FY20
FY18
FY19
FY20
FY18
FY19
FY20
FY18
FY19
FY20
Comparative figures have been restated to reflect the correct recognition of the Authorised Corporate Director fees and associated costs in respect of one of
the Group’s managed OEICs and the correct VAT treatment on the fees recognised on the Managed Portfolio Service offered through third party platforms as
detailed on page 32 of the Strategic report.
The underlying figures represent the results for the Group’s continuing activities excluding certain adjusting items as listed on pages 36 and 37 of the
Strategic report. These represent an alternative performance measure for the Group. A reconciliation between the Group’s statutory and underlying profit
before tax is included on page 36.
Record closing FUM of £13.7bn and record revenue
of £108.6m
Improved underlying performance in all three
segments
•
1.
2.
•
• Overall investment performance for the financial
year to June of 1.0%, well ahead of the MSCI PIMFA
Private Investor Balanced Index which declined by
3.5% over the same period
•
Underlying profit margin up from 19.6% to 21.2%,
reflecting the Group’s commitment to increase
profit margins in the medium term
• Statutory profit margin before tax from continuing
operations up 1.3 points to 9.2% (FY19: 7.9%)
•
Total dividend increased by 3.9% to 53.0p (FY19:
51.0p) reflecting the Board’s continued confidence
in the strength of the underlying business and
commitment to a progressive dividend policy, and
continuing the Group’s record of increasing dividend
every year since beginning trading on AIM in 2015
Strategic progress
• Nearing completion of the strategy announced in
2017, to deliver improved returns from a sustainable
and scalable business, achieving year-on-year
improvements in profit margin:
− Reinforced the foundations of the business,
exiting non-core activities
− Improved our proposition, launching
Responsible Investment and Decumulation
services, and invested in our people and
infrastructure
− Increased efficiency and effectiveness, through
cost discipline, process improvement and
centralisation of client operations
− Complemented our organic growth strategy by
announcing two high-quality acquisitions, both
meeting the Group’s strict acquisition criteria –
strong businesses, good strategic and cultural fit,
high levels of EPS accretion
• Been through a period of change, emerging a
more robust business ready to capitalise on the
significant growth opportunities we see ahead
• Moving to a new stage of our strategy, based on
our vision for Brooks Macdonald as the leading
investment manager for intermediaries, with
best-in-class adviser experience and client service
levels, complemented by our robust Centralised
Investment Process and compelling investment
proposition
• Committed to driving value creation through
organic growth, service and operational excellence
and further selective high-quality acquisitions
• Strategy enabled by our people and culture,
focused on attracting, engaging and retaining the
best talent in the industry
•
In advanced discussions on a partnership
agreement with a leading wealth management
technology and services provider to support the
transformation of the adviser experience and client
service levels
01
Strong fundamental market
opportunity, driven by demographic,
regulatory and technological changes
02 Strong brand and relationships in
adviser channel, positioned to take
advantage of increasing demand for
outsourcing investment management
03 Clear vision for Brooks Macdonald as
the leading investment manager for
intermediaries, with complementary
businesses of financial planning and
private clients
04 Going forward, three value drivers:
strong organic growth, service and
operational excellence, and selective
high-quality acquisitions
05 Robust Centralised Investment
Process, driving consistently strong
investment returns for clients
06 Compelling investment proposition,
differentiated set of specialised BPS
products, funds and unitised solutions,
and business-to-business investment
solutions tailored to adviser
07 Building market-leading adviser
experience and client service levels,
through partnership with world-class
wealth management technology and
services provider
08 Strong leadership team with depth
of investment management, adviser-
facing and client-facing experience,
complemented by functional
expertise
02
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Our history
Introduction
Strategic report
Corporate governance
Financial statements
In the 29 years since the Group’s inception in 1991, funds under management have grown
to £13.7 billion and revenues exceed £100m. Following the consolidation of the Group’s
London offices into a single site at 21 Lombard Street, it now occupies 12 offices across 12
locations in the UK and the Channel Islands.
We are proud of our history and heritage and now have
in place a strong team to drive the business forward.
Alan Carruthers
Chairman
Brooks Macdonald
Gayer & Co Ltd
founded
Name changed to
Brooks Macdonald
Group (“BMG”)
Launch of first fund:
Brooks Macdonald
Structured
Growth Fund
BM makes its first
acquisition: Lawrence
House fund house
BM Mortgage
Finance launched
Acquires
investment arm of
national law firm
Clarke Willmott
and opens regional
office in Taunton
£
Funds under
management
reach
£5bn
New CEO appointed
Funds under
management reach
£10bn
Opens Wales office
in Cardiff
Launch of
new strategy
Funds under
management exceed
£13bn
Appointment of new
Chairman
Launch of Decumulation
Service
Acquisition of Edinburgh-
based Cornelian Asset
Managers
1991
1993
2002
2005
2006
2007
2009
2010
2011
2012
2013
2016
2017
2018
2019
2020
Calendar year
£
£250m
funds under
management
Opens an office in
Manchester becoming
an increasingly
powerful force in the
market
Named in “The Sunday
Times 100 Best (Small)
Companies” to work for
Acquisition of
Braemar Group
Lists on the Alternative
Investment Market
and funds under
management reach
£500m
Opens an office in
Hampshire – first
regional office
£
Funds under
management exceed
£3bn
Revenues exceed
£100m
Launch of Guiding
Principles
Opens East Anglia
office in Bury
St. Edmunds
Launch of Responsible
Investment Service
Appointment of
new Group Finance
Director
New Group London
headquarters at 21 Lombard
Street
Moved to remote working
swiftly and seamlessly in
response to the COVID-19
pandemic outbreak
Announced acquisition of
Lloyds Bank International’s
Channel Islands wealth
management and funds
business
04
04
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27566 17 September 2020 8:16 am proof 6Strategic reportA comprehensive review of our business and strategyContentsChairman’s statement08CEO’s review12Our business model18Our services20Marketplace24Our strategy26Key performance indicators28Financial review30Risks40Viability statement46How we engage with our stakeholders48Corporate responsibility report52Brooks Macdonald AR2020 Strategic.indd 617/09/2020 13:09:1127566 17 September 2020 8:16 am proof 6 Brooks Macdonald’s response to COVID-19 in terms of client communications and education has been outstanding. Pitched perfectly in terms of being digestible and to right level of detail. Client comment to Senior Financial Planner based in InternationalIntroductionStrategic reportCorporate governanceFinancial statementsBrooks Macdonald AR2020 Strategic.indd 717/09/2020 13:09:22 27566 17 September 2020 8:16 am proof 6Chairman’s statementAlan Carruthers ChairmanBrooks Macdonald Group plc / Annual Report and Accounts 202008Brooks Macdonald AR2020 Strategic.indd 817/09/2020 13:09:2427566 17 September 2020 8:16 am proof 6IntroductionI am pleased to report that, despite the challenging backdrop of continued Brexit uncertainty in the first half of our financial year, and then the COVID-19 pandemic in the second half, Brooks Macdonald has had another strong year. The Group has delivered further improvement in underlying profit and underlying profit margin in line with our medium-term commitments. Strong investment performance in extremely volatile markets and our acquisition of Cornelian Asset Managers resulted in us finishing the year with a new record closing FUM figure of £13.7 billion. This was despite the impact on client sentiment of ongoing macroeconomic uncertainty and outflows of mainly lower margin business as a result of the Group’s focus on business quality.Caroline Connellan and her team have continued their disciplined execution of the Group’s strategy with a highlight being the announcement of two acquisitions meeting our strict criteria – first Cornelian in November and then Lloyds Banking Group’s Channel Islands wealth management and funds business in June, complementing our organic growth strategy.Our Centralised Investment Process continues to deliver robust performance particularly through the more recent volatile markets, underpinning our mission to protect and enhance our clients’ wealth. Overall investment performance of 1.0% for the financial year to June was well ahead of the MSCI PIMFA Private Investor Balanced Index which declined by 3.5% over the same period.The Group and our people responded well to the pandemic and the lockdown, moving quickly and smoothly to working remotely, leveraging our flexible working policies and the strong infrastructure we already had in place. Caroline prioritised the wellbeing and safety of our people while ensuring that the Group was able to support advisers and clients in volatile markets, for example increasing the frequency of contact with regular webinars and investment bulletins. While the pandemic raised challenges, it also creates opportunities for firms willing to be positive in their actions, as with our Lloyds Channel Islands acquisition. Brooks Macdonald emerged from the lockdown a stronger organisation, well placed to take advantage of opportunities as they arise.Delivering our strategy We are now nearing completion of the strategy announced in 2017, having done what we said we w ould do and delivered the promised outcomes. We reinforced the foundations of the business, upgrading our risk management and operational framework and strengthening senior management. We increased the value of the business by enhancing what we do and how we do it, delivering the improvement in margin we had committed to. We maintained focus on our clients and advisers, including revamping and launching a series of new offerings, including Court of Protection, Responsible Investment Service and Decumulation. We drove greater efficiency and effectiveness, particularly with the changes in processes, centralisation of our client operations and headcount reduction announced in January 2019. We used the savings to invest in our talent and capabilities, with a number of key hires and development programmes at leadership and management levels, and in improvements in our digital infrastructure.We are now moving into a new stage of our strategy, where we look to deliver further improvements in returns, building on the sustainable and scalable business model we are putting in place. Our vision for Brooks Macdonald is as the leading investment manager for intermediaries and we will work with our adviser network – present and future – to ensure we understand what they need from us. Brooks Macdonald has had another strong year enabling the board to increase the dividend year on year. 123.7pUnderlying diluted EPS of 123.7p reflecting an increase on FY19 at 123.5p despite the impact of the additional shares issued in relation to the Cornelian acquisition.53p Recommending a total dividend for the year of 53p, an increase of 3.9% on FY19 reaffirming the Board’s confidence in the strength of the business.09Brooks Macdonald Group plc / Annual Report and Accounts 2020IntroductionStrategic reportCorporate governanceFinancial statementsBrooks Macdonald AR2020 Strategic.indd 917/09/2020 13:09:26 Chairman’s statement continued
A core element of our strategy will be to transform our
adviser experience and client service levels. We are working
with a leading wealth management technology and service
company to deliver this transformation and we are close
to agreement on a partnership, which will include material
upgrade of our investment administration and operations
activities.
We will look to create further value for shareholders
through continued organic growth, service and operational
excellence, and selective high-quality acquisitions. This
will be underpinned by actions to further improve our
successful Centralised Investment Process, to add to our
investment proposition, and to deliver market-leading
adviser experience and levels of client service. This will be
complemented by a continuing focus on our people and
on the culture of the firm, underpinned by our Guiding
Principles.
Performance overview
The Group continues to make strong progress – our funds
under management increased during the financial year from
£13.1 billion to £13.7 billion, an increase of 4.1%. Our revenue
growth was 2.7%, bringing the full year total to £108.6 million,
a new high for the Group, despite the impact of lower markets
at the end of our third quarter driven by the pandemic. We
maintained our cost discipline, putting us in a strong position
to deal with the uncertain environment. The increase in
underlying profit before tax, of 11.1%, is ahead of both FUM
and revenue growth, resulting in a figure of £23.0 million
(FY19: £20.7 million).
Statutory profit before tax rose 26.6% to £10.0 million
(FY19: £7.9 million). Statutory diluted EPS from continuing
operations rose 1.2% to 43.1p (FY19: 42.6p), with growth
constrained by the issue of 2.1 million ordinary shares in
relation to the Cornelian acquisition.
Dividend
The Board has recommended a final dividend of 32.0p (FY19:
32.0p) which, subject to approval by shareholders at the AGM,
will result in total dividends for the year of 53.0p (FY19: 51.0p).
This represents an increase of 3.9% on the previous year
and reaffirms the Board’s confidence in the strength of the
business even in the context of the COVID-19 pandemic, and
our commitment to a progressive dividend policy. The final
dividend will be paid on 6 November 2020 to shareholders
on the register at the close of business on 25 September 2020.
Board changes
There have been several changes to the Board during the
financial year and in the post-close period. Colin Harris had
completed 9 years’ service and therefore, in line with the UK
Corporate Governance Code, did not seek re-election at last
year’s Annual General Meeting. He left the Board with effect
from 31 October 2019. On 1 May 2020, we announced that
David Stewart was taking up the role of CEO of LSL Property
Services plc and would accordingly leave the Group
Board on 31 July 2020. I thank Colin and David for their
contributions to the Group.
On 9 June 2020 we announced that Dagmar Kershaw would
join the Board with effect from 1 July 2020. On 16 July 2020
we announced the appointment of Robert Burgess effective 1
August 2020. We welcome Dagmar and Robert to the Board.
Governance and regulatory
The Group follows the UK Corporate Governance Code and
this is our first full year of reporting against the 2018 Code.
We have continued to keep abreast of regulatory change,
where the major activity this year was the implementation
of the Senior Managers and Certification Regime (“SM&CR”)
which went live on 9 December 2019. We also continued to
embed the changes related to MiFID II and GDPR. The Group
maintained high standards of compliance throughout the
lockdown period.
Looking ahead
The macroeconomic outlook is highly uncertain in the
short term, given the pandemic and the continuing
negotiations on our post-Brexit relations with the EU,
which will both have an impact on the economy,
markets and client sentiment. We are positive that
the fundamental opportunity for Brooks Macdonald
remains strong, driven by demographic and policy
trends as well as increasing adviser demand for
outsourced investment management, where we
will continue to work to be the partner of choice.
The Group continues to have a strong balance
sheet and supportive shareholders. I am
confident that we will continue to create value
for both shareholders and other stakeholders
through organic growth, service and
operational excellence, alongside selective
high quality acquisitions.
Alan Carruthers
Chairman
16 September 2020
10
Brooks Macdonald Group plc / Annual Report and Accounts 2020
Introduction
Strategic report
Corporate governance
Financial statements
I am hugely grateful to
all the people who work for
Brooks Macdonald for their
ongoing contribution to the
Group’s success.
Alan Carruthers
Chairman
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27566 17 September 2020 8:16 am proof 6Caroline Connellan CEOCEO’s reviewBrooks Macdonald Group plc / Annual Report and Accounts 202012Brooks Macdonald AR2020 Strategic.indd 1217/09/2020 13:09:3227566 17 September 2020 8:16 am proof 6IntroductionI am delighted with what we have achieved this year (“FY20”) in both financial performance and strategy delivery particularly given the backdrop. We have continued to execute our strategy with discipline and rigour, not only taking the actions we said we would, but also achieving the outcomes we promised, including the continuing improvement in our underlying profit margin. In parallel, we delivered robust investment performance, despite volatile markets, protecting our clients’ wealth.These have been unprecedented times with the impact of Brexit and then the COVID-19 pandemic causing widespread disruption and anxiety. Many have been affected by the recent uncertainty and, throughout, our priority has been to support our people and deliver for advisers and clients. When the COVID-19 pandemic led to lockdown, our flexible working approach and adaptable technology setup meant we were able to move to a remote working model seamlessly. We significantly increased our focus on the health and wellbeing of our people, providing reassurance and stability, allowing us to continue to operate successfully for those we serve in this uncertain and ever-changing world.Given the challenges we have all faced, I would like to thank the advisers we work with and our clients for their continuing support, which we do not take for granted. I also want to thank all the people who work for Brooks Macdonald. What we have achieved over the past year has only been possible because of their continued passion, commitment and hard work – regardless of whether that work was in one of our offices or at home during lockdown. I am hugely grateful for all that they have done and continue to do.As we move into a new stage of our strategy, I am confident that the actions we have taken over recent times have resulted in a more robust business, and I am excited by the potential for Brooks Macdonald going forward. We have a bold vision for Brooks Macdonald as the leading investment manager for intermediaries, leveraging our strengths and unique position in the market.Delivering our strategyOur current strategy was agreed by the Board in November 2017 to deliver improved returns from a sustainable and scalable business. Since then, through each phase, we have done what we said we would do – reinforcing the foundations of the business, improving our proposition for advisers and clients, increasing efficiency and effectiveness, and investing in our people and our infrastructure. We have delivered improving underlying profit and profit margins year-on-year and, in the last 9 months, we have complemented our organic growth strategy with two high-quality, value-enhancing acquisitions.As we near completion of the strategy we laid out in 2017, what we have delivered has made Brooks Macdonald a more robust business. We have been through a period of change to set the business up for the future and in parallel have delivered strong financial performance. Despite the near-term external headwinds, we are ready to capitalise on the significant growth opportunities we see ahead.We are now pivoting from a focus on preserving value towards value creation, moving into a new ambitious stage of our strategy. We look forward with confidence, building on what we have delivered over the past three years and leveraging our strengths, with our vision of Brooks Macdonald as the leading investment manager for intermediaries. To enable this, a core element of our strategy, alongside our robust Centralised Investment Process and our compelling investment proposition, is to transform our adviser experience and client service levels to be best in class. Our digital experience for advisers and clients – complementing our face-to-face relationships – will be market-leading, including automated onboarding, full adviser and client portal functionality, and bespoke reporting. We are working with a leading wealth management technology and services company to deliver this transformation and we are close to agreement on a partnership to materially upgrade our operations activities. FY20 was another year of strong performance for Brooks Macdonald delivering increased underlying profit and underlying profit margin despite the unprecedented external conditions. £13.7bn FUM reached a new high at £13.7bn driven by robust investment performance and the acquisition of Cornelian.21.2% Delivered an increase in underlying profit margin of 1.6 points on prior year in line with our stated commitment.13Brooks Macdonald Group plc / Annual Report and Accounts 2020IntroductionStrategic reportCorporate governanceFinancial statementsBrooks Macdonald AR2020 Strategic.indd 1317/09/2020 13:09:33 Introduction
Strategic report
Corporate governance
Financial statements
CEO’s review continued
Continuing the trajectory of the improving financial results
we have delivered over the last three years, we will aim for
top quartile underlying profit margin in the medium term.
We are committed to driving value creation through a return
to organic growth, market-leading service and operational
excellence, and further selective high-quality acquisitions.
Investment performance in FY20 was all the more creditable
given the exceptionally difficult markets, with Brexit
uncertainty in the first half being replaced by the COVID-19
pandemic in the second.
This has further demonstrated the value of active investment
management in protecting our clients’ wealth in difficult times.
Financial performance
FY20 was another year of strong financial performance
for Brooks Macdonald. We increased our underlying
profit margin, up 1.6 points to 21.2% (FY19: 19.6%), in line
with our commitment. We also delivered record revenue
and underlying profit levels of £108.6 million and £23.0
million respectively (FY19: £105.7 million and £20.7 million
respectively).
Our year-end closing FUM reached a new high, up 4.1% to
£13.7 billion (FY19: £13.1 billion), driven by £1.2 billion from
the acquisition of Cornelian Asset Managers and £0.1 billion
in investment performance which was partially offset by
£0.8 billion of net outflows, related to the Group’s focus
on business quality and the proactive actions we took to
position the business for future success.
Revenue grew by 2.7% to £108.6 million (FY19: £105.7 million),
and underlying profit before tax by 11.1% to £23.0 million
(FY19: £20.7 million). Statutory profit before tax was also up
strongly, increasing 26.6% from £7.9 million to £10.0 million. A
full reconciliation of underlying and statutory profit is given
on page 36.
We also announced two high-quality and value-enhancing
acquisitions – Cornelian, announced in November and
completed in February, and the Channel Islands wealth
management and funds business of Lloyds Banking Group,
which we announced in June and expect to complete before
the end of the calendar year.
Despite the challenging headwinds and reflecting the
strength of the Group today, we took a “protect to thrive”
approach through COVID-19 making the health and
wellbeing of our people our first priority, while providing
reassurance to our advisers and clients (see Our response to
COVID-19 on page 16) and continuing to deliver against our
strategic priorities. Our approach has allowed us to operate
successfully and we are emerging as a stronger organisation,
excited and optimistic about what the future holds.
Investment performance
and market conditions
Our investment performance through FY20 was strong, at
1.0% compared to a decline of 3.5% in the MSCI PIMFA Private
Investor Balanced Index. This maintained our position of
being ahead of ARC benchmarks for almost all risk profiles
over 1, 3, 5 and 10 years.
During the first half of the financial year markets were
broadly constructive but with bouts of instability around
Brexit deadlines, Sino-US relations and a German
manufacturing slump.
This environment was disrupted by the rise of COVID-19
which led to widespread volatility in financial markets and
the economy. After the March lows, the rebound in equities
has been driven by three factors: the relative attraction of
equities versus the low yields of safe haven assets, investors
looking ahead to greener economic pastures and ultra-
accommodative global monetary and fiscal policy which is
expected to supercharge the recovery.
Both anecdotally via investor surveys, and looking at money
market fund AUM, there is significant investor cash still on
the sidelines and we believe the desire to achieve a positive
real yield will drive reallocations into equities helping to
support valuations.
Review of business performance
Robin Eggar took over as sole Head of UK Investment
Management (“UKIM”), our largest and most profitable
business, in January 2020. He and his team have continued
to deliver for advisers and clients across the UK, supporting
an increase in underlying profit. The enhancements we have
made in our offering have delivered positive organic flows
in our specialised Bespoke Portfolio Service (“BPS”) variants
– Court of Protection, Responsible Investment Service,
and Decumulation – and in our Managed Portfolio Service
(“MPS”), particularly our relaunched Platform MPS, as well
as initial traction in our business-to-business BM Investment
Solutions offering. Overall, we saw good momentum in
inflows, growing through the last three quarters of the year,
with full year inflows holding up well, at over 90% of FY19
levels.
This achievement was despite a weakening in net flows
in BPS and Funds which were affected by the impact on
client sentiment of ongoing macroeconomic uncertainty
and outflows of mainly lower margin business as a result of
the Group’s focus on business quality and actions taken to
position the business for future success. As examples, during
the year we moved our office from York to Leeds, to access
a larger group of advisers and greater pools of wealth, and
the Group’s investment management agreement for the
Grosvenor Consulting funds was terminated.
14
Brooks Macdonald Group plc / Annual Report and Accounts 2020
The mandate came to an end when we were unable to reach a satisfactory
commercial arrangement with Grosvenor for the purchase of the sponsorship
company attached to the funds. This accounted for £244 million of FUM
corresponding to annualised revenues of circa £0.6 million.
Andrew Shepherd continued to lead the reinvigoration of our International
business, evidenced by improving commercial performance, and
reinforced by the announcement in June of the acquisition of Lloyds
Banking Group’s Channel Islands wealth management and funds
business. In FY20, robust investment performance did not fully offset
improving albeit slightly negative net flows, resulting in an overall FUM
decline of 1.6%. International improved its underlying profit margin to
18.7% and the team has a clear plan to bring margins to UKIM levels
in the medium term, with progress toward that target accelerated by
the Lloyds transaction.
Financial Planning, our in-house Independent Financial Adviser,
made good progress in its restructuring under the leadership
of Adrian Keane-Munday. In FY20, he and his team succeeded
in materially reducing its underlying loss margin and they
continue to see a positive client response to the changes they
are making.
Client need and demand for financial advice and high-
quality investment management remains strong, driven
by underlying demographics and increasing policy onus
on the individual to save for retirement. We continue to
see a strong opportunity both to build relationships with
more advisers and to extend our relationships with our
current advisers, thereby returning over time to strong
organic net flows. Our confidence in the opportunity
is based both on feedback from the advisers in our
network and from broader survey data which show
more advisers planning to outsource and those who
already do, planning to outsource more.
People
We have continued to invest in our people
throughout the year, supporting the talent
we have in the business and bringing in new
high-quality hires. We aim to attract and retain
the best talent in the industry and, over the
year, we have taken on key hires across our
adviser and client facing teams and built
further functional capability. We have
continued to hire through lockdown with
over 30 hires joining us since March.
Notably, Lynsey Cross, formerly COO
of Amtrust International and CEO of
specialist insurer ANV Group before
that, was fully onboarded to the Group
remotely as Chief Operating Officer,
effective 1 May 2020.
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CEO’s reviewcontinued
While we are always looking for individuals who complement
our current skills, today we have a full and talented team in
place to deliver our strategy. The teams across our business
represent a powerful mix of those with long-standing Brooks
Macdonald experience and those who have joined us more
recently, with fresh ideas and different expertise.
We communicate frequently with our people and also gather
their feedback through town halls, more informal sessions
and Group-wide employee engagement surveys. It is pleasing
to see that the focus we have put on our people agenda has
led to a significant increase in engagement metrics over
the year. As a result, we are emerging from lockdown with
stronger engagement, creating a stronger organisation, better
able to capture the opportunities ahead.
Outlook
We have executed our strategy with discipline over the past
three years, and Brooks Macdonald is now a more robust
business for it, ambitious for the future. I am excited by
our bold vision for the company as the leading investment
manager for intermediaries. We are uniquely positioned with
our focus on advisers and trustees, and we will leverage our
strengths in this area. We will build on our success to date
– driving organic growth, ensuring service and operational
excellence, particularly through our planned partnership to
transform the adviser experience and client service levels,
and seeking selective high-quality acquisitions. We will
also continue to deliver strong financial performance with
improving margins.
The fundamental potential for Brooks Macdonald remains
strong, despite the short-term headwinds and impact on
client sentiment from both the pandemic and renewed
Brexit uncertainty. The disruption caused by COVID-19 has
reinforced the importance of high-quality financial advice
and investment management and we are well positioned
to help clients, and advisers, realise their ambitions and
secure their futures. The disruption has created a window of
opportunity for bold strategic moves, we have a strong team
and are well positioned for the future.
I would like to finish by reiterating my thanks to the advisers
we work with and our clients for their continuing support, as
well as to our people. It has been a year of many challenges,
but also many positives, and we are emerging stronger from
lockdown. I look forward with confidence to what we can
achieve together.
Caroline Connellan
CEO
16 September 2020
Our response to COVID-19
Since mid-March, the COVID-19 pandemic has caused
widespread disruption. Our response was to adopt a “protect
to thrive” approach, making the health and wellbeing of our
people our first priority, while reassuring advisers and clients.
This enabled us to move seamlessly to remote working and
to continue to deliver for our advisers and clients in volatile
markets. We stepped up our support with more frequent
contact, particularly aimed at advisers, including daily
investment bulletins and regular webinars on thematic
topics relevant to investing in such an unprecedented
economic environment. We continued active management
of client portfolios and again delivered robust investment
performance, protecting our clients’ wealth.
Our “protect to thrive” approach included a commitment
during lockdown of no redundancies and no furlough.
We had frequent communication with our people
including regular wellbeing “pulse” surveys to track how
they were feeling, which allowed us to understand what
was important to them, and respond to their needs and
concerns, getting positive feedback. Our pre-existing flexible
working approach and robust technology support for
working outside the office meant we had comprehensive
homeworking capabilities from day one of lockdown.
Throughout the pandemic we have worked as close to
normal as possible.
Alongside the challenges, the pandemic has also created
opportunities. We have been able to move to a different
approach to engage with advisers and clients – more
virtual and more frequent – which has worked well. We
have fast-tracked a number of process improvements
and reduced our reliance on paper with increasing
use of digital. Looking forward, we believe the
disruption caused by the pandemic is creating
opportunities for players willing to do things
differently.
Since the financial year end, we have started
reopening our offices reflecting our desire, as
a relationship business, to start bringing our
people together again and, in time, to meet
face to face with advisers and clients. We
have worked hard to ensure our workplaces
are safe and are encouraging our teams,
where appropriate, to start returning to
the office while still benefiting from the
flexibility of home working. Enabling
a balance of office and home working
allows us to move forward in a way
that is right for our people, to perform
as a business, and to play our part in
helping the economy to recover.
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Introduction
Strategic report
Corporate governance
Financial statements
Our vision for Brooks Macdonald
is as the leading investment
manager for intermediaries, driving
organic growth, achieving service
and operational excellence and
conducting selective high-quality
acquisitions.
Caroline Connellan
CEO
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Our business model
Over the nearly 30 years of Brooks Macdonald’s existence, our business model has successfully
supported our mission to protect and enhance our clients’ wealth through the provision of investment
management and advice alongside exceptional client service.
We have delivered consistent robust investment performance through our Centralised Investment Process
and exceptional client service through the client-centric, “can-do” attitude of the people we recruit.
Introduction
Strategic report
Corporate governance
Financial statements
Our key resources
We work with
financial advisers...
What we offer
What this means for our stakeholders
Expertise
We have deep expertise in investment management
and financial planning, built up over nearly 30 years.
We apply that expertise through our investment
processes, in how we work with advisers, and in our
interactions with clients to ensure that each portfolio is
managed correctly to meet the client’s risk profile and
requirements.
People
Our people are our greatest strength and we focus on
attracting and retaining the best talent in the industry.
We have increased the capability of our people across
all levels of the organisation over recent years through
a combination of developing our internal talent
and making selective key hires, and we now have a
powerful mix of Brooks Macdonald experience and
fresh ideas from elsewhere.
Culture
Our client-centric culture is driven by our Guiding
Principles, defined by our people in 2018: we do the
right thing, we are connected, we care and we make
a difference. These principles underpin everything
that we do.
Centralised Investment Process
Our Centralised Investment Process is core to
delivering our best ideas consistently to all our clients
through collective asset allocation and asset selection
processes, supported by a set of investment rules – on,
for example, liquidity – that guide our decision making.
Financial resources
Brooks Macdonald has a strong balance sheet and
supportive shareholders. The business is highly cash-
generative and has zero debt.
Advisers select Brooks Macdonald because of
the resources we bring to bear on protecting
and enhancing their clients’ wealth
The adviser determines which of the firm’s
services is most suitable for the client, based on
their risk profile and their financial objectives
We work with the adviser to ensure the client’s
portfolio is looked after correctly
In some cases, we provide a white-labelled
service for the adviser, typically based on
model portfolios or unitised solutions
We also work directly with
private clients…
Some clients approach us directly, or they
are introduced by a professional other than
a financial adviser – e.g. a solicitor or an
accountant
In that case we determine whether any of the
firm’s services are suitable for the client and, if
so, we will provide investment advice
Then we make a proposal to the client and,
if they agree, manage their portfolio with the
same investment rigour
And we provide financial advice…
Our Financial Planning business provides
independent financial advice
In some instances, this is a one-off piece of advice
for a specific issue that the client has
On other occasions, the client has longer-term
needs, in which case we will continue providing
financial advice, and we may help them choose
a discretionary fund manager on a “whole of
market” basis
We provide services to support our professional
adviser partners in the delivery of service to
their clients.
We provide a range of services to:
Clients
We help our clients realise their ambitions and secure
their futures by protecting and enhancing their wealth
through our investment management and financial
planning services.
Private clients –
i.e. individuals and families
Trustees
Pension funds
We offer bespoke services to those clients who will
benefit, delivering outcomes customised to the client’s
specific circumstances and requirements, and more
modular offerings to those clients with more standard
requirements, thereby ensuring that our charges to
clients are in line with the benefit they receive.
Advisers
The professional advisers we work with get a range
of services to support their client relationships and
peace of mind that investment management is being
conducted consistently, thoughtfully and in a robustly
compliant manner.
Employees
We have developed a strong people proposition, that
continues to improve, and is aimed at attracting and
retaining the best people in the industry.
How we do it
Shareholders
We have a Centralised Investment Process and
governance of product development, with our services
delivered through a network of 12 offices across the UK
and the Channel Islands.
Our Centralised Investment Process helps ensure
both consistency of outcome for clients with similar
requirements and economies of scale for the business
We use our knowledge of our clients to drive
innovation, delivering products and services that
meet their evolving needs
Our investment management businesses work
closely with professional advisers both internally
and externally
Our network of offices puts us close to our
clients, with the geographic reach to build strong
relationships with clients and advisers alike
Shareholders benefit from the performance of the
Group through both capital growth and progressive
dividends.
I would like to thank
the advisers we work
with and our clients
for their continuing
support.
Caroline Connellan
CEO
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27566 17 September 2020 8:16 am proof 6Centralised Investment ProcessWe are an independent investment management firm, providing a wide range of investment and wealth management services to private clients, pension funds, professional intermediaries and trustees; financial planning advice to high net worth individuals and families; and multi-asset and specialist funds to the retail sector.Our servicesTo make sure we deliver the best possible investment options for clients, our Centralised Investment Process aims to:• Generate the best ideas and then use them as widely as possible• Deliver strong risk adjusted returns for clients• Have an explainable process and explainable resultsWe have an industry leading investment process which powers the services and products we provide to our clients. This process creates a robust framework for our investment professionals to work together, sharing ideas and challenging each other’s views.Our Centralised Investment Process is built on a model where decision-making responsibility and authority is shared equally by colleagues. This approach produces the best possible outcomes by encouraging the best thinking from everyone involved. We recognise that no individual investment manager, research analyst or member of our Chief Investment Office team has a monopoly on good ideas. Once we have concluded that an idea is a great one, we will use it as widely as possible for all suitable strategies.Inputs• House View• External Research• Investment Data SystemsPeople• Head of Research• Research Team• 60 Investment Managers / Portfolio ManagersGovernance• Asset Selection CommitteeInputs• Regulatory Backdrop• Industry Best Practice• Brooks Macdonald Thought LeadershipPeople• Chief Investment Office• Risk DepartmentGovernance• Investment CommitteeInputs• Investment Views from our Research Providers• External Research• In House Investment StrategistPeople• Nine Senior Investment Leaders• External Research AnalystsGovernance• Asset Allocation Committee20Brooks Macdonald Group plc / Annual Report and Accounts 2020Brooks Macdonald AR2020 Strategic.indd 2017/09/2020 13:09:3827566 17 September 2020 8:16 am proof 6To help diversify and manage risk, we use asset allocation guidance to allocate portfolios between various geographies and asset classes. Depending on the study you read, asset allocation can determine up to 80% of client returns over a longer time horizon so it is vital to get this right. Our Asset Allocation Committee meets monthly to determine our house view. We use external parties – both independent macro research providers and the research teams of investment banks – to challenge us and help us construct our house view. We encourage external scrutiny of our views and pay the most attention to the group that disagrees with our house view the most, inviting them to our monthly investment forum to tell us what, in their view, we are missing. External research is vital as it means our Asset Allocation Committee is powered by the ideas of hundreds of macro economists and strategists. We also use the systems of most major data providers to test our views against history, and flag opportunities in markets. This is a major investment for us both in terms of time and Brooks Macdonald’s financial investment.Asset AllocationAsset SelectionInvestment RulesOnce the Asset Allocation Committee has set the house view, it is passed to our sector research teams. All our investment managers and research analysts have the opportunity to involve themselves in sector research and they form the core of the sector research teams. With oversight and peer review from our Asset Selection Committee, the ideas generated by the sector teams drive the buylist. The end result is a substantial buylist of researched assets for investment managers to use when constructing portfolios. Our investment rules have been designed to operate within the harshest of conditions and, whilst all market crises are different, there is never a reason not to stick to our established investment rules.We apply central investment rules to all our investment products. For our bespoke and managed portfolio services, these are the key inputs into our risk management system which assesses portfolios daily for deviations from expected volatility, asset allocation, buylist and concentration limits. The executive-level Investment Committee is responsible for setting these rules as well as driving the overall investment philosophy of the firm. Rigorous application of these rules, such as maintaining high levels of liquidity, have put us in a good position to weather any foreseeable investment storm that may occur. IntroductionStrategic reportCorporate governanceFinancial statements21Brooks Macdonald Group plc / Annual Report and Accounts 2020Brooks Macdonald AR2020 Strategic.indd 2117/09/2020 13:09:38 Our services continued
We provide our services through three core businesses:
UK Investment Management (including Funds)
Providing discretionary fund management services and open-ended investment company
products to clients and their introducers as well as other discretionary managers across the UK.
International
Providing discretionary fund management and wealth management advice services to
clients and their introducers across Europe, South Africa and the UAE from offices in Jersey
and Guernsey.
Financial Planning
Providing wealth management advice services to UK clients from the London office.
1 UK Investment Management
(FUM at 30 June 2020: £12.1bn)
Within UK Investment Management (“UKIM”), there are
seven distinct service lines:
Bespoke Portfolio Service
The Bespoke Portfolio Service (“BPS”) is the Group’s flagship
offering, designed for clients who want an individual
investment portfolio constructed to meet their specific
requirements. The investment manager maintains a detailed
knowledge of the client’s investment requirements, allowing
the manager to construct focused portfolios supporting the
delivery of risk-adjusted investment returns appropriate to
the client’s investment objectives. The range of investments
includes unit trusts, open-ended investment companies,
exchange-traded funds, investment trusts and cash, as
well as individual equity and bond securities. Investment
managers for BPS follow the core asset allocation and asset
selection recommendations of the Group-wide Centralised
Investment Process (“CIP”).
Within BPS, in addition to our core BPS, we offer three
specialised services aimed at clients with distinct sets
of needs:
• Responsible Investment Service, designed for clients
with the dual objective of responsible investment and
return generation in line with defined risk profiles.
The service is available both through BPS and our
Managed Portfolio Service (“MPS”). We offer two distinct
Responsible Investment strategies: Avoid and Advance.
The values based objective of the Avoid strategy is
to prevent exposure to companies involved in the
production of armaments, tobacco, alcohol, gambling
and pornography, while for the Advance strategy
the objective is to invest in, and advance, businesses
that either specifically seek to provide solutions to
sustainability issues, or businesses that have strong
corporate policies and outputs relating to environmental,
social and governance (“ESG”) criteria.
• Decumulation service, a bespoke approach, designed
to help meet clients’ income requirements over their
retirement by aiming to shield the portfolio from
downturns in the early years of withdrawals. Its structure
is specifically adapted to address short-term sequencing
risk, while retaining the ability for longer-term assets to
contend with inflation risk.
• Court of Protection service, aimed at clients in
that particular sub-segment and vulnerable clients
more broadly.
Introduction
Strategic report
Corporate governance
Financial statements
2 International (FUM at 30 June 2020: £1.6bn)
International is based in the Channel Islands and offers a
range of investment management and financial planning
services. The services are designed to meet the particular
requirements of offshore and international clients and
the investment management process follows the CIP. A
comprehensive range of investment services is provided to
private clients, trusts and advisers, available in sterling, euros
or US dollars:
•
•
•
International Bespoke Portfolio Service, including
the recently launched International Responsible
Investment Service
International Managed Portfolio Service
Single-strategy solutions, which invest directly in the
traditional asset classes of equities and bonds for ultra-
high net worth clients with higher entry thresholds.
The Direct Equity Strategy is structured to provide
capital appreciation and income growth through direct
investment in high-quality stocks, while the Corporate
Bond Strategy invests in a diversified portfolio of
investment-grade bonds to provide a balance of income,
security and liquidity.
The International business also has a financial planning arm,
Brooks Macdonald Retirement Services, which provides a
comprehensive service for private clients who require wider
planning around their investments, also focusing on financial
protection and pensions.
3 Financial Planning
Financial Planning provides wealth management advice
services to high net worth individuals and families in London
and the South-East, giving independent “whole of market”
financial advice enabling clients to build, manage and protect
their wealth. The service is advice rather than product-driven,
providing clients with a coherent, affordable strategy aimed
at achieving their long-term goals. In addition to the financial
planning service, the Group works in collaboration with other
professional advisers such as solicitors, accountants and
wealth managers, to help them provide a comprehensive
service to their clients predominantly focused on financial
advice, but also including mortgage services.
AIM Portfolio Service
The Group’s AIM Portfolio Service (“APS”) provides clients
with access to a carefully selected portfolio of AIM-listed
companies, with preference given to companies that are
judged to have attractive long-term investment potential.
The investment universe is restricted to companies that are
understood to qualify for Business Property Relief (“BPR”),
allowing investors to benefit from Inheritance Tax (“IHT”)
exemptions.
Managed Portfolio Service
The Managed Portfolio Service provides a choice of
investment into a range of risk-managed model portfolios,
each investing across a different mix of asset classes. Each
model portfolio is designed to achieve specific investment
objectives within a specific risk profile. MPS portfolios are
managed by a dedicated team of investment managers in
accordance with the CIP.
Fund Portfolio Service
The Fund Portfolio Service (“FPS”) is used where the adviser
decides it is suitable to invest the client’s portfolio in one of
our multi-asset funds, typically where the needs and risk
profiling are not complex and/or the portfolio is small.
Multi-Asset Funds
The Multi-Asset Funds (“MAF”) range allows investors to
gain access to the Group’s investment management expertise
and CIP through a pooled fund solution. The Group offers
two ranges:
• The IFSL Brooks Macdonald Fund – a range of four risk-
managed multi-asset funds: Defensive Income, Cautious
Growth, Balanced and Strategic Growth.
• The SVS Cornelian Investment Funds – a range of six
multi-asset funds: Defensive, Cautious, Managed Income,
Managed Growth, Growth, and Progressive.
By differing their levels of equity exposure, the range
caters for both investors seeking capital growth and more
cautious investors looking to generate income while
preserving their capital.
BM Investment Solutions
The Group designs investment propositions for advisers and
intermediaries who are looking for investment solutions
meeting specific investment objectives for their clients.
These are delivered via an open-ended fund solution or an
investment platform, in fund or model portfolio form.
Defensive Capital Fund
The Group also provides investment management services
to the Defensive Capital Fund (“DCF”), a long-only multi-asset
fund sitting in the IA Absolute Return sector, which had FUM
of £617 million at 30 June 2020.
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Marketplace
Introduction
Strategic report
Corporate governance
Financial statements
Short-term trends
Long-term trends
Impact of COVID-19
Demographic changes
Advisers increasingly outsourcing
Market conditions
The pandemic led to a sharp
decline in the UK stock market in
March. It also caused the sharpest
GDP fall since records began
although there are now some
signs of recovery. The eventual
impact on the economy remains
uncertain and highly dependent
on the success of the fight against
the virus.
Our response
The firm was able to move
seamlessly into remote working in
lockdown with a strong focus on
the wellbeing of our staff who were
then able to respond to support
advisers and clients in the volatile
markets caused by the pandemic.
Alongside the challenges, the
pandemic has created opportunities
to trial different – more virtual and
more frequent – approaches to
contact with advisers and clients. At
a strategic level, we believe that the
disruption caused by the pandemic
will create opportunities for players
willing to be bold in their actions.
Market conditions
The UK population continues
to age with the proportion of
people over 65 growing steadily.
In parallel, the policy framework
around retirement is increasingly
favourable for the wealth
management industry with people
increasingly encouraged to make
their own provision for retirement
and pension freedoms adding to the
need for advice.
Our response
BM continues to work with advisers
to support people in their retirement
planning and preparation, reflecting
the fact that retirement is the biggest
trigger point for people to seek
financial advice. Our decumulation
service is aimed at people in the
early years of retirement balancing
the need for income with the need
to stay invested to protect their
future wealth.
Age distribution of the UK population
0 to 15 years (%)
16 to 64 years (%)
65 and over (%)
100%
80%
60%
40%
20%
0%
2016
2026F
2036F
Source: Office of National Statistics
Market conditions
IFAs continue to look to outsource
investment management to
allow them to focus on advising
their clients and to reduce their
regulatory and administrative
burden. Both advisers who have
not outsourced before are looking
to outsource and those who do
already outsource are looking to
outsource more. Within that, we
are seeing a move from classic
bespoke portfolio outsourcing to
more specialist services and model-
based and unitised products.
Our response
We continue to help advisers serve
their clients in ways that work for the
adviser and the client, bringing our
investment management expertise
to bear in protecting and enhancing
their wealth. We are flexible in
our approach, offering bespoke
portfolios, more specialist variants
(e.g., Responsible Investment Service,
Decumulation, Court of Protection),
model-based and unitised solutions,
and Investment Solutions options,
more tailored to the needs and
requirements of the IFA.
Adviser use of outsourced DFMs
37% 39%
2017
2018
28%
20%
Advisers (%) outsourcing
investment management
to a DFM
Of those, proportion
outsourcing >50% of
client assets
Source: GlobalData
UK economy
Growth in wealth
Regulatory
Digital technology
Market conditions
Excluding COVID-19, the biggest
short-term threat to the UK
economy remains Brexit-related
uncertainty with the arrangements
for trading with the EU from January
2021 still unclear. Conversely, the
economy and the market look
likely to benefit from the promised
infrastructure spending.
Our response
The Group’s clients are almost
without exception based outside
the EU27 so the impact of Brexit
will be felt through its potentially
material impact on the broader
economy rather a direct effect on
how we do business.
Our response
We work with advisers to serve
the wealth management needs of
these sectors. We are also looking
to improve our support to advisers
around intergenerational wealth
transfer.
Market conditions
The total wealth of the UK
population is projected to continue
to grow, and within that the
affluent and HNW (High Net Worth)
sector which we target are seeing
their wealth grow more quickly.
COVID-19 is likely to disrupt this in
the short term but we do not expect
the trend to change in the medium
term. Over 70% of the wealth of the
population is held by those aged 55
and over.
UK investible assets by wealth band
4.0
3.0
2.0
1.0
0.0
CAGR 2.9%
CAGR 4.1%
HNW
Affluent
Retail
2019
2020F
2021F
2022F
2023F
Source: GlobalData
Definition
The Financial Conduct Authority
supervises the investment
management and financial
planning activities of Brooks
Macdonald. Over time, the
regulator has increased their
focus on ensuring advice and
investment management is
conducted appropriately and
professionally, and on giving
transparency to clients on fees
and charges.
Our response
We welcome the general direction
of regulation. We are committed
to ensure we are serving advisers
and clients appropriately and
professionally.
Definition
Digital technology is increasingly
a “must have” enabler of financial
services, with clients expecting
digital to complement face-to-
face relationships. The wealth
management sector has been slow
to adopt.
Our response
We are upgrading our technology
delivery with our planned
partnership arrangement with
a leading wealth management
technology and services provider,
which we believe will take us to
the leading edge of the wealth
management industry, delivering
the automation and information
access that clients have come
to expect.
What this means for Brooks Macdonald
• The fundamental opportunity for Brooks Macdonald
remains strong.
• Our core investment management and financial
planning offering is well positioned to capture the
opportunity.
• We are adapting our offering both to meet short-
term challenges in the marketplace and to cater to
advisers’ and clients’ changing needs, with a strong set
of specialised BPS products, further development of
funds and unitised solutions tailored to the adviser,
and consistent business-to-business investment
solutions delivery.
• Technological change will continue to raise clients’
expectations of how we interact with them and our
planned technology and services partnership is
designed to ensure that Brooks Macdonald is easy to
do business with, and that we provide market-leading
adviser experience and client services levels.
Competitive landscape
The investment management competitive landscape
is complex with numerous different types of player
with different business models addressing different,
but overlapping, segments of the market. Types of
player include wealth managers, Independent Financial
Advisers who conduct some or all of their own investment
management, platform providers who serve advisers,
players focused on providing model portfolios and fund
solutions, as well as the wealth arms of the major high
street banks and the high end private banks.
The industry is highly fragmented and we have seen
considerable consolidation in recent years, among both
IFAs and investment managers, where the most notable
deal is the merger of Tilney with Smith & Williamson.
We expect to see consolidation continue and potentially
accelerate as we move beyond the initial disruption of
the pandemic.
Within that competitive landscape, we believe that our
approach, with our vision of being the leading investment
manager for intermediaries, gives us a strong competitive
position allowing us to create value for advisers, clients,
shareholders and staff.
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Our strategy
We are nearing completion of the strategy we announced in 2017. We have done what we said we would
do, and delivered the promised outcomes. Now we are moving into a new stage of our strategy, pivoting
from value preservation to value creation.
We have done what we said we would do
We reinforced the foundations of the business and took immediate actions to improve profit margins. We exited non-core
businesses and upgraded our risk and operational management framework. We strengthened the senior management, both
by developing and promoting internal talent and by bringing in key hires, particularly in the functional and back office areas
to complement the existing adviser- and client-facing expertise. We tightened cost discipline and launched a comprehensive
people strategy aimed at attracting and retaining the best people in industry.
We maintained and strengthened the business’s focus on our clients and advisers, with propositions like our new
Decumulation and Responsible Investment Service and our revamped Court of Protection offering.
We also started considering selective, high-quality acquisitions to complement our organic growth. We established strict
criteria for acquisitions – quality businesses, good strategic and cultural fit, and compelling economics – and announced two
excellent deals meeting these criteria. We announced the acquisition of Cornelian Asset Managers, the Edinburgh-based
investment manager, in November and completed the acquisition in February. Integration is now largely complete. Then in
June we announced the acquisition of Lloyds Banking Group’s Channel Islands wealth management and funds business,
supporting the reinvigoration of our International business.
Objectives of Phase 2
of 2017 strategy
Progress in FY20
Maintaining
focus on clients
and advisers
• Through the pandemic and the lockdown, continued to deliver for our advisers and
clients. Stepped up the frequency of support contact, from daily investment briefings
to regular webinars covering important investment topics
•
Increased focus on providing Investment Solutions for advisers who are looking for
solutions tailored to their needs and preferences. Appointed an Investment Solutions
Director to lead the effort
Efficiency and
effectiveness,
easier to do
business with
Targeted
investment
• Continued improving client and investment administration and operations
processes, new centralised Client Operations team
•
Implemented new client portal, myBM
•
Invested in technology upgrades, e.g. cyber security
• Rolled out infrastructure and staff support, which enabled remote working to work
smoothly
• Funded two acquisitions in the year with support of shareholders
•
Invested in people, both through development of our existing talent and bringing in
selective high-quality hires
Introduction
Strategic report
Corporate governance
Financial statements
Looking forward
Our vision for Brooks Macdonald is as the leading investment manager for intermediaries. A core element of that will be to
transform our adviser experience and client service levels. As part of this, the digital experience delivered for advisers and
clients – complementing our face-to-face relationships – will be market-leading with, for example, automated onboarding, full
adviser and client portal functionality, and bespoke reporting. We are working with a leading wealth management technology
and service company to deliver this transformation and we are close to agreement on a partnership to materially upgrade our
operations activities.
In parallel, we will maintain and enhance our robust Centralised Investment Process, delivering consistent strong investment
returns for clients. We will continue to seek new opportunities for growth, looking to grow FUM organically with new segments
and partnerships, further adding to our compelling overall investment proposition. We have added specialised products to
our Bespoke Portfolio Service and we are broadening and deepening our offering in model portfolios, funds and unitised
solutions, and in our business-to-business Investment Solutions offering, where we tailor our products and services to the
needs and requirements of advisers.
Market leading organic growth
Market-leading IFA experience, rigorous Centralised Investment Process,
compelling investment proposition, excellent client service
Complementary businesses
• Financial planning
• Private clients
Our Purpose
Realising ambitions and
securing futures
Our Vision
The leading investment manager for intermediaries
Market-leading profit margin
Our Mission
To protect and enhance clients’ wealth through the provision of
investment management and advice alongside exceptional client service
Service and operational excellence
Easy to do business with, digital enablement, margin growth
through efficiency and scalability, resilience
Agile, high-quality M&A
Strict criteria, delivery of benefits
Our go-forward value creation strategy has been approved by the Board, and is based on the three value drivers of strong
organic growth, driving towards service and operational excellence, and selective high-quality acquisitions. We will deliver
further improvements in returns, building on the sustainable and scalable business model we are putting in place.
Organic growth
• Maintain and enhance our Centralised Investment
Service and operational excellence
• Continue high levels of cost discipline, freeing up
Process, delivering consistent investment returns
for clients
• Continue to add to our compelling investment
proposition in specialised bespoke portfolios, model
portfolios and fund/unitised solutions, and in business-
to-business solutions for advisers, all supported by a
high-impact Take To Market strategy
• Deliver market-leading adviser experience and client
service levels, through our planned partnership with a
world-class wealth management technology and service
company, and related improvements
investment into service differentiators
• Complete roll-out of new client administration processes
• Benefit from efficiencies of new technology and services
partnership
Selective high-quality acquisitions
• Criteria are high-quality businesses, good strategic and
cultural fit, compelling economics
• Leverage the scalability of the platform we are putting
in place
This is all underpinned by our investment in people and
culture with the objective of attracting, engaging and
retaining the best talent in the industry.
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Introduction
Strategic report
Corporate governance
Financial statements
Key performance indicators
The following financial and strategic measures have been identified as the key performance indicators (“KPIs”) of the Group's overall
performance for the financial year. Comparative figures have been restated in respect of the adjustments noted on page 32 in order
to provide a more appropriate year-on-year comparison.
1) FUM and revenue
2) Underlying performance
3) Shareholder return and financial position strength
Funds under management (£bn)
Underlying profit before tax (£m)
Statutory profit from continuing operations
before tax (£m)
Statutory diluted earnings per share from
continuing operations (p)
13.7
13.1
12.3
4.1%
Definition
Total funds under management
at the end of the year.
Relevance
The value of funds under
management has a direct impact
on the Group’s revenue.
20.7
18.5
23.0
11.1%
10.0
20.5%
42.6
43.1
39.1
1.2%
Definition
Revenue less underlying costs
before tax.
Relevance
This measures the Group’s
performance excluding the
impact of certain one-off costs
or credits so as to provide a
more appropriate year-on-year
comparison.
8.3
6.5
Definition
Revenue less total costs from
continuing operations before tax.
Relevance
This measures the Group’s
profitability from continuing
operations calculated in
accordance with International
Financial Reporting Standards.
Definition
Total statutory profit after tax
divided by the weighted average
number of ordinary shares.
Relevance
This is a key metric of measuring
the Group’s profitability and
takes into account new shares
issued during the year.
FY18
FY19
FY20
FY18
FY19
FY20
FY18
FY19
FY20
FY18
FY19
FY20
Organic net fund flows (£bn)
Underlying profit margin before tax (%)
Total dividend per share (p)
Total capital ratio (%)
1.4
0.4
(0.8)
(£1.2bn)
Definition
Value of net organic
discretionary flows.
Relevance
Net organic growth measures
the new business generated by
the Group excluding the impact
of acquired assets and after
allowing for lost business.
21.2
18.8
19.6
1.6pts
Definition
Underlying profit before tax as a
percentage of revenue.
Relevance
This is a key measure of the
Group’s underlying performance
reflecting key drivers of long-
term profitability.
51.0
53.0
47.0
3.9%
Definition
Total dividend per share paid out
to shareholders.
Relevance
Distributions by the Group in the
form of dividends represent an
important part of the returns to
shareholders.
FY18
FY19
FY20
FY18
FY19
FY20
FY18
FY19
FY20
20.7
2.6pts
18.1
17.4
FY18
FY19
FY20
8% minimum requirement
Definition
The Group’s total regulatory
capital resources relative
to its Pillar 1 risk exposure
requirement.
Relevance
The Group must hold a
minimum amount of regulatory
capital. This ratio measures the
amount of capital in relation to
the risk exposure of the Group as
an indication of resilience.
Revenue (£m)
Underlying diluted earnings per share (p)
105.7
108.6
98.6
2.7%
Definition
Fee and non-fee income
generated during the year.
Relevance
The amount of fee and non-
fee income generated by the
Group is one of the key growth
indicators.
123.5
123.7
121.1
0.2%
Definition
Total underlying profit after tax
divided by the weighted average
number of ordinary shares.
Relevance
This is another key metric
of measuring the Group’s
profitability and takes into
account new shares issued
during the year.
FY18
FY19
FY20
FY18
FY19
FY20
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2756617 September 2020 8:16 amproof 6Financial reviewBen Thorpe Group Finance DirectorBrooks Macdonald Group plc / Annual Report and Accounts 202030Brooks Macdonald AR2020 Strategic.indd 3017/09/2020 13:09:432756617 September 2020 8:16 amproof 6Review of results for the yearThe Group had a strong year, delivering record income and underlying profit against the backdrop of political and macroeconomic uncertainty pre-Christmas, which was then further exacerbated by the market disruption caused by the outbreak of the COVID-19 pandemic. Our disciplined approach to the management of the firm’s financial resources means we entered the crisis well placed and the payment of the interim dividend in April 2020, reaffirmed the resilience of our business model and our confidence in the future opportunity. This disciplined management, combined with the successful acquisition and integration of Cornelian have led to the delivery of both record profits and an improved underlying profit margin, which increased from 19.6% to 21.2%. The table below shows the Group’s financial performance for the year ended 30 June 2020 with comparative periods and provides a reconciliation between the underlying results, which the Board considers to be a more appropriate reflection of the Group’s performance, and the statutory results. A breakdown of the underlying adjustments is shown on page 36.Group financial results summaryFY20£m FY19restated£mChange%Revenue108.6105.72.7Fixed staff costs(39.8)(37.1)7.3Variable staff costs(10.8)(15.5)(30.3)Total staff costs(50.6)(52.6)(3.8)FSCS levy(2.2)(1.2)83.3Non-staff costs(32.8)(31.2)5.1Total non-staff costs(35.0)(32.4)8.0Total underlying costs(85.6)(85.0)0.7Underlying profit before tax23.020.711.1Underlying adjustments(13.0)(12.4)4.8Statutory profit before tax from continuing operations10.08.320.5Loss from discontinued operations–(0.4)(100.0)Statutory profit before tax10.07.926.6Taxation(3.6)(2.4)50.0Statutory profit after tax6.45.516.4Underlying profit margin before tax21.2%19.6%1.6pptUnderlying diluted earnings per share123.7p123.5p0.2Statutory profit margin before tax from continuing operations9.2%7.9%1.3pptStatutory profit margin before tax9.2%7.5%1.7pptStatutory diluted earnings per share from continuing operations43.1p42.6p1.2Dividends per share53.0p51.0p3.9£108.6m Total revenue reached a new record for the Group of £108.6m, up 2.7% on FY19 including the contribution from the acquired Cornelian business.£23.0m An increase of 11.1% in underlying profit before tax on the prior year driven by growth in FUM, revenue and continued cost discipline. The Group had a strong year, delivering both record revenue and underlying profit due to strong cost discipline and the successful acquisition and integration of Cornelian. 31Brooks Macdonald Group plc / Annual Report and Accounts 2020IntroductionStrategic reportCorporate governanceFinancial statementsBrooks Macdonald AR2020 Strategic.indd 3117/09/2020 13:09:44 Financial review continued
Restatement of comparative figures
The Group’s results for FY19 have been restated in respect of the following two matters which have come to light during the
finalisation of the Group’s results for the year ended 30 June 2020 which have been reflected in the Consolidated financial
statements. These are explained in brief below and further details provided in Note 4 to the Consolidated financial statements.
ACD fees and associated costs
FY19 figures have been restated in respect of the recognition of the Authorised Corporate Director (“ACD”) fees and associated
costs for one of the regulated OEICs managed by the Group. In prior years these were recognised on a grossed-up basis
in revenue and non-staff costs respectively. During FY20, the accounting was corrected to only recognise the investment
management fees due to the Group from the ACD under the Investment Management Agreements. This adjustment has no
impact on the underlying and statutory profits before tax.
VAT on Platform MPS
The Group has been undergoing a review of its Managed Portfolio Service (“MPS”), with a view to seeking a ruling from HMRC
that MPS is not subject to VAT. When conducting this review, it was noted that the fees received on MPS offered through third
party platforms (Platform MPS) were in part not being correctly accounted for and historically treated as exempt from VAT.
As a result, income derived from this service was overstated, the VAT liability arising on the fees collected was understated
and consequently the Group has under-recovered its entitlement to input VAT credit. Since previously reported revenue from
Platform MPS was overstated, it was concluded that the error required correction in the Consolidated financial statements.
Accordingly, the Group recognised a prior year adjustment of £0.4 million in respect of FY17 and FY18 and restated the results
for FY19 by £0.3 million.
Revenue
The Group’s total revenue for FY20 increased by 2.7% to £108.6 million (Restated FY19: £105.7 million). This was driven by
higher average FUM levels, particularly in H1 and the contribution from the Cornelian activities during the latter four months
of the year (£3.1 million). FUM related revenue increased by 2.4% in line with the increase in average FUM on the quarterly
billing dates. The overall yield remained stable at 79.2bps. Non-FUM related revenue increased by 8.1% to £6.7 million (FY19
£6.2 million) due to higher levels of third-party administration fees.
Revenue, yields and average FUM
BPS fees
BPS non-fees
Total BPS
MPS
UKIM discretionary
Funds
Total UKIM excluding Cornelian
Cornelian1
Total UKIM including Cornelian
International
Total FUM related revenue
Financial Planning – UK
Financial Planning – International
Other income
Total non-FUM related revenue
Total Group revenue
Revenue
FY19
£m
53.0
18.3
71.3
7.8
79.1
6.9
86.0
–
86.0
13.5
99.5
3.6
1.1
1.5
6.2
105.7
Change
%
0.4
2.7
1.0
2.6
1.1
(7.2)
0.5
–
4.1
(8.1)
2.4
5.6
(9.1)
26.7
8.1
2.7
FY20
£m
53.2
18.8
72.0
8.0
80.0
6.4
86.4
3.1
89.5
12.4
101.9
3.8
1.0
1.9
6.7
108.6
Yield
FY19
bps
67.5
23.4
90.9
48.9
83.8
45.0
78.3
–
78.3
85.0
79.2
Change
%
0.6
3.0
1.2
(4.3)
0.1
6.0
1.4
–
1.1
(7.1)
–
FY20
bps
67.9
24.1
92.0
46.8
83.9
47.7
79.4
73.8
79.2
79.0
79.2
1.
Average FUM for Cornelian time weighted to four months for the purposes of the yield calculation.
Average FUM
FY19
£m
FY20
£m
Change
%
7,830
1,709
9,539
1,341
10,880
420
11,300
1,569
12,869
7,847
1,596
9,443
1,534
10,977
–
10,977
1,589
12,566
(0.2)
7.1
1.0
(12.6)
(0.9)
–
2.9
(1.3)
2.4
Introduction
Strategic report
Corporate governance
Financial statements
BPS fee yield increased marginally to 67.9bps (FY19: 67.5bps) given the continued shift to “all in” fees. BPS non-fee income
increased to 24.0bps (FY19 23.3bps) primarily due to higher interest income in H1, however this was somewhat offset by the
lowering of the Bank of England base rate in H2. MPS saw a slight increase in income to £8.0 million (Restated FY19 £7.8 million)
due to growth in platform MPS and this was after the restatement of FY19 for the VAT related error detailed above. Overall MPS
yield dropped slightly due to the mix of business in MPS in custody. Funds income was down £0.5million primarily due to
the exit of the Grosvenor Funds business in H1, as we failed to agree terms to buy the fund given our focus on value and strict
acquisition criteria.
International income dropped by 8.1% (£1.1 million) to £12.4 million (FY19: 13.5 million) due to average FUM being down by 1.3%
and lower FX related transaction income. The drop in average FUM was primarily due to the prior year’s exits and the business
put in a much-improved net flows performance, although it remained marginally negative in the year.
The successful acquisition and integration of Cornelian meant income increased by £3.1 million over the final 4 months of the year.
Financial planning UK income increased by 5.6% year on year to £3.8 million as the impact of new business and the recent
repricing initiative started coming through. Third-party administration fees and other income were up 26.7% to £1.9 million
largely driven by the repricing of this business to better reflect the actual costs of servicing. The third-party administration
business is currently in wind down as we simplify the business and focus on our core offering.
Underlying costs
Total underlying costs have gone up marginally by 0.7% to £85.6 million (Restated FY19: £85.0 million). The underlying costs
of Cornelian in the period were £1.7 million, therefore excluding Cornelian underlying costs fell to £83.9 million or by 1.3%. The
Group continues to focus on cost discipline and had adopted a “save to spend” approach to costs, with efficiency targets being
set each year as part of the annual planning cycle. These benefits are then reinvested into the client and adviser experience
or to offset inflationary increases elsewhere. The Group did not utilise any of the Government COVID-19 related schemes in
the year. Being a relationship led business, our staff are our key resource and we took the decision early on to adopt a “protect
to thrive” approach to our staff and we have not used the Government furlough scheme or made anyone redundant since the
beginning of the COVID-19 pandemic.
Staff costs
Total staff costs fell by £2.0 million or 3.8% during the year due to full year benefit of last year’s efficiency and effectiveness
programme coming through and this was after the inclusion of additional £0.7 million of staff costs from Cornelian. The fixed
staff increase of 7.3% to £39.8 million was driven by last year’s changes to investment manager compensation, where we removed
variable commission payments and replaced them with higher base salaries and higher discretionary bonus opportunities,
inflationary pay increases to the rest of staff and the addition of Cornelian. The Group also continued to invest in talent,
strengthening the highly skilled and experienced teams across the business and laying down strong foundations to deliver on
our growth agenda whilst enabling us to better serve our clients and advisers. Variable staff costs fell by 30.3% to £10.8 million due
to the changes in compensation for investment managers, however the cash bonus pool and share based payment charge for the
year were broadly flat given the challenging macroeconomic background and our focus on protecting the jobs.
Non-staff costs
Non-staff costs amounted to £35.0 million, an increase of 8.0% on the prior year including the addition of £1.0 million for Cornelian
non-staff costs. Therefore, excluding Cornelian non-staff costs increased by £1.6 million or 4.9%. The bulk of this increase, £1.1
million was driven by the FSCS levy which increased by 83.3% on the prior year, now reaching £2.0 million for FY20 (FY19: £1.2
million) with a further £0.2 million related to a prior year levy true up. The FSCS levy is becoming an ever more prominent cost
driver across the sector and at such levels is not considered directly commensurate to the Group’s regulated activities. Brooks
Macdonald is a member of the FSCS working group established by the Investment Association and we continue to engage in
discussing alternative ways of structuring and charging the levy in future years. The other contributors to this increase include
higher IT spend as we invest in cyber security risk mitigation, and higher insurance and audit costs although these were in part
offset by lower travel and entertainment spend in the second half due to the COVID-19 related lockdown.
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Strategic report
Corporate governance
Financial statements
Segmental analysis
The Group reports its results across three key operating segments, UK Investment Management (“UKIM”), International and
Financial Planning. The tables below provide a breakdown of the annual performance broken down by these segments, with
comparatives. The results of Cornelian since acquisition have been included in the UKIM segment.
FY20 (£m)
Revenue
Direct costs
Operating contribution
Indirect cost recharges
Underlying profit/(loss) before tax
Underlying profit/(loss) before tax margin
FY19 restated1 (£m)
Revenue
Direct costs
Operating contribution
Indirect cost recharges
Underlying profit/(loss) before tax
Underlying profit/(loss) before tax margin
UK Investment
Management
91.4
(42.0)
49.4
(24.2)
25.2
27.6%
International
13.4
(8.0)
5.4
(2.9)
2.5
18.7%
UK Investment
Management
87.5
(43.9)
43.6
(19.2)
24.4
27.9%
International
14.6
(9.2)
5.4
(3.2)
2.2
15.1%
Financial
Planning
3.8
(3.2)
0.6
(1.9)
(1.3)
(34.2%)
Financial
Planning
3.6
(2.9)
0.7
(2.5)
(1.8)
(50.0%)
Group and
consolidation
adjustments
–
(32.4)
(32.4)
29.0
(3.4)
N/A
Group and
consolidation
adjustments
–
(29.0)
(29.0)
24.9
(4.1)
N/A
Total
108.6
(85.6)
23.0
–
23.0
21.2%
Total
105.7
(85.0)
20.7
–
20.7
19.6%
1.
Comparative segmental results have been restated to reflect the correct recognition of the Authorised Corporate Director fees and associated costs in respect
of one of the Group’s managed OEICs and the correct VAT treatment on the revenues recognised on the Managed Portfolio Service offered through third party
platforms as detailed on page 32 of this report.
All three business segments reported an improvement in performance during the year compared to FY19. UKIM and Financial
Planning recognised an increase in revenues during the period, up by 4.5% and 5.6% respectively.
Financial Planning made decent progress against its three-year plan to return to profitability with further improvements
expected in FY21.
International reported a decline in revenues of 8.2% driven by the marginal decrease in average FUM noted above and lower
foreign exchange related transactional income. The business reinvigoration under Andrew Shepherd’s leadership continues
to progress well and the recent acquisition of the Lloyds Banking Group’s Channel Islands wealth management and fund
business will provide further positive momentum over the year ahead.
Financial review continued
Combined, the above gave rise to an underlying profit before tax of £23.0 million, representing an increase of 11.1% on
the previous year and resulting in a profit margin of 21.2% (Restated FY19: 19.6%) delivering on our strategic objective of
incremental progression in margin and the delivery of operational gearing.
The statutory profit before tax from continuing operations is also higher compared to the prior year at £10.0 million
(Restated FY19: £8.3 million) giving rise to a statutory profit margin of 9.2% compared to 7.9% reported in FY19 (as restated).
The underlying adjustments for the year of £13.0 million, comprising one-off costs, are broadly in line with the quantum of
adjustments recognised in the prior year (FY19: £12.4 million) although the mix has changed, with a significant portion of the
items now being related to acquisitions and the growth agenda, rather than last year’s restructuring costs. A breakdown of the
underlying adjustments together with an explanation of each item is included on pages 36 and 37.
FUM movement in the year
Opening FUM
Organic net new business
FUM acquired in the year1
Investment performance
Total FUM growth
Closing FUM
Organic net new business
Total FUM growth
Investment performance in the year
MSCI PIMFA Private Investor Balanced Index2
1.
Closing value of Cornelian Asset Managers Limited’s FUM as at 31 March 2020.
2. Capital-only index.
FY20
£m
13,147
(774)
1,181
131
538
13,685
(5.9%)
4.1%
1.0%
(3.5%)
FY19
£m
12,312
409
–
426
835
13,147
3.3%
6.8%
3.5%
2.2%
Over the course of the year, FUM increased by £0.5 billion or 4.1%. This includes the assets acquired from Cornelian in
February 2020 of £1.2 billion and positive investment performance of £0.1 billion, partly offset by organic net outflows of £0.8
billion. The net outflows were partly driven by softer client sentiment in the light of the macroeconomic uncertainty during
the first half and market volatility arising from the outbreak of the COVID-19 pandemic in the latter part of the year, and the
effect of outflows of mainly lower margin business as a result of the Group’s focus on efficiency and business quality and the
actions taken to support medium-term value creation. Overall investment performance for the year to June of 1.0% was well
ahead of the MSCI PIMFA Private Investor Balanced Index which declined by 3.5% over the same period.
As noted below, within UKIM, and including the impact of the acquired Cornelian assets, the BPS core offering remained stable
over the year closing at £8.2 billion and we have seen decent growth in our MPS (6.1%) and Funds (29.5%) business. Within our
International business, we have seen much reduced outflows, with a slight net inflow position during the last quarter as the
business regains momentum.
Closing FUM by service and segment
The table below shows the closing FUM broken down by segment and by our key services within UKIM at 30 June 2020 and
comparative periods.
BPS
MPS
Funds
UKIM total
International
Total FUM
FY20
£m
8,247
1,809
2,051
12,107
1,578
13,685
FY19
£m
8,254
1,705
1,584
11,543
1,604
13,147
Change
%
(0.1)
6.1
29.5
4.9
(1.6)
4.1
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Financial review continued
Reconciliation between underlying and statutory profits
Underlying profit before tax is considered by the Board to be a more accurate reflection of the Group’s performance when
compared to the statutory results as this excludes income and expense categories which are deemed of a non-recurring
nature or a non-cash operating item. Reporting at an underlying basis is also considered more appropriate for external
analyst coverage and peer group benchmarking allowing a more accurate like-for-like comparison. A reconciliation between
underlying and statutory profit before tax for the year ended 30 June 2020 with comparatives is shown in the table below:
Underlying profit before tax
Goodwill impairment
Acquisitions related costs:
− Deal structuring and legal costs
− Integration and staff retention costs
Amortisation of client relationships and contracts acquired with fund managers
Head office relocation costs
Changes in fair value of consideration and related disposals
Restructuring charge
Client relationship contracts impairment
Total underlying adjustments
Statutory profit before tax from continuing operations
Loss from discontinued operations
Statutory profit before tax
FY20
£m
23.0
(4.5)
(2.8)
(1.4)
(2.9)
(1.2)
(0.2)
–
–
13.0
10.0
–
10.0
FY19
restated
£m
20.7
(4.8)
–
–
(2.2)
–
0.2
(3.3)
(2.3)
12.4
8.3
(0.4)
7.9
Goodwill impairment (£4.5 million charge)
Goodwill is reviewed annually for impairment based on the carrying value of the asset compared to its expected recoverable
amount. The impairment charge recognised in the year relates to the Levitas transaction. Last year, the Group entered
into a new five-year partnership with the distributor of the Levitas fund that carried a lower fund sponsorship fee, the aim
of this reduction was to enhance FUM flows and deepen the relationship. Unfortunately for reasons beyond our control,
the anticipated inflows have not been forthcoming and in fact the fund has recorded net outflows in the period therefore
impacting its rate of growth and future cash flows. This partnership is still active and FUM flows could improve in due course,
however, given current market conditions and the situation at our partner firm, we have reassessed the carrying value of this
intangible asset. As a result, the associated goodwill carrying value is no longer supported and triggered an impairment charge
in the year. Refer to Note 14 to the Consolidated financial statements for more details.
Acquisitions related costs (£4.2 million charge)
i. Deal structuring and legal costs (£2.8 million charge)
These represent costs incurred in relation to the acquisition of Cornelian Asset Managers Group Limited announced on
22 November 2019 and the acquisition of the Lloyds Banking Group’s International Channel Islands wealth management
and funds business announced on 24 June 2020. The costs incurred include corporate finance services, legal fees and due
diligence fees.
ii.
Integration and staff retention costs (£1.4 million charge)
These comprise the costs incurred in integrating the Cornelian acquisition which completed on 28 February 2020 into the
Brooks Macdonald business including migration of client accounts, IT, systems and processes. It also includes payments
made to key Cornelian employees who are being retained by the Group for a short period of time to assist with the
integration of the businesses.
The above costs are being excluded from the Group’s underlying performance as they were one-off in nature.
Introduction
Strategic report
Corporate governance
Financial statements
Amortisation of client relationship contracts and contracts acquired with fund managers (£2.9 million charge)
These intangible assets are created in the course of acquiring funds under management and are amortised over their useful
life, which has been assessed to range between 5 and 20 years. The charge for the year includes the newly acquired investment
management contracts arising on the Cornelian transaction. This amortisation charge has been excluded from the underlying
profit since it is a significant non-cash item. Refer to Note 14 to the Consolidated financial statements for more details.
Head office relocation costs (£1.2 million charge)
The Group’s previous London offices based in Welbeck Street and Bevis Marks have been relocated to a single site at 21 Lombard
Street in the City of London. As a result of the move, dual running costs were incurred on the three locations until the office leases
for Bevis Marks and Welbeck Street came to an end in March 2020. The dual running costs and other costs associated with the
move have been excluded from underlying profit in view of their one-off nature.
Changes in fair value of consideration and related disposals (£0.2 million charge)
This comprises the fair value measurement arising on deferred payments and receipts from previous acquisitions and disposals
carried out by the Group, together with their associated net finance costs and costs of disposal where applicable.
FY19 – Restructuring charge
This relates to the efficiency and effectiveness programme announced in January 2019. The Group identified a range of
opportunities to streamline and remove duplication from core processes. The headcount reduction resulted in redundancy
costs, payment in lieu of notice, settlement and other restructuring-related costs. These have been excluded from underlying
earnings in view of their one-off nature.
FY19 – Client relationship contracts impairment
This impairment charge relates to the value of Spearpoint client relationships following the previously disclosed loss of a client-
facing team. Refer to Note 14 to the Consolidated financial statements for more details.
Taxation
The Group’s corporation tax charge on underlying profits for the period was £4.6 million (Restated FY19: £3.6 million) representing
an effective tax rate of 20.0% (Restated FY19: 17.8%). The increase in the effective tax rate is largely due to an intangible asset
impairment recognised in the prior period which is not allowable for tax purposes. The effective tax charge for the current
year also includes the recognition of deferred tax on the acquired client-relationship intangible assets as part of the Cornelian
transaction. Details on taxation are provided in Note 9 of the Consolidated financial statements.
Earnings per share
The Group’s basic statutory earnings per share for the year ended 30 June 2020 was 43.2p (Restated FY19: 39.7p). On an
underlying basis, diluted earnings per share of 123.7p is broadly flat on the prior year (Restated FY19: 123.5p) largely due to a higher
weighted average number of shares in issue during FY20 following the share placing carried out by the Group in November 2019
and the shares issued as part of the Cornelian acquisition at the completion date on 28 February 2020. Details on the basic and
diluted earnings per share are provided in Note 12 of the Consolidated financial statements.
Dividend
The Group has a progressive dividend policy growing dividends in line with underlying earnings. The Board recognises
the importance of dividends to shareholders and the benefit of providing sustainable shareholder returns. In determining
the level of dividend in any year the Board considers a number of factors such as the level of retained earnings, future cash
commitments, statutory profit cover, capital and liquidity requirements and the level of profit retention required to sustain the
growth of the Group.
Considering the Group’s strong balance sheet and the current macroeconomic uncertainty, the Board has proposed a final
dividend of 32.0p per share (FY19: 32.0p). Taking into account the interim dividend of 21.0p per share (H1 FY19: 19.0p), this results
in a total dividend for the year of 53.0p per share (FY19: 51.0p), an overall increase of 3.9%. Refer to Note 13 to the Consolidated
financial statements for more details. The recommended dividend is subject to shareholders’ approval, which will be sought at
the Company’s Annual General Meeting on 27 October 2020.
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Financial review continued
Financial position and regulatory capital
The Group’s financial position remains strong with net assets of £123.5 million at 30 June 2020 (Restated FY19: £86.9 million)
and tangible net assets (net assets excluding intangibles) up to £39.7 million (Restated FY19: £36.7 million). As at 30 June 2020,
the Group had regulatory capital resources of £46.6 million (Restated FY19: £39.0 million). The own funds calculation takes into
account the respective years’ profit after tax as these are deemed to be verified at the date of publication of the annual results.
The Group continues to be well capitalised with a total capital ratio of 20.7% over our Pillar I risk exposure requirement.
Share capital
Share premium
Other reserves
Retained earnings
Total equity
Intangible assets (net book value)
Deferred tax liabilities associated with intangible assets
Tier 1 Capital
Own funds
FY20
£m
0.1
78.0
6.4
39.0
123.5
(83.8)
6.9
46.6
46.6
FY19
restated
£m
0.1
39.1
4.6
43.1
86.9
(50.2)
2.3
39.0
39.0
Brooks Macdonald Asset Management Limited, the Group’s main operating subsidiary, is an IFPRU 125k Limited Licence Firm
regulated by the Financial Conduct Authority (“FCA”). In view of this, the Group is classified as a regulated group and subject
to the same regime. As required under FCA rules, and those of both the Jersey and Guernsey Financial Services Commission,
the Group assesses its regulatory capital and liquidity on an ongoing basis through the Internal Capital Adequacy Assessment
Process (“ICAAP”) and Adjusted Net Liquid Asset (“ANLA”) assessments, which include performing a range of stress tests and
scenario analyses to determine the appropriate level of regulatory capital and liquidity that the Group needs to hold. Surplus
levels of capital and liquidity are forecast, taking into account known outflows and proposed dividends to ensure that the
Group maintains sufficient capital and liquidity at all times.
The FY19 ICAAP review was conducted for the period ended 30 June 2019 and signed off by the Board in December
2019. Regulatory capital forecasts are performed monthly and take into account expected dividends and intangible asset
acquisitions and disposals as well as budgeted and forecast trading results.
The Group’s Pillar III disclosures are published annually on the Group’s website (www.brooksmacdonald.com) and provide
further details about the Group’s regulatory capital resources and requirements. The Group monitors a range of capital and
liquidity statistics on a daily and monthly basis.
Cash flow and capital expenditure
The Group continues to have strong levels of cash generation from continuing operations. Total cash resources at the end of
the year were £50.2 million (FY19: £34.6 million). The Group had no borrowings at 30 June 2020 (FY19: £nil).
During the year ended 30 June 2020, £1.7 million was capitalised on leasehold fit out works, office furniture and equipment as
part of the fit out of the Group’s new head office at 21 Lombard Street, London. Moreover, £1.6 million was spent during the year
on the further development of the Group’s adviser and client portal, risk systems and the core operational platform.
Financial outlook
The current outlook is highly uncertain given the ongoing impact of the COVID-19 pandemic, however the Group is well placed
to continue its success. We have proven the resilience of the Group’s business model and operating platform and this gives us
a high degree of confidence in our ability to deliver for shareholders, advisers and clients in the months and years ahead. The
continued growth in our core business profitability, combined with the successful integration of Cornelian and the acquisition
of Lloyd’s Channel Islands wealth management and funds business will allow us to continue to grow earnings, whilst investing
in further enhancements to the adviser and client experience. The Group remains focused on the delivery of improved growth
in organic net flows whilst actively looking for further high quality, accretive acquisitions.
Ben Thorpe
Group Finance Director
16 September 2020
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Brooks Macdonald Group plc / Annual Report and Accounts 2020
Introduction
Strategic report
Corporate governance
Financial statements
The continued growth in our core
business profitability, combined with the
successful integration of Cornelian and
the Lloyd’s Channel Islands acquisition
will allow us to continue to grow earnings,
whilst investing in further enhancements
to the adviser and client experience.
Ben Thorpe
Group Finance Director
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27566 17 September 2020 8:16 am proof 6Taking a dynamic approach to risk managementOver the past year, the Group has continued in its commitment to invest in compliance and risk management capabilities. Furthermore, the Group has sustained its focus on embedding the risk management framework, through greater business collaboration, streamlined analytics and enhanced governance reporting. This has led to efficient, data driven and evidenced based risk management, whilst facilitating the transition to an agile and dynamic approach to identifying, assessing, managing and monitoring risks. Not only has this proven valuable to the Group’s acquisition of Cornelian Asset Managers and the Lloyd’s offshore wealth and funds business, but also during the COVID-19 pandemic. Overall, the Group remains well capitalised and liquid with significant buffers above all regulatory requirements. PastErrors, breaches, near misses and complaintsPresentRisk profiles and qualificationFuturePredictor eventsInsight(Management information)Boards and CommitteesRules and delegated authoritiesPoliciesOversight(Governance)Risk Management MethodologyAdditional Actions Reporting Risk Identification Risk AppetiteAssess Controls Risk AnalysisSystems and ControlsCommunication, Education, Training and GuidanceCultureRisksBrooks Macdonald Group plc / Annual Report and Accounts 202040Brooks Macdonald AR2020 Strategic.indd 4017/09/2020 13:09:4627566 17 September 2020 8:16 am proof 6How we manage riskThe Group Risk Management Framework (“RMF”)Risk management starts with oversight through an appropriate governance structure using a board and committee structure, with individual and collective roles and delegated authorities and a set of core policies to provide guidance to staff.Effective risk management relies on insight through robust and timely management information. We manage our risks by learning lessons from past events such as errors, breaches, near misses and complaints, by conducting point-in-time risk assessments in the present and attempting to predict what the future risk landscape might look like through our suite of key indicators.The risk management methodology within the Group’s risk management framework consists of the following six interlinked steps:Risk identification. This takes place through regular business monitoring and periodic reviews, including risk mapping exercises and the risks arising from change or new products and services.Risk appetite. Once we have identified risks, we set an appetite for each material risk. This defines the amount of risk that the Board is prepared to accept in order to deliver its business objectives. Risk appetite reflects culture, strategic goals and the existing operating and control environment. Risk analysis. Having set the risk appetite, we can assess the impact and probability of each material risk against the agreed risk appetite. This can include the quantification of capital risk as part of the Internal Capital Adequacy Assessment Process (“ICAAP”).Assess controls. We also assess the effectiveness of controls in reducing the probability of a risk occurring or, should it materialise, in mitigating its impact.Additional actions. Where differences exist between our risk appetite and the current residual risk profile, we take action either: to accept, avoid or transfer part or all of those risks which are outside our risk appetite; or to reconsider the risk appetite.Reporting. Ongoing reporting of risks to senior management provides insight to inform decision-making and allocation of resources to achieve business objectives.41Brooks Macdonald Group plc / Annual Report and Accounts 2020IntroductionStrategic reportCorporate governanceFinancial statementsBrooks Macdonald AR2020 Strategic.indd 4117/09/2020 13:09:46 Risks continued
Overarching Risk Appetite Statement
• The Group’s Overarching Risk Appetite (“ORAS”), as
defined by the Board, sets out the acceptable level
of current and emerging risk we are willing to take to
achieve our strategic business objectives. It provides a
framework to allow the Group to effectively balance the
risk and reward relationship in decision making.
• Clients, both existing and prospective, are at the heart of
everything we do. As such, we will operate a sustainable
business that conducts itself in a reputable and prudent
manner, taking into account the interests of our clients
through providing products and services suited to
their needs and risk profile, which demonstrate value
for money.
• As the business continues to grow through sustainable
organic growth and strategic value-adding acquisitions,
the ORAS will help ensure our key stakeholder obligations
are met, supported by internal policies and regulatory
requirements. We commit to using this framework to
ensure we make strategic and business decisions that do
not exceed our overarching risk appetite.
•
In all of the Group’s decisions and operations, we
balance risk versus reward and we consider the following
three dimensions:
Client
Outcome
Control
Environment
Financial
Performance
and Resources
Client Outcome
• We will put client interests at the heart of everything
Financial Performance and Resources
• We will optimise profitability and use resources
we do to ensure appropriate client outcomes.
efficiently to drive financial performance.
Control Environment
• We will, at all times, operate within our risk
appetite, operational risk parameters and
regulatory framework, ensuring a robust control
and oversight environment.
• We will, at all times, maintain adequate capital
and liquid assets to meet financial and
funding obligations as they fall due.
• We will invest in the development and
wellbeing of our employees.
Introduction
Strategic report
Corporate governance
Financial statements
Key risks
We have identified our risks at Group and business line levels to help manage our key risks in a consistent and uniform way
with oversight from relevant Committees and Boards.
Definition
1. Credit risk
The risk of loss arising from a client
or counterparty failing to meet their
financial obligations to a Brooks
Macdonald entity as and when they
fall due.
2. Liquidity risk
The risk that assets are insufficiently
liquid and/or Brooks Macdonald does
not have sufficient financial resources
available to meet liabilities as they
fall due, or can secure such resources
only at excessive cost. Liquidity risk
also includes the risk that the Group is
unable to meet regulatory prudential
liquidity ratios.
Change since
last year
Rationale
for change
Unchanged
None
Group level risks
Key risks identified
by risk management
framework
• Cash deposits with
external banks
• Client credit risk
• Counterparty credit risk
• Custodian-related
credit risk
•
Indirect counterparty risk
in respect of referrals
The Group has sufficient
liquidity resources
significantly above its
Minimum Liquidity
Requirement. Since the
last Annual Report, the
Group has developed
a robust Liquidity
Risk Management
Framework, including
adequate contingency
funding arrangements
• Corporate cash deposited
with external banks
Decreasing
• Client cash deposited
with external banks
(CASS rules)
• Failed trades
•
•
•
•
Indirect liquidity risk
associated with client
portfolios
Indirect liquidity risks
associated with dealing
Indirect risk in respect of
the liquidity of individual
holdings in a fund
Indirect risk in respect of
the overall liquidity of
our funds
3. Market risk
The risk that arises from fluctuations
in the value of, or income arising from,
movements in equity, bonds, or other
traded markets, interest rates or foreign
exchange rates that has a financial impact.
• Failed trades
Increasing
•
•
•
Indirect market risk
associated with advising
on client portfolios
Indirect market risks
associated with dealing
Indirect market risk
associated with managing
client portfolios
Given the COVID-19
pandemic, markets and
most asset classes have
exhibited significant
volatility. This could
continue as long as there
is a risk of a second wave
of the virus
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Introduction
Strategic report
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Financial statements
Definition
Context
New and emerging risks
9. Acquisition risk
(New)
The potential financial, reputational,
operational and client-related risks
arising from the failure to realise value
from acquisitions within a reasonable
timeframe and the failure to properly
integrate the acquired company in a timely
manner and within the target budget.
10. Change Management risk
(Emerging)
The potential financial, reputational,
operational and client-related risks
arising from the poor implementation of
material projects or change initiatives.
11. Pandemic risk
(Emerging)
The potential financial, reputational,
operational and client-related risks
arising from the continued global
impact of COVID-19 and any potential
subsequent waves.
There has been an increase in the M&A activity in the wider financial planning
and wealth management sectors. As this continues, it has the potential to
materially impact the Brooks Macdonald operating model but it also provides
an opportunity for inorganic growth for BM. Furthermore, given the recent
acquisitions made by the Group, there is a heightened integration risk,
including the failure to realise synergies.
In line with our growth agenda, the Group is undertaking a strategic review of
the end to end operating model and client journey, to cater for shifting client
demand and sectoral changes.
Given our agile operating model, strong capital and liquidity position, the
Group has continued to provide a high level of service to our clients and
advisers, whilst ensuring the wellbeing and safety of our staff.
Risks continued
Definition
4. Business and
strategic risk
The risk of having an inadequate
business model or making strategic
decisions that may result in lower than
anticipated profit or losses or exposes
the Group to unforeseen risks.
5. Conduct risk
The risk of causing detriment to clients,
stakeholders or the integrity of the
wider market because of inappropriate
execution of Brooks Macdonald’s
business activities.
Business level risks
Key risks identified by
risk management
framework
Change since
last year
Rationale
for change
• Adviser concentration
Unchanged
None
• Business growth
• Extreme market events
•
Investment performance
• Product governance
• UK political risk
• Client service
Decreasing
•
•
Investment performance
Suitability and conduct
risk
Decreasing
6. Operational risk
The risk of loss arising from inadequate
or failed internal processes, people
and systems, or from external events.
It includes legal and fraud risk but not
strategic, reputational and business risks.
• Data quality
• Cyber
•
IT infrastructure and
capability
• Key suppliers and
outsourcing
• Operational maturity
• People
• Resilience and BCP
• Prudential requirements
Decreasing
7. Prudential risk
The risk of loss arising from inadequate
or failed internal processes, people
and systems, or from external events.
It includes legal and fraud risk but not
strategic, reputational and business risks.
8. Legal and regulatory risk
Legal and regulatory risk is defined as
the risk of exposure to legal or regulatory
penalties, financial forfeiture and material
loss due to failure to act in accordance
with industry laws and regulations.
• Extreme reputational risk
Unchanged
None
• Financial crime
• Governance
• Legacy issues
• Regulatory, tax and legal
compliance
Over the past year the
Group has been working
on several initiatives
to promote good risk
culture and awareness.
Furthermore, the
Group has developed
enhanced Management
Information to measure
conduct risk.
The Group has enhanced
its processes, including
improved documentation
of all key processes.
Incident management
has been enhanced
throughout the year.
The Group has capital
resources significantly
above its Minimum
Capital Requirement.
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Viability statement
In accordance with the UK Corporate Governance Code,
the Board has assessed the Group’s viability over a five-year
period from FY21 through to FY25. The decision to do so over
this period is aligned with the Group’s strategy, its budgeting
and forecasting process and the scenarios set out in the
Internal Capital Adequacy Assessment Process (“ICAAP”).
The Board has carried out a robust assessment of the
principal risks facing the Group along with the stress tests
and scenarios that would threaten the sustainability of its
business model, future performance, solvency or liquidity.
This assessment is based on the Group’s Medium-Term Plan
(“MTP”), the ICAAP and an evaluation of the Group’s principal
risks, as set out in the Risks section of this Strategic report and
outlined in the Risk and Compliance Committee report.
In assessing the future viability of the overall business, the
Board has considered the current and future strategy as well
as any significant business restructuring and legacy issues.
The Board has also considered the business environment
of the Group and the potential threats to its business
model arising from regulatory, demographic, political and
technological changes. Moreover, the Board’s assessment
took into account the impact arising from the outbreak of the
COVID-19 pandemic on the Group’s profitability, regulatory
capital and liquidity forecasts.
The five-year MTP forms part of the Group’s annual business
planning and strategy refresh process. The model translates
the Group’s current and future strategy into a detailed year-
one budget, followed by higher level forecasts for years two
through to five. The combination of this detailed budgeting,
longer-term forecasting and various stress tests provides
a holistic and transparent view of the forward-looking
financial prospects of the Group. The Board reviews and
challenges the Group’s MTP annually. The MTP covering the
five-year period from FY21 to FY25 was reviewed, challenged
and approved by the Board in June 2020.
In addition to the annual MTP preparation process, a re-
forecast is carried out by Management and reviewed by the
Board as part the half year reporting process in January where
modelled projections are updated to reflect prevailing trading
conditions and known changes to assumptions set at the start
of the year. Following the sharp decline in markets in March
2020 arising from the outbreak of the COVID-19 pandemic, a
revised forecast was prepared of the Group’s expected FY20
profitability, capital and liquidity position including a review
of the stress scenarios modelling the impact on revenue of a
market decline over a range of 10% to 60%. It was also noted
that the Group’s investment correlation was around 60%
to the market decline. The Board reviewed and approved
the updated forecast for FY20 in April 2020. The Board’s
assessment of the Group’s capital and liquidity position
also considered the implications of maintaining the Group’s
proposed interim and final dividend pay-out.
The Group undertakes an ICAAP as required by the UK
regulator, the Financial Conduct Authority (“FCA”), which
documents a range of stress tests, including a reverse stress test.
These scenarios are designed to assess the Group’s ability
to withstand a market-wide stress, a Group-specific stress
and a combination of both. The tests documented within
the ICAAP are scenarios designed by Management to assess
the Group’s exposure to a range of extreme, but plausible,
situations, as well as an assessment of the cost to the Group
of a wind-down in the event of a non-recoverable shock to
the operating model. These scenarios are refreshed on a
regular basis to ensure they remain relevant and continue to
be a suitable tool for developing our controls and mitigating
actions. For instance, the scenarios were reviewed in March
2020 as noted above as part of a re-forecasting exercise to
reflect the impact arising from the outbreak of the COVID-19
pandemic.
The Group’s business continuity planning enabled it to react
effectively to the crisis, promptly moving to home-working
and continuing to operate as normal. The outbreak continues
to cause increased market volatility and with the scale and
duration of the current disruption unknown, it is difficult to
predict the full, future impact on the Group. However, the
consideration and assessment of the above factors, including
the results of the latest ICAAP, the Group’s risk management
framework and the mitigating actions that can be put in
place, the Board has reasonable expectations the Group will
be able to continue in operation and meet its liabilities as
they fall due over the period under assessment.
Introduction
Strategic report
Corporate governance
Financial statements
The Group continued to
trade profitably throughout
the period of disruption
caused by the outbreak of
the COVID-19 pandemic
and the Board maintains
its confidence on the
strength of the business
and the balance sheet.
Ben Thorpe
Group Finance Director
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Introduction
Strategic report
Corporate governance
Financial statements
How we engage with our stakeholders
This section serves as our statement regarding section 172 of the Companies Act 2006. When considering their decisions
and in setting the policies and strategy for Brooks Macdonald, the Directors are aware there are a number of other
stakeholders, in addition to shareholders, who will be affected by the actions of the Group. These include, for example, our
clients and advisers along with our employees. The below table outlines how we consider these stakeholders and how we
engage with them to continue driving our growth.
How we engage with our stakeholders and make informed decisions
How we engage with our stakeholders and make informed decisions continued
Why we engage
How we engage
Outcomes
Why we engage
How we engage
Outcomes
Clients
Advisers
Our clients are the
main focus of the
business. By engaging
with them, we are
able to gain a better
understanding of
their needs, develop
our relationships with
them and ensure that
we can provide them
with the products
and services that best
suit their individual
circumstances.
We engage with our clients in a variety
of ways, driven by their requirements
and preferences. With all our clients,
across investment management and
financial planning, we hold face-to-face
meetings, provide investment updates
and quarterly statements, and provide
market commentary. During the COVID-19
pandemic, online interaction has replaced
face-to-face meetings and we have
increased the content available to clients
on our website, including providing
daily COVID-19 commentary. We also
provide a client portal, where investment
management clients can view details of
their investments and, during the financial
year, we launched “myBM”, a new
improved version of the portal.
Our focus is on
working with
intermediaries
to support their
clients and our
vision for Brooks
Macdonald is as the
leading investment
management firm for
intermediaries. By
deepening our focus
on advisers, we can
both achieve our aim
and also help advisers
make their businesses
successful.
We work closely with our advisers,
offering them a range of services to make
Brooks Macdonald easy to do business
with and to help them serve their, and
our, clients’ needs. Again, our engagement
is driven by the individual adviser’s
requirements and preferences, from
high-touch ongoing strategic relationships
with a small number of larger firms,
through to more arm’s length provision
of our consistent high-quality investment
management to others. During the
COVID-19 pandemic we stepped up the
frequency of adviser engagement in the
form of investment bulletins, webinars
and online academies.
Our clients’ desire to
have better access to
information about their
investments resulted in
the Board supporting
the development and
launch of myBM. ESG has
become an important topic
for our clients and the
launch of our Responsible
Investment Service
reflects this.
We have built long
standing relationships with
mutual benefits with many
advisers. The services
we provide them have
grown to include business-
to-business Investment
Solutions offerings,
explicitly tailored to the
adviser’s requirements and
preferences.
Shareholders
Employees
We have a number
of large, long-term,
committed shareholders
in the business. The highly
successful share placing
we made to fund the
acquisition of Cornelian
Asset Managers evidenced
the strength of the
relationships we have built
with our shareholders.
Our focus on the wellbeing
of our staff enabled the
successful transition to
remote working during the
COVID-19 pandemic. The
employee engagement
survey conducted during
lockdown showed a
material improvement in
engagement scores.
We value our
shareholders’
support and want to
give them a better
understanding of our
business. In addition,
we have obligations
as an AIM-listed
company to provide
information to our
shareholders.
Our employees
are central to the
delivery of our
offering for advisers
and clients and
we strive to attract
and retain the best
people. Developing
an engaged and
motivated workforce
is key to our desire to
be a great employer
and to the success of
the business.
We do this through face-to-face or virtual
meetings and provision of detailed
financial reports and presentations on
the business at the half-year and full-year
points. We engage with shareholders
frequently to discuss delivery of our
strategy, current performance and
our plans for the business through our
Executive Directors, Chairman and
Committee Chairs.
We have a comprehensive internal
communication programme to keep
employees fully aware of developments in
the business’s strategy and performance.
The CEO and other members of senior
management frequently engage with
staff in forums ranging from formal
communications, including all staff “town
hall” video conferences, to more informal
small group discussions. In accordance
with the 2018 Corporate Governance
Code, John Linwood was appointed as
the designated Non-Executive Director
with responsibility for engagement with
the workforce and has made office visits
and held meetings with groups of staff. In
addition, we undertake regular employee
engagement surveys, the results of which
are closely monitored with the Executive
Committee considering what actions need
to be taken in response.
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Introduction
Strategic report
Corporate governance
Financial statements
How we engage with our stakeholders continued
How we engage with our stakeholders and make informed decisions continued
Why we engage
How we engage
Outcomes
Community
and
Environment
We are a responsible
Group and seek
both to support our
community and to
reduce our impact on
the environment as
much as possible.
The BM Foundation was set up in 2010
with the aim of supporting charities that
staff are enthusiastic about. It acts as
a conduit for donations to be made to
charity, and staff members are able to
request donations to a registered charity
of their choice. Staff are also encouraged
to do voluntary work and are able to
use a paid volunteering day each year.
We seek to reduce our carbon footprint
through the better use of technology and
an associated reduction in energy use. We
also look to partner with suppliers who
promote sustainability.
The Foundation made
donations of £37,252
during the year, including
a donation to Age UK
which was supporting
the nation through the
lockdown period bought
on by COVID-19. Even
prior to the COVID-19
pandemic we encouraged
the use of flexible working
and video-conferencing
to reduce energy use
and emissions by our
employees. On our move
to our new London office
we recycled or reused as
much of the existing fitout
and furniture and fittings
as possible.
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Thank you for the
care and thought you’re
putting in to looking
after our affairs at this
incredibly testing time.
Client comment to
Senior Investment Director based in UKIM
Corporate responsibility report
Brooks Macdonald’s corporate responsibility strategy aims to ensure that social, environmental and
ethical considerations are central to the way that we run the business. We are focused on protecting
the environment, supporting communities, and ensuring the wellbeing of our employees. The Group
is actively seeking opportunities to play its part as a good employer and as a contributor to the
communities in which our clients and employees live and work.
Pillars
Our people
Our people are our greatest strength
and we are focused on developing
an engaged, motivated and healthy
workforce.
Our community
We support the communities we
operate in through the Brooks
Macdonald Foundation and encourage
staff volunteering and fundraising.
Our environment
We are a responsible Group and
seek to reduce our impact on the
environment as far as possible.
Our Sustainability Strategy
Our objectives
Our progress in the year
• Nurture an inclusive culture that
offers fulfilling careers and great
reward
• Develop strong leaders who value
wellbeing, high performance and
diversity
• Take care of the physical and
• Transition to remote working due
to COVID-19 pandemic achieved
seamlessly with the wellbeing of
our people as our highest priority
• Roll-out of our two flagship
leadership development
programmes, Elevate and Evolve
mental wellbeing of our people
•
•
Increase employee engagement
Increase in employee engagement
of 12 points through the year
• Develop the Brooks Macdonald
• The Brooks Macdonald
Foundation (see page 56)
•
Support community causes
and events
• Encourage staff voluntary work
Foundation made donations of
£37,252 during the year
• We ran fundraising events in aid
of Mind and the Mental Health
Foundation
• All staff are able to use a paid
volunteering day
• Reduce carbon footprint through
investing in technology and
reducing travel
• Develop partnerships with
suppliers that drive sustainable
improvements through the
value chain
• Through the move to our new
London headquarters we have
taken great steps forward in
reducing energy usage and our
carbon footprint
• We have invested heavily
in technology to enable
increased remote working and
reduced travel
Introduction
Strategic report
Corporate governance
Financial statements
May 2020 ‘Speak Up’ employee
engagement survey score
67
(12 points up from 12 months prior)
Number of employees
by length of service
Number of employees
by age (years)
Total = 465
Total = 465
53
105
181
83
115
126
267
<2 year
2-4 years
5-9 years
10+ years
18-29
30-49
50+
Foundation charitable donations
£37,252
Our focus on the health and wellbeing
of our people has supported an improvement
in our employee engagement over the year
Caroline Connellan
CEO
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Corporate responsibility report continued
Our people
A motivated and engaged workforce is central to our aim to
be a great employer and a successful business. Our people
agenda is built around three priority areas: an inclusive
culture, fulfilling careers, and great reward. Last year, we
launched our employee engagement survey – ‘Speak Up’.
We have run the Speak Up survey twice over the year and
following actions taken on the back of the first survey results,
we saw a significant increase in our engagement score.
Engagement with our people
We believe that engagement in a two-way dialogue with
our people is critical to our success. We have a number of
channels through which we communicate across the Group:
• Regular all staff town halls
• Regular team meetings
Each Executive Committee member receives an individual
report that enables them to put in place individual action
plans to tackle the areas that matter most to their teams.
The survey has shown that the majority of our people are
strong advocates of our business, and are motivated to go
above and beyond what is required of them in their roles.
The survey has given us insight into where we can make
improvements to our employee experience.
Board engagement with the workforce
Our Board recognises the importance of active engagement
with the workforce, and in line with the 2018 Corporate
Governance Code, John Linwood was appointed as the
designated Non-Executive Director with responsibility for
eliciting employee feedback. The engagement approach
includes:
• Non-Executive Director engagement groups with a range
• A daily investment update to key groups of staff
• Twice yearly leadership conferences for senior managers
of staff
• Office visits
• A Board engagement with the workforce programme
• Review of Speak Up survey results
• The Speak Up survey
Speak Up highlights
78% of our people completed our most recent Speak Up
survey in May 2020. The survey is entirely confidential and
asks 30 questions encompassing a range of areas of employee
experience. There is also the opportunity to give more detail
around any aspect of working life at Brooks Macdonald. There
is some variance between individual business and functional
scores but no pronounced differences when analysed by
gender, age or employment status.
Themes from this engagement are regularly discussed at the
Board and appropriate action taken.
Talent and development
Our people are our greatest asset, and only through investing
in their development, rewarding them competitively and
therefore motivating and engaging them to be at their best,
can we deliver a highly professional and superior service
to our clients. All employees have access to development
opportunities and CPD.
Speak Up highlights, May 2020
1. Overall engagement
2. Advocacy
3. Guiding Principles
+12 points from
October 2019
13%
20%
10%
15%
9%
16%
67%
75%
75%
Positive
Neutral
Negative
1. Overall score based on answers to all questions
2.
3. The behaviour of my colleagues is aligned to the Group’s Guiding Principles
I am happy to recommend Brooks Macdonald to others as a great place to work
54
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Introduction
Strategic report
Corporate governance
Financial statements
We focus heavily on leadership capability and in 2019
launched our two flagship leadership development
programmes – Elevate for senior managers and Evolve
for high potential people managers. We have seen great
engagement with these programmes and positive feedback
from participants.
Nurturing our most talented employees to reach their full
potential is central to our success as a business. On an annual
basis, we assess the potential of our senior employees and
ensure development plans are in place for all. We invest in our
talent in various ways, including our flagship programmes,
external open programmes, individual coaching, and
supporting attendance at seminars and industry events.
We invest in our more junior talent via our partnership with
Investment 2020, through which we took on five trainees
during FY20. Our trainees are initially with us on a 12-month
fixed term contract and work across the full breadth of our
business. We have a good success rate in converting them to
permanent employees, whilst we stay in touch with those that
decide to take up places at universities following their time
with us with the aim of them re-joining us once they have
concluded their degrees.
These initiatives, in conjunction with line management
support, ensures everyone has the opportunity to reach their
full potential with the Group.
The Group regularly identifies its key roles and develops
succession plans to enable the development of talent and
to reduce potential risk should those in critical roles leave
the Group. Succession planning allows the Group to focus
its investment in capability development in the right places,
and provides insight into where we need to build an external
pipeline of talent.
Diversity
We are an inclusive firm that values and supports our people
regardless of their background. We serve a diverse group of
clients and being diverse ourselves helps us to anticipate
their needs and provide superior service. Through our
people agenda, building an inclusive culture that values
diversity is a key priority sponsored at the highest level
within the firm. Through our partnership with LGBT Great we
are supporting the LGBT+ community and are proud to have
two executives named in their Global Top 100 Executive
Allies list in 2020.
Throughout FY20 we had two female Directors out of seven
on the Board and our Executive Committee has three female
members out of ten. Women have been underrepresented
in our industry and we are taking a number of actions to
tackle this issue. We are signatories of the Women in Finance
Charter and also partner with City Hive, which encourages
better female representation in the Investment Management
industry. 25% of our senior managers are female; we believe
this is not high enough and aim to increase this number in
future years.
We mandate diverse interview panels and recruitment
shortlists for all vacancies and are focused on developing
female talent across the Group.
We continue to review our family leave policies to support
parents and in 2020 increased our enhanced paternity leave
to allow all new fathers to take six weeks’ leave at full pay.
All employees bring different cultures, backgrounds and
personalities to their roles. By encouraging inclusion in the
workplace, we can stimulate creativity, spur insight, and learn
from each other.
Gender diversity as at 30 June 2020
All employees
Senior management1
37%
63%
25%
75%
Executive Committee
30%
70%
Female
Male
1.
Senior management and their direct reports as required under the 2018
Corporate Governance Code.
Gender pay gap reporting
Despite there being no requirement to publish our gender pay
gap in 2020 due to the COVID-19 pandemic, for full transparency
we chose to do so. The report is available on our website and we
have been pleased to see a steady but gradual reduction since
the previous year. We regularly review fixed and variable pay to
ensure there is no inequality between men and women in the
same or similar roles.
Brooks Macdonald Group plc / Annual Report and Accounts 2020
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Corporate responsibility report continued
Wellbeing
We actively encourage our people to have a positive work-
home balance and prioritise their wellbeing. We have run
three snapshot surveys focused on wellbeing during the
lockdown period. During this year we have run sessions
on mindfulness, nutrition, and mental health, and have
developed a partnership with F45 gym, which runs group
workouts for our staff both in person and online. We also
encourage our staff to take part in team sports events such
as the Bloomberg Square Mile relay and have also run
informal events such as a rounders tournament in Hyde
Park. In late 2019 we ran a campaign called #strongnotsilent,
which showcased men from across the Group talking about
their experiences of mental health. We have an anonymous
platform that staff members can use to raise issues around
stress, anxiety and mental health, and we offer a free,
independent employee assistance programme offering
confidential advice and support to all. We offer at least 27 days’
annual leave to all employees (pro-rated for part time) and
mandate 10 consecutive days’ leave each year to ensure our
people benefit from a proper break from work.
Flexible working
We promote flexible working across the Group. All advertised
roles welcome applications from people wishing to work
flexibly, helping to attract candidates from a diverse range
of backgrounds and with broad experiences. The Group
has invested significantly in infrastructure that enables
employees to work from locations outside the office, at
times that suit their personal commitments and working
styles. Encouraging remote working also reduces the Group’s
carbon footprint by taking away the need to commute to
office locations every day.
Compensation and benefits
We offer a comprehensive and competitive remuneration
package which we review each year. We have a wide range of
core benefits, including:
• Pension
• Minimum 27 days’ holiday, with the option to purchase
additional days
• Private medical cover
•
Income protection insurance
• Life assurance
• Discounts on products and services
• Personal development budget to learn a new skill not
related to work
• Cycle to work scheme
•
Sharesave scheme
Our community
Brooks Macdonald Foundation
You make a difference
The BM Foundation was
set up in 2010 with the aim
of supporting charities
that staff are enthusiastic
about. It is funded via an
annual donation from the
Group and regular contributions from staff made via payroll.
The Foundation acts as a conduit for donations to be made
to charity, and staff members are able to request donations to
a registered charity of their choice. This year the Foundation
has made donations to All Oar Nothing, a mission to row
across the Atlantic in support of four charities. In May 2020,
the Foundation made a substantial donation to Age UK, which
was supporting the mental health of the nation through the
lockdown period bought on by COVID-19.
The BM Foundation is an employee-centred charity
initiative for giving back. Through fundraising and gifting,
the Foundation advances the causes that our people feel
the most strongly about. Since its inception in 2011, the BM
Foundation has made 218 donations on behalf of employees,
donating a total of £240,314.
Alongside smaller charities, the Foundation also donates
to key charity partners to support the work of a significant
project. One of our key charities for 2020 is the Lotus
Children’s Trust. The Trust is dedicated to providing
care, accommodation, support and education to abused,
abandoned and orphaned children in Mongolia. They raise
awareness of the plight of the street children and help to fund
The Lotus Children’s Centre which looks after more than 70
children. We are proud to have gifted £6,600 to support their
vital work.
The BM Foundation encourages our values of doing the right
thing and making a difference. By supporting non-profit
organisations, regardless of geography, all the donations we
award address social and material needs to support the vital
work of charities at home or abroad.
Introduction
Strategic report
Corporate governance
Financial statements
Environment
The momentum for a strong corporate sustainability strategy
is present and growing. We have been formalising our
approach, in particular to reducing the energy consumption
of our buildings, through planned refurbishment activity and
switching to renewable energy where possible. Our objective
is to reduce our impact on the environment across the
following key areas.
Waste recycling
A 2019 employee survey led to the implementation
of solutions to waste management and improving the
environment in the workplace. We continue to proactively
look to reduce the level of waste generated and maximise the
proportion of waste that is recycled. We educate internally on
how to recycle to reduce the associated carbon footprint of
waste collection and movement. All our offices use recycled
papers and recycling containers.
Our largest green initiative to date is the refurbishment to
our new London office. We examined the standard fit out
materials with a view to how they could be salvaged or
recycled. The space was created utilising 70% of the existing
fit out, reusing existing furniture and fittings.
Energy
Electricity is the main form of energy we consume, and we
analyse consumption across our all offices. Where possible,
we look for opportunities to reduce our consumption and
reduce waste by making use of available technology, e.g. LED
lighting, IT equipment upgrades, and introducing applications
such as Microsoft Teams to improve a digital communication
experience and reduce travel. Operationally, we will continue
to monitor energy usage to support our ongoing efforts to
reduce overall energy waste and consumption.
We have also seen a reduction in mileage (taking out the
COVID-19 factor) of 15% in the last year by driving a focus on
doing things differently through video conferencing use,
flexible working and the roll-out of laptops allowing our teams
to work anywhere.
Procurement and supplier selection
We collaborate closely with our suppliers to drive sustainable
improvements throughout the value chain. All new services
and suppliers are respected in their fields for providing
sustainable solutions. Wates FM, Principle cleaning and
Orange Box furniture are some of our new key partners.
Energy consumption and greenhouse gas
emissions for the year to 30 June 2020
Energy consumption (kWh)
Electricity
Gas
Transport fuels
Total
Greenhouse gas emissions (tCO2e)
From combustion of fuel
Gas
Transport fuel for rental and staff vehicles
From purchased electricity
Renewable electricity saving
Total net emissions
754,604
36,894
236,045
1,027,543
7.5
58.5
175.9
(3.5)
238.4
Distribution of annual energy consumption by fuel
23.0%
3.6%
73.4%
Transport fuel
Gas
Purchased electricity
Distribution of annual emissions by usage
24.5%
75.5%
Transport - staff/rental
Buildings
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27566 17 September 2020 11:20 am Proof 6Corporate governancePresents a clear view of our governanceContentsIntroduction to Corporate governance60Board overview61Board and Committee structure62Board of Directors64Executive Committee66Audit Committee68Nominations Committee72Remuneration Committee74Risk and Compliance Committee90Report of the Directors94Statement of Directors’ responsibilities96Independent auditors’ report98Brooks Macdonald AR2020 Governance.indd 5817/09/2020 13:10:4027566 17 September 2020 11:20 am Proof 6 I am very confident that you are very capable at looking after me. I’m so glad that I am in safe hands with you to take care of my funds. Client comment to Senior Investment Director based in UKIMIntroductionStrategic reportCorporate governanceFinancial statementsBrooks Macdonald AR2020 Governance.indd 5917/09/2020 13:10:43 Introduction to Corporate governance
Board overview
Introduction
Strategic report
Corporate governance
Financial statements
The Brooks Macdonald Board is committed to maintaining
a strong governance framework to support our mission to
protect and enhance our clients’ wealth.
As such, the Board has responsibility for promoting the
long-term strategy and success of the Group by providing
leadership, shaping the Group’s culture, and agreeing the
risk appetite and the appropriate systems of control for risk
management. The Board is also focused on ensuring that the
risk and compliance framework is appropriately embedded
within the Group’s day-to-day activities. The Board delegates
the day-to-day management of the Group to the CEO, who is
supported by an Executive Committee. Refer to page 62 for
the composition of the Executive Committee.
As well as having operational oversight of the Group’s day-
to-day activities, the Executive Committee focuses on the
formation and implementation of the Group’s strategy and
makes decisions that are not otherwise reserved for the
Board. The Executive Committee meets regularly, with a
mixture of formal and informal scheduled meetings, together
with ad hoc meetings as required, such as in response to the
COVID-19 pandemic.
The Group’s Board and Committee structure is detailed
on page 62 together with the biographies of Board and
Committee members on pages 64 and 65.
The roles and responsibilities of each of the Committees, and
the activities carried out during the year, are set out in the
reports of the respective Committee Chairs. The Company
Secretary also plays a role in ensuring that board procedures
are complied with and applicable rules are followed.
The Board, on the recommendation of the Nominations
Committee, considers that all of the Non-Executive Directors
are independent. All Board members are required to disclose
any external positions or interests which might conflict
with their directorship of Brooks Macdonald prior to their
appointment and thereafter on a continuous basis so that
any potential conflict can be properly assessed. Conflicts of
interest can generally be managed by due process.
UK Corporate Governance Code
Compliance Statement
The Group follows the UK Corporate Governance Code (“the
Code”). This report, together with the Report of the Directors
and the Strategic report, describes how the Group has applied
the principles and complied with the provisions of the new
2018 Code, or sets out explanations of where the Group is not
complying with the Code. A copy of the Code can be found on
the Financial Reporting Council’s website at www.frc.org.uk.
Implementation of the 2018 UK Corporate Governance Code
How Brooks Macdonald have applied the Code
Further information
Section of the
Code
Board leadership
and company
purpose
Division of
responsibilities
The Board seeks to promote the long-term sustainable success of the Company,
setting out the Company’s purpose, values and strategy and ensuring that these
and the Company’s culture are aligned.
The Group Board, led by the Chairman, sits at the top of the Company’s governance
framework. The Board and its Committees have clearly defined roles, with the list
of matters reserved for the Board and the Committees’ terms of reference being
available on the Company’s website. A majority of the Board are independent Non-
Executive Directors.
Composition,
succession
and evaluation
The Nominations Committee oversees formal procedures both to evaluate the
Board and to ensure its composition provides an appropriate balance of skills and
experience. The Company seeks to promote diversity at both Board and senior
management level.
Audit, risk and
internal control
Remuneration
The Board and its Committees oversee procedures and processes by which the
Company manages the risks it is willing to take in order to achieve its long term
objectives. This includes ensuring the independence and effectiveness of the
internal and external audit functions and monitoring the integrity of the Company’s
financial statements and formal announcements.
The Board and the Remuneration Committee develop and oversee policies and
practices which are designed to promote the Company’s strategy and its long-
term success and to align the interests of senior management with those of the
Company’s shareholders.
Read more in our
Strategic and Corporate
responsibility report on
pages 52 to 57.
Read more in our Board
overview on page 61 and
Committee structure on
page 62, plus reports of the
Committees on pages 68
to 93.
Read more about our
Board composition
on pages 61 to 63,
Nominations Committee
on pages 72 to 73 and
succession on page 55.
Read more about our
Audit Committee on pages
68 to 71 and our Risk and
Compliance on pages 90
to 93.
Read more about our
Remuneration Committee
on pages 74 to 88.
The Brooks Macdonald Board is responsible for the Group’s Corporate governance system and is committed to maintaining a
strong governance framework to support our mission to protect and enhance our clients’ wealth. In order to achieve this, the
Board meets on a regular basis. During the year to 30 June 2020 there were seven scheduled Board meetings and details of
attendance at these is shown on page 63. In addition, a further eight unscheduled meetings were convened. These meetings are
called where necessary to consider matters which are time-sensitive in nature and cannot wait until the next scheduled meeting.
Typically, these related to the acquisitions made by the Group in the year and the Group’s response to the COVID-19 pandemic.
Matters discussed by the Board in the year
Regular
updates
Projects
Governance
& regulatory
Strategy
• CEO’s report including
business performance
• Acquisition of Cornelian
Asset Managers Group
• Reviews of Committee
terms of reference
• Group Finance Director
report
• Chief Investment Officer’s
report
• Acquisition of Lloyds
Bank International’s
Channel Islands wealth
management and funds
business
• HR Director’s report
• Committee Chairs’
updates
• Review of a new
operating system
• London office move
• COVID-19 response
• Reviews of
Group policies
•
Implementation of
SM&CR regime
• Board effectiveness
review
• Group strategy refresh
• Marketing and
communications strategy
Assessing and monitoring culture
The Board monitors the Group’s culture through regular reports from the CEO and the HR Director to ensure this is aligned
with the Group’s purpose and strategy. In addition, we have a designated Non-Executive Director who has responsibility for
engaging with the work force and who regularly holds meetings with different members of staff.
Director training and induction
On appointment to the Board, new Directors are given a comprehensive induction programme. This allows them to familiarise
themselves with the Group’s business, policies and key issues. The induction programme involves meetings with key
individuals within the Group as well as external advisers to the Company. Peel Hunt, the Group’s NOMAD, also provide an
overview of the Directors’ responsibilities as a Board member of an AIM-listed entity.
Training is provided for Directors on an ongoing basis. During the year the Board received training on the 2018 Corporate
Governance Code, the SM&CR regime and AIM rules and regulations amongst other matters.
External appointments
Directors are only permitted to take on external appointments with the approval of the Board. Such approval will only be given
where the appointment will not impact on the Director’s ability to devote sufficient time to his or her responsibilities with the
Group. The Board did not consider that any new appointments taken on during the year raised an issue in this respect.
Annual Board evaluation
The Board undergoes an annual evaluation of its performance. Further details of this are set out in the Nominations
Committee report on page 72.
60
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Board and Committee structure
Introduction
Strategic report
Corporate governance
Financial statements
BM Group Board
List of Board meetings and attendance
Current
Alan Carruthers (Chairman)
Caroline Connellan
Ben Thorpe
Robert Burgess1
Dagmar Kershaw2
John Linwood
Richard Price
Diane Seymour-Williams
Non-current
Colin Harris3
David Stewart4
Audit
Committee
Disclosure
Committee
Nominations
Committee
Remuneration
Committee
Risk and
Compliance
Committee
Current
• Richard Price
(Chair)
• Robert Burgess1
• Dagmar Kershaw2
• John Linwood
• Diane Seymour-
Williams
Non-current
• Colin Harris3
• David Stewart4
Current
• Alan Carruthers
Current
• Alan Carruthers
(Chair)
(Chair)
• Caroline Connellan
• Richard Price
• Ben Thorpe
• Robert Burgess1
• Dagmar Kershaw2
• John Linwood
• Richard Price
• Diane Seymour-
Williams
Current
• John Linwood
(Chair)5
• Robert Burgess1
• Dagmar Kershaw2
• Richard Price
• Diane Seymour-
Current
• Robert Burgess
(Chair) 7
• Dagmar Kershaw2
• John Linwood
• Richard Price
• Diane Seymour-
Williams6
Williams
Non-current
• Colin Harris3
• David Stewart4
Non-current
• Colin Harris3
• David Stewart4
Non-current
• Colin Harris3
• David Stewart4, 8
Executive Committee
Caroline Connellan (Chair)
Lynsey Cross
Robin Eggar
Tom Emery
Adrian Keane-Munday
Alick Mackay
Andrew Shepherd
Richard Spencer
Ben Thorpe
Priti Verma
Board
Audit Nominations Remuneration
Risk and
Compliance
Disclosure
7
7
7
7
2
7
7
7
7
7
7
7
2
7
7
7
7
7
–
–
–
2
7
7
6
7
2
7
7
6
7
3
–
–
3
2
3
3
3
2
3
2
3
2
3
2
6
–
–
–
2
6
4
6
4
2
6
5
6
5
6
–
–
–
2
6
6
6
6
2
6
5
6
6
13
13
2
2
2
2
2
–
–
2
2
–
–
Number of scheduled meetings held
during the year
Caroline Connellan
Ben Thorpe
Alan Carruthers
Colin Harris1
John Linwood
Richard Price
Diane Seymour-Williams
David Stewart2
Meetings
Attended
Resigned 31 October 2019
Resigned 31 July 2020
Conflicted for one meeting
1.
2.
3.
Colin Harris, John Linwood, Richard Price, Diane Seymour-Williams and David Stewart were independent Non-Executive
Directors during the year.
Board composition statistics as at 16 September 2020
Gender diversity
Independence
Board tenure
3
5
5
1
2
2
1
2
3
Male
Female
Chairman
Executive Directors
Non-Executive
Directors
< 1 year
1-3 years
3-5 years
> 5 years
Appointed 1 August 2020
1.
2. Appointed 1 July 2020
3.
4.
Resigned 31 October 2019
Resigned 31 July 2020
5. Appointed as Chair 1 August 2019
Resigned as Chair 1 August 2019
6.
7. Appointed as Chair 1 August 2020
(subject to FCA approval)
Resigned as Chair 31 July 2020
8.
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27566 17 September 2020 11:20 am Proof 6Caroline ConnellanCEOKey skills & experience• Strong and effective commercial and people leadership, executing strategic change to drive business efficiencies and growth • Broad wealth management and retail financial services background, with significant experience in delivering for clients and advisersCaroline joined Brooks Macdonald as CEO in April 2017. She is an Executive Director on the Group Board and a member of the Disclosure Committee. Before joining she was Head of UK Premier and Wealth at HSBC where she led the transformation of the UK Wealth business. Prior to this she held a number of senior corporate roles, including Group Strategy Director at Standard Life, and had extensive experience in the wealth and asset management sector as a consultant at McKinsey. Caroline started her career as a Fund Manager with Newton Investment Management in London. Caroline is a member of the Investment Association board and has joined the Government’s Asset Management Task Force.Alan CarruthersNon-Executive ChairmanKey skills & experience• Effective Chairman, leading from the front while also leveraging the skills and experiences of his Board colleagues• Experienced financial services practitionerAlan joined Brooks Macdonald as the Chairman in March 2019. He is Chair of both the Nominations Committee and the Disclosure Committee. Alan has over 27 years’ equity markets experience working for leading financial services firms and held senior positions as Head of Global Sales Trading at Morgan Stanley (1996 – 2003), Global Head of Equities at Cazenove (2003 – 2010) and Head of Europe, Middle East and Africa (“EMEA”) Cash Equities at JP Morgan Cazenove (2010 – 2011). Alan is currently the Chairman of Numis Corporation plc.Ben ThorpeGroup Finance DirectorKey skills & experience• Brings strong commercial perspective to leadership of the business• Extensive experience of senior finance roles in wealth management and bankingBen joined Brooks Macdonald in August 2018 as Group Finance Director and an Executive Director on the Group Board and a member of the Disclosure Committee. He has 18 years of financial services experience, most recently as Head of Finance at Brewin Dolphin where he was responsible for Group Financial Planning and Analysis, Financial Control, Tax and Treasury. Prior to Brewin, Ben spent 14 years working in the financial planning and analysis teams at Morgan Stanley, RBS and Barclays Capital with his last role being Managing Director, Strategy and Change at Standard Bank South Africa in Johannesburg.Richard PriceIndependent Non-Executive Director Key skills & experience• Appointment as Senior Independent Director reflects his deep understanding of the Group’s history and strategy• Big Four accounting experience underpins leadership of the Audit CommitteeRichard joined Brooks Macdonald in 2014 as a Non-Executive Director. He is the Senior Independent Director (subject to FCA approval) and Chair of the Audit Committee and a member of the Risk and Compliance, Remuneration, Disclosure and Nominations Committees. Prior to joining Brooks Macdonald, Richard was a partner at KPMG for 17 years where he had considerable exposure to financial services clients, and held a number of roles, including the UK Head of KPMG’s Financial Sector Transaction Services practice. Richard is a Non-Executive Director of Hampshire Trust Bank Plc, Amigo Holdings Plc, and Alpha Bank London Limited. Read more on Audit Committee Report on pages 68 to 71 Read more on Nominations Committee on pages 72 to 73 Read more on Remuneration Committee on pages 74 to 88ChairmanNon-Executive DirectorsExecutive DirectorsBoard of Directors 64Brooks Macdonald Group plc / Annual Report and Accounts 2020Brooks Macdonald AR2020 Governance.indd 6417/09/2020 13:10:5327566 17 September 2020 11:20 am Proof 6Robert BurgessIndependent Non-Executive DirectorKey skills & experience• Brings significant executive and non-executive experience to the Board and the role of Risk and Compliance Chair• Broad financial services experience, particularly in wealth management, asset management and banking• Significant experience of high growth businessesRobert joined Brooks Macdonald as a Non-Executive Director in August 2020 and is Chair of the Risk and Compliance Committee (subject to FCA approval) and a member of the Audit, Remuneration and Nominations Committees. Currently a Non-Executive Director at Oaknorth Bank, Robert chairs both the Risk and Compliance Committee and the Credit Committee. Robert is also the Chairman of Invest & Fund, a specialist Fintech business. Robert has over 25 years Financial Services experience across leading Banking, Wealth, Asset Management and Fintech firms. He has held senior executive positions including at Lloyds Banking Group and Scottish Widows, and he was previously a Board Director of Alliance Trust plc and CEO of Alliance Trust Savings.Diane Seymour-WilliamsIndependent Non-Executive DirectorKey skills & experience• Breadth of experience across the financial services sector• Tenure gives deep knowledge of the Company’s evolution and operationsDiane joined Brooks Macdonald in 2011 as a Non-Executive Director. She is a member of the Nominations, Remuneration, Audit and Risk and Compliance Committees. She was Chair of the Remuneration Committee until stepping down on 31 July 2019 and replaced by John Linwood. Prior to joining Brooks Macdonald, Diane spent 23 years at Morgan Grenfell and, following its takeover, with Deutsche Bank in a variety of roles, including Head of Asian Equities, CEO and CIO Asia and Head of Global Equities. She has over 30 years’ industry experience and is currently a non-executive director of Praxis IFM Group, Witan Pacific Investment Trust and Standard Life Private Equity Trust. She is also a member of the investment committee at Newnham College, Cambridge. Diane will be stepping down from the Board of Brooks Macdonald at the 2020 AGM having completed her nine year tenure.John LinwoodIndependent Non-Executive DirectorKey skills & experience• A deep understanding of technology, cyber security, AI and digital transformation having held senior roles at some of the world’s largest global organisations in the technology and media industries • Brings wide-ranging business and leadership experience to the role of Remuneration Committee Chair • Experienced Non-Executive Director across FTSE, AIM and private companies as well as Government institutionsJohn joined Brooks Macdonald as a Non-Executive Director in 2018. He is Chairman of the Remuneration Committee and is a member of the Audit, Nominations and Risk and Compliance Committees. Prior to joining Brooks Macdonald, John was the Executive Vice President and Chief Technology Officer of Wood Mackenzie, Chief Technology Officer for the BBC, and a Senior Vice President of International Engineering at Yahoo Inc. He has also held a number of senior positions at Microsoft Corp. (1993 – 2004). John is a Non-Executive Director of National Grid ESO.Non-Executive DirectorsDagmar KershawIndependent Non-Executive DirectorKey skills & experience• Senior financial services professional with broad experience, particularly in business development• Significant expertise across the investment management sectorDagmar joined Brooks Macdonald in July 2020 as a Non-Executive Director. She is a member of the Nominations, Remuneration, Audit and Risk and Compliance Committees. Currently a senior advisor to Strategic Value Partners, and a non-executive director of Aberdeen Smaller Companies Income Trust Plc, Dagmar has over 25 years’ experience in debt and fixed income markets, with a particular focus on alternative and structured investing. Dagmar previously spent eight years at Intermediate Capital Group as Head of Credit Fund Management, and ten years in senior positions at M&G Investments. Dagmar is a Trustee of Laurus Trust.65Brooks Macdonald Group plc / Annual Report and Accounts 2020IntroductionStrategic reportCorporate governanceFinancial statementsBrooks Macdonald AR2020 Governance.indd 6517/09/2020 13:10:58 27566 17 September 2020 11:20 am Proof 6Executive Committee Robin EggarManaging Director and Head of UK Investment ManagementRobin is Managing Director and Head of UK Investment Management at Brooks Macdonald Group and a member of the Executive Committee. In his role, Robin has overall responsibility for running the UK Investment Management business and a focus to deliver on the agreed strategy of the Group.Robin joined Brooks Macdonald in 2001 as a Trainee Investment Manager as part of the Group’s graduate training programme. Before becoming an MD, Robin established his career in Brooks Macdonald by building and growing his own investment team before assuming management of the wider London Investment Teams.Robin is a qualified Investment Manager, holds a master’s degree in Economic history from the University of Edinburgh and is a chartered member of the CISI.Tom EmeryHuman Resources DirectorTom is the HR Director of the Brooks Macdonald Group and a member of the Executive Committee. Joining Brooks Macdonald in 2017, Tom owns all areas of the HR and people strategy including HR business partnering, performance and reward, HR operations, talent and development, and HR governance.Tom has spent over 15 years working in HR in industries such as finance, retail, technology and local government. Prior to joining Brooks Macdonald Tom worked at HSBC for seven years in various roles, including leading HR for First Direct Bank and running HR Operations.Tom was one of LGBT Great’s #50For50 Executives, an initiative to commemorate Pride and the fifty years since the Stonewall movement began in 1969. Tom has a degree in Linguistics from the University of Manchester and is a member of the Chartered Institute of Personnel and Development.Adrian Keane-MundayManaging Director, Financial Planning and Group Marketing DirectorAdrian serves as Managing Director, Financial Planning, Group Marketing Director for the Brooks Macdonald Group, and is a member of the Executive Committee. Adrian joined Brooks Macdonald in July 2018 to lead the Group’s Financial Planning and marketing functions. In 2019, the Financial Planning team was awarded Chartered Financial Planner status and achieved a position on the FTAdviser Top 100 Financial Advisers.Adrian has over 30 years’ experience in financial services. Prior to joining Brooks Macdonald, Adrian was Head of UK Premier and Wealth Distribution at HSBC, leading the national IFA business through its RDR transition, establishing the national “Wealth Centre of Excellence”, and gaining extensive retail banking experience as one of four National Regional Directors. Adrian is a member of LGBT Great’s Global Top 100 Executive Allies and Executive Sponsor for Brooks Macdonald’s Global Diversity & Inclusion agenda.Andrew ShepherdCEO International & Group Deputy CEOAndrew is the CEO of Brooks Macdonald International, Group Deputy CEO of the Brooks Macdonald Group and a member of the Executive Committee. He is also Chairman of the Boards of the two legal entities within International with responsibility for their direction and strategy. Joining Brooks Macdonald in 2002, Andrew owns the day-to-day management of the International business.Andrew has spent over 25 years working in financial services. He held numerous roles in Brooks Macdonald before becoming CEO of the Group’s international operation, including Investment Manager and Managing Director. Prior to joining Brooks Macdonald, Andrew worked at Shepherd Associates Financial Management, qualifying as a Financial Planner before holding the position of Investment Director.Andrew is a member of CISI, IOD and the Personal Finance Society.Caroline ConnellanCEO See Caroline’s biography on page 64Ben ThorpeGroup Finance Director See Ben’s biography on page 6466Brooks Macdonald Group plc / Annual Report and Accounts 2020Brooks Macdonald AR2020 Governance.indd 6617/09/2020 13:11:0927566 17 September 2020 11:20 am Proof 6Richard SpencerChief Investment OfficerRichard is a co-founder of Brooks Macdonald and holds the position of Chief Investment Officer. As well as chairing the Investment Committee, Asset Selection Committee and Asset Allocation Committee, he is also a member of the Executive Committee. Richard oversees all investment services, and also retains private client relationships to ensure he is involved throughout the firm’s investment process.Richard has over 30 years’ experience in financial services. Prior to founding Brooks Macdonald in 1991 Richard worked at Pall Mall Money Management Limited, as an Investment Director.Richard has a degree in Economics and Business Economics and is a member of the Chartered Institute for Securities & Investments.Alick MackayStrategy & Corporate Development DirectorAlick Mackay is the Strategy & Corporate Development Director of the Brooks Macdonald Group, and a member of the Executive Committee. Joining Brooks Macdonald in 2017, Alick owns all areas of the strategy and corporate development agenda, including the Group’s approach to potential acquisitions and disposals.Alick has spent over 30 years working in financial services, principally in wealth management and banking, in roles covering strategy, consulting, COO and technology. Immediately prior to joining Brooks Macdonald, Alick worked at Royal Bank of Scotland for ten years, leading the strategy team in the investment bank and playing a COO role in the capital markets business. He has also worked for ABN AMRO and McKinsey.Alick has a degree in Mathematics & Natural Philosophy from the University of Aberdeen, an MSc in Mathematics from the Open University and an MBA from Columbia Business School, New York.Lynsey CrossChief Operating OfficerLynsey is the Chief Operating Officer (“COO”) of the Brooks Macdonald Group and a member of the Executive Committee. Lynsey joined Brooks Macdonald in May 2020 and is responsible for advancing how the Group serves their advisors and clients and leads the Group’s investment in technology, systems and processes. With over 25 years of financial services experience, Lynsey has worked in a number of senior roles across both asset management and insurance. More recently she was CEO of ANV Group until she led the company through its acquisition to AmTrust. She was then appointed COO of AmTrust International to oversee their complex integration program. Additionally, Lynsey is Chair of Diversity & Inclusion at Insurance Institute London and is a Non-Executive Director of MSE NHS Foundation Trust.Priti VermaChief Risk OfficerPriti is Chief Risk Officer (“CRO”) of Brooks Macdonald Group and a member of the Executive Committee. In her role, Priti has responsibility and oversight of risk (including investment risk), compliance and outsourced internal audit activities. One of the key achievements of her team has been delivering a risk management transformational project and enhancing both the risk management framework and ongoing compliance oversight.Having started her career at one of the Big 4, Priti has over 20 years of experience in financial services, predominantly overseeing risk, compliance and internal audit activities in asset and wealth management firms.Priti has a Master’s in Chemical Engineering where she studied the principles of risk management and process optimisation and currently sits on the Investment Association Strategic Business and Risk Committee.67Brooks Macdonald Group plc / Annual Report and Accounts 2020IntroductionStrategic reportCorporate governanceFinancial statementsBrooks Macdonald AR2020 Governance.indd 6717/09/2020 13:11:15 27566 17 September 2020 11:20 am Proof 6Role and responsibilitiesThe Audit Committee assists the Board in meeting its responsibilities for the integrity of the Group’s internal financial controls and its financial reporting. The Committee’s responsibilities can be grouped into the following aspects:• To review and challenge the Group’s accounting policies and significant judgement areas and the integrity of its financial reporting• To provide oversight and monitoring of the internal and external audit functions, including appraising their performance and approving their fees• To work in conjunction with the Risk and Compliance Committee to review the effectiveness on the Group’s risk management framework and internal controlsThe full responsibilities of the Committee are set out in the Committee’s Terms of Reference, which are reviewed annually and are available on the Group’s website.Composition and meetingsDuring the year, the Audit Committee comprised Richard Price (Chair), David Stewart, John Linwood and Diane Seymour-Williams, who joined the Committee on 1 August 2019. Colin Harris was also a member of the Committee until he stepped down as a Director at the Company’s AGM on 31 October 2019. David Stewart also stepped down from the Committee on 31 July 2020. In addition, Dagmar Kershaw and Robert Burgess joined the Committee following their appointment as Non-Executive Directors on 1 July 2020 and 1 August 2020 respectively.Membership of the Committee is restricted to independent Non-Executive Directors. The CEO, Group Finance Director, Chief Risk Officer and representatives of the internal and external auditors routinely attend meetings. The Committee meets with representatives of the external auditors without management present at least once a year. The Committee evaluated a number of financial and audit matters during the year including the acquisition of Cornelian Asset Managers Group. Richard Price Chair of the Audit CommitteeAudit Committee report The Committee’s attendance during the year ended 30 June 2020 is set out in the summary table on page 63.The Committee’s areas of focusFinancial reporting• Reviewed the Interim and Annual Report and Accounts, ensuring these are fair, balanced and understandable for shareholders and other end users;• Reviewed the polices, key assumptions, and judgements applied in the preparation of the Interim and Annual Report and Accounts, including the external auditors’ feedback on financial reporting changes and the Group’s financial controls;• Reviewed reports from management on the preparation of the Interim and Annual Report and Accounts, including the impact of the adoption of new accounting standards, in particular IFRS 16, and the accounting of the Cornelian acquisition; and• Reviewed the Group’s going concern assumptions and the Viability statement.68Brooks Macdonald Group plc / Annual Report and Accounts 2020Brooks Macdonald AR2020 Governance.indd 6817/09/2020 13:11:1827566 17 September 2020 11:20 am Proof 6External audit• Approved the annual external audit plan, the terms of reappointment, remuneration, and Terms of Engagement;• Provided oversight of the external auditors, including assessing their independence, objectivity and effectiveness;• Reviewed audit findings, including key issues, accounting and audit judgements and recommendations, guidance and observations around the Group’s internal controls environment; and• Reviewed management representation letters and associated responses.Internal audit• Developed an internal audit plan alongside KPMG. Monitored and reviewed the effectiveness of the plan and its alignment to key risks;• Provided oversight of the internal auditors and considered and approved the scope of each engagement;• Reviewed the results of individual internal audit reports and considered the effectiveness of actions agreed with management; and• Received regular summary reports from the internal auditors, including their conclusions on the changes to controls and processes made by management.Control oversight• In conjunction with the Risk and Compliance Committee, reviewed the adequacy and effectiveness of the Group’s internal financial controls; • Reviewed and approved the Group’s policy on non-audit services (for both external and internal audit); and• Reviewed the adequacy and security of the Group’s whistleblowing policy and procedures, including ensuring employees are able to raise concerns confidentially and without repercussion.Routine matters• Reviewed the Committee’s composition, minutes, its Terms of Reference and held meetings in private session.Internal auditThe Group has outsourced its internal audit function to KPMG since September 2018. KPMG formally report to Richard Price, Chair of the Audit Committee, with Priti Verma, Chief Risk Officer, being the principal point of day-to-day contact.A risk-based three-year audit plan was developed by the Committee and KPMG, seeking to provide assurance in areas of high-risk. It was created following discussions and review with the Chairs of the Audit Committee and Risk and Compliance Committee, the CEO and the Chief Risk Officer, alongside KPMG’s input on the Group’s activities and the overall industry. The plan is reviewed by the Committee at regular intervals, taking into account any changes in areas deemed high-risk.External auditThe Group’s external auditors are PricewaterhouseCoopers (“PwC”). PwC are coming up to their tenth year as the Group’s external auditors. However, the audit partner in charge of the audit, Natasha McMillan, is rotating off with a new partner, Jeremy Jenson, taking oversight of the Group’s audit engagement following the publication of the FY20 results. As the ten year audit rotation is not applicable to Brooks Macdonald, being an AIM listed company and given the challenges posed by COVID-19 and following the guidance given by the Financial Conduct Authority, Financial Reporting Council and Prudential Regulation Authority, the Group is not intending to carry out a tender process for new auditors at this time.During the year, the Committee monitored the Group’s policy on external audit and evaluated and reviewed the independence and effectiveness of PwC in their role. No material issues were raised during the course of the year. The Committee agreed the external audit and assurance fees and reviewed the audit engagement letter. Details of the auditors’ remuneration is provided in Note 7 to the Consolidated financial statements included within the Annual Report and Accounts.The Committee is satisfied that PwC has conducted an effective audit for the year ended 30 June 2020.Independence and non-audit servicesThe Audit Committee recognises the fact that, given its knowledge of the business, there are advantages in using PwC and KPMG to provide certain non-audit services on particular occasions. If there is a business case to use the auditors to provide non-audit services, sign-off is required from the Committee to ensure the there is no impact on the auditors’ objectivity and independence. Monetary sign-off limits are provided within the framework of the Non-Audit Services Policy which was implemented during the year.69Brooks Macdonald Group plc / Annual Report and Accounts 2020IntroductionStrategic reportCorporate governanceFinancial statementsBrooks Macdonald AR2020 Governance.indd 6917/09/2020 13:11:18 Audit Committee report continued
Introduction
Strategic report
Corporate governance
Financial statements
Whistleblowing
The Group’s whistleblowing policy was reviewed and
agreed by the Committee during the year. Responsibility
for whistleblowing rests with Richard Price, Chair of the
Audit Committee, who has the role of the Group’s overall
“Whistleblowing champion”. There are also dedicated
“Whistleblowing champions” for the UK and Channel Island
businesses. The Group also provides an independent
external reporting portal provider, Safecall, which staff
can contact anonymously. Ultimate responsibility for
whistleblowing rests with the Board. No incidents of
whistleblowing were reported during the year.
Approval
This report in its entirety has been approved by the
Committee and the Board of Directors on its behalf by:
Richard Price
Audit Committee Chair
16 September 2020
Financial reporting
The Committee reviewed the significant issues set out below
in relation to the Group’s Annual Report and Accounts for
the year ended 30 June 2020. Discussions were held with
management throughout the year and the Committee is
comfortable the Consolidated financial statements included
within the Annual Report and Accounts address the
judgements and estimates applied, as well as the disclosures
agreed. These significant issues were also reviewed with the
external auditors with the Committee’s conclusions being in
line with the auditors’.
Issue
Goodwill
(see Note 14)
Amortisation
of client
relationships
(see Note 14)
Acquisition
accounting
(see Note 10)
Key considerations and conclusions
The Committee reviewed the value-
in-use calculations presented by
management supporting the value of
goodwill held on the Group’s balance
sheet in respect of previously acquired
businesses. The Committee concluded
that the remaining goodwill in respect
of Levitas is no longer adequately
supported and accordingly approved
an impairment charge of £4.5 million.
The Committee is satisfied that the
remaining goodwill value is adequately
supported by the respective value-in-
use calculations.
In determining the useful economic
life of the Group’s client relationships,
the Committee reviewed relevant
analysis presented by management.
The Committee concluded that the
assumptions and judgements used
were reasonable and appropriate and
were also in agreement with the useful
economic life of the client relationships
arising from the acquisition of Cornelian
during the year.
The Committee reviewed management’s
accounting of the Cornelian acquisition,
including the methodology for valuing
the intangible assets in arriving at the
goodwill arising on acquisition and
concluded that it was appropriate.
The Committee also assessed the
reasonableness of the amount
recognised on the balance sheet at 30
June 2020 in respect of the discounted
deferred contingent consideration for
Cornelian of up to £8.0 million arising
on the achievement of set FUM levels
and cost synergies by September 2021
and February 2022 respectively, and
concluded this was appropriate.
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27566 17 September 2020 11:20 am Proof 6Role and responsibilitiesThe Nominations Committee is responsible for reviewing the composition of the Board and the Board Committees to ensure they are suitably constituted, with an appropriate balance of skills, experience, knowledge and diversity. This includes conducting the annual Board effectiveness review. The Committee also recommends Board and Board Committee appointments, and monitors succession planning at the Group’s leadership levels to ensure the Group’s continued ability to implement its strategy and operate effectively. The Committee is also responsible for reviewing and recommending to the Board any material changes to the structure, size and composition of the Group’s regulated subsidiary company boards.The full responsibilities of the Committee are set out in the Committee’s Terms of Reference, which are reviewed annually and are available on the Group’s website.Composition and meetingsThe Committee comprises Alan Carruthers (Chair), Diane Seymour-Williams, John Linwood and Richard Price, together with Dagmar Kershaw and Robert Burgess who joined the Committee with effect from 1 July and 1 August 2020 respectively. Only members of the Committee may vote on Committee business but other members of the Board and the HR Director may attend all or part of a meeting by invitation. The attendance of each Committee member during the year is shown on page 63 of the Annual Report.Main activities during the yearThe Nominations Committee has overseen a number of Board changes during the financial year. Colin Harris stepped down from the Board at the Company’s AGM last October having completed nine years as an independent Non-Executive Director. Similarly, the Committee identified that Diane Seymour-Williams is approaching her nine-year anniversary as an independent Non-Executive Director and so will be stepping down at this year’s AGM. As a result of this, the Company commenced a formal process to appoint a new Non-Executive Director. A role description was drawn up and, after conducting a selection process, Korn Ferry were chosen to lead the search, focusing on individuals with the appropriate skills for the Board, while ensuring a diverse selection of applicants. A long list of candidates was reviewed and reduced to a short list who were then assessed by the Committee. Following a series of interviews, it was announced on 9 June 2020 that Dagmar Kershaw would be joining the Board with effect from 1 July 2020. Korn Ferry have also assisted the Company with recruitment for senior management roles. In addition, David Stewart tendered his resignation at the end of April 2020, to take effect from 31 July 2020, in order to take up a full-time position as Chief Executive of LSL Property Services plc. As well as being a Non-Executive Director, David was also Chair of the Risk and Compliance Committee and the Committee agreed that its recruitment of a replacement for David should focus on someone who could effectively chair that Committee. The Company approached a number of recruitment consultants and finally selected Nurole to undertake the search. Again, an initial long list of candidates was whittled down to a shortlist who were then interviewed by members of the Committee and the Executive Directors. It was announced on 16 July 2020 that Robert Burgess had been appointed to the Board with effect from 1 August 2020. The recruitment of Robert Burgess was the first time the Company had worked with Nurole. David Stewart also held the role of Senior Independent Director. Following discussions amongst the Committee, it was agreed that Richard Price should take on this role upon David’s departure, subject to FCA approval. The Committee welcomed two new members, expanding the Board’s skillset and experience in the financial services sector and providing strengthened counsel and supervision to the Group in executing its strategy. Alan Carruthers Chair of the Nominations CommitteeNominations Committee report72Brooks Macdonald Group plc / Annual Report and Accounts 2020Brooks Macdonald AR2020 Governance.indd 7217/09/2020 13:11:2527566 17 September 2020 11:20 am Proof 6Talent development and succession planningThe Committee is committed to maintaining an effective policy for the orderly succession of Executive Directors, Executive Committee members and other senior management roles across the business. It is also committed to maintaining an appropriate balance of skills, experience, independence and diversity within those roles and across the Group. Further information on the Group’s approach to succession planning can be found in the Corporate Responsibility report on page 54. DiversityThe Committee takes an active role in setting and monitoring diversity objectives and strategies undertaken by the Group and embraces the benefits of having a diverse Board drawing on the knowledge, skills, experience and expertise of directors from a range of backgrounds and will take the opportunity to improve the Board’s diversity where required. As mentioned previously, external search consultancies used in the recruitment of Board and senior members of management are encouraged to provide diverse lists of candidates. Further details on the Group’s approach to diversity are included in the Corporate responsibility report on page 52 with details of the gender balance of the Company’s senior management shown on page 55.Board effectivenessThe Committee is responsible for overseeing an annual evaluation of the Board, its Committees, the Chair and individual Directors. This includes a review of the composition, diversity and effectiveness of the Board and its Committees and the contribution of each Director. Given the ongoing COVID-19 pandemic, it was agreed that the evaluation should be conducted internally. This was carried out in June 2020 and a secure, online questionnaire was employed which ensured the anonymity of responses received. This provided an opportunity for each of the Directors to review the processes and procedures of the Board and to scrutinise the performance of themselves and their colleagues. The feedback received was generally positive in nature, both concerning the Board as a whole and its Committees. A small number of issues were raised for further consideration:• The Board requested more benchmarking and to receive additional information on the wider market• More dedicated time in meetings for broader debate on the implementation of the Group’s strategy and future priorities• While the quality of board papers was generally good, the Board would prefer papers to be shorter and more focused, as well as delivered earlierThe Chair undertook to discuss these matters with his colleagues and agree an action plan to address them. The progress against these actions will be reported on in next year’s Annual Report and Accounts. The use of an externally facilitated board evaluation is also under consideration for a future year.Corporate governance The Company has chosen to follow the Corporate Governance Code and this is the first year that the Company has reported against the new 2018 version of the Code.ApprovalThis report in its entirety has been approved by the Committee and the Board of Directors on its behalf by:Alan Carruthers Nominations Committee Chair16 September 2020IntroductionStrategic reportCorporate governanceFinancial statementsBrooks Macdonald AR2020 Governance.indd 7317/09/2020 13:11:27 27566 17 September 2020 11:20 am Proof 6Outstanding: Cutting out of headshots to be tidied up Remuneration Committee reportIntroductionThe Directors’ Remuneration Report includes the Annual report on remuneration for the financial year ended 30 June 2020 and the Directors’ remuneration policy. The Annual report on remuneration illustrates how variable pay relates to the Group’s performance outcomes for the year and over the longer term. It also provides a detailed view of each Director’s individual total remuneration. As reported in last year’s report, Diane Seymour-Williams retired as Chair of the Remuneration Committee on 31 July 2019 and John Linwood was appointed Chair from 1 August 2019. From 1 August 2019, the Remuneration Committee comprised John Linwood (Chair), Diane Seymour-Williams, Richard Price and David Stewart. Dagmar Kershaw and Robert Burgess have also joined the Committee following their appointment as Non-Executive Directors. The Committee’s attendance during the year ended 30 June 2020 is set out in the summary table on page 63.The Committee exercises independent judgement in the determination, implementation and operation of the overall remuneration policy for the Group. The Committee also: • provides oversight of the design and application of the remuneration policy and makes recommendation to the Board of the overarching principles for all Group employees;• ensures the policy is consistent with the risk appetite of the Group and its strategic goals; and• reviews and approves the remuneration policies and remuneration for the Executive Directors, members of the Executive Committee, Material Risk Takers (“MRTs”) and any other employees for whom enhanced oversight is either appropriate or a regulatory requirement.The full responsibilities of the Committee are set out in the Committee’s Terms of Reference, which are reviewed annually and are available on the Group’s website. The Committee continued to ensure its overall approach to remuneration was competitive, market aligned, and drove the right commercial outcomes aligned to shareholder interests. John Linwood Chair of the Remuneration CommitteeThe Committee values feedback from all of its shareholders; following the 39% advisory vote against the Remuneration Report at last year’s AGM, the Company engaged with its largest shareholders to find out why. The concern arose from the Company allowing Nicholas Holmes’, a previous Director of Brooks Macdonald, outstanding share awards to vest in full on his departure from the Company rather than pro-rating them up to the time of his departure. This decision reflected Nicholas Holmes’ exceptionally long service to the business; the Committee can provide reassurance that due consideration was taken, this does not set a future precedent and therefore this should not be an ongoing concern for shareholders.Board changesColin Harris stepped down from the Board with effect from 31 October 2019. As announced on 1 May 2020, David Stewart stepped down from the Board effective from 31 July 2020. Dagmar Kershaw was appointed to the Board with effect from 1 July 2020 and Robert Burgess was appointed to the Board with effect from 1 August 2020. Activities of the CommitteeThe Committee continued to ensure its overall approach to remuneration was competitive, market aligned, and drove the right commercial outcomes aligned to shareholder interests. This has been particularly important and challenging given the COVID-19 pandemic and its impact on our business results and our people. There have been two significant acquisitions for the Group during the year: Cornelian Asset Managers Group Limited which completed in February 2020 and the Lloyds Bank International’s Channel Islands wealth management and funds business which was announced in June 2020. The Committee focused particularly on the integration of the business from a people perspective to ensure Cornelian employees have been successfully embedded into Brooks Macdonald. 74Brooks Macdonald Group plc / Annual Report and Accounts 2020Brooks Macdonald AR2020 Governance.indd 7417/09/2020 13:11:2927566 17 September 2020 11:20 am Proof 6During the year, the Committee has reviewed individual remuneration for all employees in Material Risk Taker and senior Risk and Compliance roles as required under the FCA Remuneration Code. The Committee also oversaw the details and publication of the Group’s third annual gender pay gap report and was pleased to report a continued steady reduction in both median and mean gender pay gaps. It also published its progress against gender diversity targets for senior management, which has also seen a small improvement. Throughout the year the Committee also received regular updates around developments in the governance and regulation of remuneration structures from both internal and external sources, and took action to ensure the Group’s remuneration approach reflects best practice in this regard as well as rewarding high performance and conduct aligned to our risk management framework and guiding principles. At the invitation of the Committee chairman, the CEO and HR Director attend some or all of each meeting. The CRO also advises the Committee on matters relating to remuneration as required. If requested, there is an opportunity for private discussion between Committee members without the presence of management at meetings. No Committee member or attendee is present when matters relating to their own remuneration are discussed.Incentive outcomes for the year The financial year has been characterised by weak market sentiment resulting from Brexit uncertainties and geo-political tensions. This was then exacerbated by the COVID-19 pandemic during the second half of the year. Despite this, the Group has maintained good performance with funds under management increasing during the financial year from £13.1 billion to £13.7 billion, an increase of 4.6%. This reflects the assets acquired from Cornelian in February 2020 of £1.2 billion and positive investment performance of £0.1 billion, partly offset by organic net outflows of £0.8 billion arising mainly in lower margin business as a result of the Group’s focus on efficiency and business quality over volume and actions taken to support the medium-term value creation. Underlying profit before tax increased by 11.1% to £23.0 million, ahead of the £20.7 million reported in FY19. Underlying profit before tax margin rose from 19.5% to 21.2% in line with our ongoing commitment to increase profit margins in the medium term.In line with previous years, the Executive Directors’ annual bonus is awarded against three financial measures: net organic growth in funds under management, underlying profit before tax, and underlying profit before tax margin, and one non-financial measure for strategic and personal objectives. For FY20, small adjustments to the weightings of the metrics were made to more align with the Group’s business strategy and plan which is currently in phase two of driving growth. To reflect this level of transformation, it was felt that giving equal weighting to the financial metrics (20% each) and increasing the weighting on strategic and personal objectives to 40% was appropriate to reflect the short-term priorities and risk profile of the Group. A higher non-financial weighting is also in line with market practice amongst financial services firms. Despite the challenging business context brought on by Brexit uncertainty and the COVID-19 pandemic, the business has made good progress this year and has increased both underlying profit before tax and underlying profit margin. Both Executive Directors have made excellent progress against their non-financial targets and this has resulted in bonus outcomes of 96.0% of base salary for both the CEO and Group Finance Director. The Remuneration Committee is satisfied that the bonus outcome reflects the overall performance of the Group over the year.Awards of restricted shares were made to the Executive Directors and other members of the Executive Committee under the 2018 Long Term Incentive Plan (“LTIP”) in October 2019. The LTIP awards are subject to continued service and underpins relating to dividends, funds under management and risk and compliance. These awards will not vest until October 2022.There were no LTIP awards capable of vesting based on performance for the period ended 30 June 2020.Workforce engagementDuring FY20, John Linwood agreed to be the designated Non-Executive Director to lead the Board’s engagement with our people. Various engagement activities, such as staff discussion groups, were undertaken to provide the opportunity for feedback, themes and viewpoints to be brought to the attention of the Board and to encourage dialogue at all levels. The Group also runs a regular staff survey through which it elicits feedback from staff around a number of areas, including compensation and benefits. Executive Directors regularly meet with employees through other mechanisms such as all-staff town halls, focus groups, visiting regional offices and joining team meetings which has been continued remotely through lockdown.75Brooks Macdonald Group plc / Annual Report and Accounts 2020IntroductionStrategic reportCorporate governanceFinancial statementsBrooks Macdonald AR2020 Governance.indd 7517/09/2020 13:11:30 Remuneration Committee report continued
Approach to remuneration in FY21
The Committee undertook a review of the remuneration
arrangements of the CEO and Group Finance Director and
consulted with the Company’s largest investors.
Following an overhaul of the executive team, the Board
regards Caroline Connellan and Ben Thorpe as central to the
successful delivery of our strategy – delivering growth – the
ongoing transformation and the Group’s expansion both
organically and inorganically. Brooks Macdonald operates
in an extremely competitive market and the Board is
cognisant of the scarcity of high quality talent in the wealth
management sector.
In light of this and to take into account both Executive’s
increased experience and performance since joining Brooks
Macdonald, the Remuneration Committee, having taken
soundings from major shareholders, has made adjustments
to their base salaries. Caroline’s salary will be increased to
£410,000 from £358,000 and Ben’s salary will be increased
to £331,000 from £281,000 from 1 September 2020. The
Remuneration Committee is aware that these increases are
significant but believes they are essential in retaining and
motivating a strong team at a time of significant change in the
industry. While benchmarking has not been the main driver
behind these increases, the Remuneration Committee takes
comfort that the revised salaries are more aligned with mid-
market levels and are not excessive.
The Committee supports the idea that pension alignment
promotes fairness across the workforce. The Executive
Directors’ pensions were reduced from 15% to 10% in 2018
and a further reduction to 8% will be made from 1 September
2020, as part of our objective of aligning this with the wider
workforce rate.
Similar to this year, the Executive Directors’ annual bonus
will be based on performance against three financial
measures: net organic growth in funds under management,
underlying profit before tax, and underlying profit before tax
margin; and strategic and personal objectives. There is no
change to the weighting of the financial and non-financial
elements in 2021.
LTIP awards will continue to be granted under the current
Plan with a three-year vesting period and two-year post-
vesting holding period up to a maximum of 50% of base salary.
As set out above for the 2019 award, previous restricted share
awards have been subject to underpins relating to dividends,
funds under management and risk and compliance.
Given the impact of COVID-19 on the financial year ended
30 June 2020, and reflecting the nature of a restricted share
award, the Committee believes that retaining the dividend
and FUM underpins for the forthcoming award would be
inappropriate and may incentivise actions which are not in
the long-term interests of shareholders and not in line with
the Board’s risk appetite. Therefore, the FY21 restricted share
award will vest subject to the following underpins:
i.
the maintenance of a satisfactory risk, compliance,
governance and internal control environment, and
ii. a Remuneration Committee assessment that the value
being delivered on vesting is commensurate with the
underlying financial performance of the Company over
the three-year vesting period.
If either or both of these underpins are not met, the
Remuneration Committee has the power to scale back
vesting as it feels is appropriate, including to nil.
The Committee will retain the ability to apply discretion
in circumstances where it considers the award outcomes
do not reflect the true performance of the business or
individual over that period.
The Committee believes the proposed approach to
remuneration is appropriate to retain and incentivise a
very talented management team and we hope you will
be supportive of the advisory remuneration resolution
which will be tabled at the Annual General Meeting on
27 October 2020.
Introduction
Strategic report
Corporate governance
Financial statements
Annual report on remuneration
Total remuneration for the financial year to 30 June 2020 (audited)
Ben Thorpe5
£’000
Executives
Caroline Connellan 2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Andrew Shepherd7
Nicholas Holmes6
Richard Price
David Stewart
Diane Seymour–
Williams
Non-Executives
Alan Carruthers8
(Chairman)
Colin Harris9
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Christopher Knight11 2020
2019
2020
2019
Total remuneration 2020
2019
John Linwood10
Salary
and
fees
Pension-
related
benefits
Taxable
benefits
Annual
bonus1
Long-term
incentives2 Sharesave3
Other
payment4
Total fixed
remuner-
ation
Total
variable
remuner-
ation
358
346
281
242
–
106
–
165
639
859
187
53
22
65
67
63
59
63
74
61
66
42
–
106
475
453
1,114
1,312
32
33
25
21
–
5
–
–
57
59
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
57
59
3
3
2
2
–
1
–
2
5
8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
8
343
363
270
285
–
30
–
151
613
829
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
613
829
63
37
27
–
–
211
–
–
90
248
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
90
248
–
–
4
4
–
–
–
–
4
4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4
4
110
–
198
186
–
259
–
–
308
445
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
308
445
393
382
308
265
–
112
–
167
701
926
187
53
22
65
67
63
59
63
74
61
66
42
–
106
475
453
1,176
1,379
516
400
499
475
–
500
–
151
1,015
1,526
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,015
1,526
Total
909
782
807
740
–
612
–
318
1,716
2,452
187
53
22
65
67
63
59
63
74
61
66
42
–
106
475
453
2,191
2,905
Notes to the total remuneration table
1.
The amounts represent the total annual bonus value awarded in respect of the relevant financial year, comprising both cash and share awards. For FY20 the
cash payment comprised 66.7% of total annual bonus value and the deferred share award 33.3%.
2. Represents the market value on vest date of any long-term incentive awards and bonus deferrals which vested during the relevant financial year. The
amounts for Caroline Connellan and Ben Thorpe comprise 3,287 DBP awards and 1,452 DBP awards, respectively, at a market value of £19.10 on vest date of 31
August 2019. These were in respect of bonuses deferred from FY18.
3. Value of benefit associated with discount of the 2020 scheme.
4. The amount for Caroline Connellan comprises 7,458 awards at a market value of £14.75 on vest date of 10 April 2020 and the amount for Ben Thorpe comprises
10,688 awards at a market value of £18.50 on vest date of 30 November 2019. Both LTIS awards were made upon employment in line with awards forgone from
prior employers. The amount for Ben Thorpe in the year ended 30 June 2019 represents delivery of non-recurring cash payments agreed at hire which were
broadly in line with awards forgone from his prior employer.
5. Appointed 6 August 2018.
6. Resigned 30 November 2018.
7. Resigned 1 April 2019.
8. Appointed 14 March 2019.
9. Resigned 31 October 2019.
10. Appointed 19 September 2018.
11. Resigned 14 March 2019.
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Annual variable pay outcomes for financial year ended 30 June 2020
The 2020 bonus was based on a balanced scorecard of metrics and targets designed to achieve a direct link between
performance against the Group’s strategic and commercial goals and the overall bonuses awarded. Under the 2020 structure,
a maximum bonus opportunity of 150% of base salary applied to the two Executive Directors. While the Committee has the
discretion to adjust the final outcome to take account of overall performance and exceptional events, no discretion will be
applied this year despite the COVID-19 backdrop; the Committee considers that the Remuneration Policy has operated as
intended both in terms of Company performance and quantum.
Annual bonus performance targets
For the financial year ended 30 June 2020, bonus was based on the following four metrics (percentage weighting within total
bonus opportunity indicated), all of which are aligned to the Group’s strategic targets.
• Underlying profit before tax compared to the budget (20%);
• Net organic growth in funds under management (“Net flows”) compared to the target (20%);
• Underlying profit before tax margin (20%); and
•
Strategic and personal objectives (40%).
For all three financial metrics, a sliding scale of targets was set around the budget for the year and account was taken of market
consensus and sector performance. A number of strategic objectives were set for each Executive Director with a focus on
strategy, client, risk and people.
Overall outcome of annual bonus
The overall bonus outcome, including strong performance across all key strategic and personal non-financial measures,
resulted in an annual bonus award of 96.0% of base salary paid to the CEO and an annual bonus award of 96.0% of base salary
paid to the Group Finance Director. A third of the bonus payable is deferred into shares which vest in equal tranches over three
years to encourage further alignment with our shareholders’ priorities. Both cash and share portions are subject to malus and
clawback provisions.
Performance against financial criteria
% of
salary at
maximum Threshold1 Target1 Maximum1
Underlying PBT
Net flows
Underlying PBT margin (%)
Total
Weighting
20.0%
20.0%
20.0%
60.0%
30.0%
30.0%
30.0%
90.0%
£21.0m £24.1m
5.0%
21.3%
2.5%
19.6%
Actual
for
FY20
£26.1m £23.0m
(5.9%)
21.2%
7.5%
22.3%
% of base
salary
awarded
for these
criteria
16.5%
0.0%
19.5%
36.0%
1.
33.3% of maximum is payable for Threshold performance, 66.7% of maximum for Target performance and 100% of maximum for Maximum performance.
Introduction
Strategic report
Corporate governance
Financial statements
Performance against non-financial criteria
Strategic objective Objective
Strategy
Continued delivery of
organic growth strategy,
successful integration of
acquired business
Extent to which
objective has
been met
Achieved
Performance in FY20
•
Significant progress made in delivering the second
phase of the Group strategy including two high-quality
acquisitions, complementing organic growth actions
• A good full year result, ahead of last year’s in terms of
both underlying profit and underlying profit margin,
despite the market volatility and economic uncertainty
caused by Brexit and the COVID-19 pandemic
• Acquisition of Cornelian completing in February, with
the business now successfully integrated and target
FY21 cost synergies of £3.75 million expected to be
met in full
• Acquisition of Lloyds Bank International’s Channel
Islands wealth management and funds business
announced (subject to regulatory approval) in
June 2020
• Delivered fast paced change to enable a safe and
resilient remote operating model and cultural shift
to allow the business to continue delivering through
COVID-19
People
Ongoing executive
development, successful
roll-out of Group
leadership capability
framework and tiered
leadership development
programme. Ensure
improving engagement
and diversity levels
across the Group.
• Ongoing development of leaders through delivery
Achieved
of specific executive and leadership (mid and senior
levels) programmes
• Achieved reduction in gender pay gap, increased
gender diversity on Executive Committee (from 20% to
30%), and led a broader diversity and inclusion agenda
• Ongoing focus on employee engagement, positively
reflected in significantly increased employee
engagement score over the course of the year
• Effective people-focused response to COVID-19 with
employee health and wellbeing at core, providing
reassurance and support (informed by regular pulse
surveys) and effectively implementing a seamless
transition to a remote working environment
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Introduction
Strategic report
Corporate governance
Financial statements
Performance in FY20
•
Ongoing enhancements of core offering and
embedded specialist Court of Protection, Responsible
Investment Service (“RIS”) and Decumulation services
• Delivered increased level of client and adviser
support and information, including webinars,
educational tools and regular communications to
provide better macroeconomic oversight, particularly
through the challenging markets brought by Brexit
and COVID-19
• Delivered ongoing enhancements in client operations
through centralisation and process improvements,
and made progress in digital capabilities including
roll-out of enhanced portal
Made significant steps in the ongoing enhancement
and embedding of Group-wide risk management
framework
•
•
•
Maintained active regulatory engagement in both
the UK and Channel Islands to support regulatory
requirements and business objectives
Successful implementation and embedding
of SM&CR
Strategic objective Objective
Client
Focus on consistent
delivery of high-
quality client and IFA
experience, leveraging
process improvement
and digital.
Risk
Maintain a positive and
proactive relationship
with regulators,
ensuring effective risk
management. Maintain
high standards in
managing regulatory
matters including
delivery of SM&CR.
Strategic and personal objectives
Financial objectives (as above)
Total
Weighting
40.0%
60.0%
100.0%
% of
salary at
maximum
60.0%
90.0%
150.0%
% of base salary
awarded for
these criteria
60.0%
36.0%
96.0%
Following the calculation of bonus awards against the stated performance measures, additional risk adjustments were
considered by the Committee. No risk adjustments were made for Executive Directors. Final awards made are detailed in the
table below:
Name
Caroline Connellan
Ben Thorpe
Role
CEO
Group Finance Director
1. As disclosed in the total remuneration table.
Cash
£229,000
£180,000
Deferred
shares
£114,000
£90,000
Total
£343,000
£270,000
% of base
salary1
96.0%
96.0%
Extent to which
objective has
been met
Achieved
Monetary value of awards made under LTIP and deferred element of annual bonus during FY20
(audited)
Name
Caroline Connellan
Ben Thorpe
Total
FY19
Deferred
bonus
£121,000
£95,000
£216,000
FY19
LTIPs
£175,000
£138,000
£313,000
Total
£296,000
£233,000
£529,000
Deferred bonus share awards granted during the year (audited)
One third of the FY19 bonus was awarded to Executive Directors in the form of deferred nil cost share options. These awards
will vest over three years in three equal tranches after 12, 24 and 36 months.
Name
Caroline Connellan
Ben Thorpe
Basis of award
1/3 of annual bonus
1/3 of annual bonus
Date of
award
29 Oct 2019
29 Oct 2019
No. of
awards
6,067
4,767
Face value
of awards1
£121,000
£95,000
Vesting date
30 Sept 2020/ 2021/ 2022
30 Sept 2020/ 2021/ 2022
Achieved
1.
Based on a share price of £19.925 being the mid-market closing share price on 30 September 2019.
LTIP awards granted during the year (audited)
A restricted share award under the LTIP was granted to Executive Directors in October 2019 with a face value of 50% of base
salary. These awards will vest after three years and a further two-year post-vesting holding period will apply.
Name
Caroline Connellan
Ben Thorpe
Basis of
award
Date of
award
50% of salary 29 Oct 2019
50% of salary 29 Oct 2019
No. of
awards
8,910
7,001
End of
holding
Face value
of awards2
period
£175,000 30 Sept 2022 30 Sept 2024
£137,500 30 Sept 2022 30 Sept 2024
Vesting
date
2. Based on a share price of £19.642 being the three-day average post announcement of results.
The LTIP awards are subject to continued service and:
•
•
the dividend to be at least maintained throughout the period above that paid for the last financial year prior to award;
average funds under management in the last complete financial year to be above the average level of the last complete
financial year prior to award; and
•
maintenance of a satisfactory risk, compliance, governance and internal control environment across the plan period.
The LTIP awards are subject to malus and clawback provisions in the event of circumstances including, but not limited to,
material misstatement of financial results, material adverse event (e.g. regulatory censure, regulator sanction, reputational
damage) or error in the calculation of the awards. The Committee is able to exercise discretion in circumstances where it
considers the award outcomes do not reflect the true performance of the business or individual over that period.
To the extent that they vest, these awards will be shown in the total remuneration table for the financial year ending 30 June 2023.
Dilution
All share awards are made in accordance with the Board’s dilution policy so that in any rolling period of ten years, not more
than 10% of the issued ordinary share capital of the Company (adjusted for bonus and rights issues) will be issued for all share
incentive schemes operated by the Company. In addition, a further limit within this has been set of a 5% ten-year dilution level
with respect to Executive Long-Term Incentive Plan awards. The Company satisfies the various equity-based schemes it operates
using a combination of market purchased and newly issued shares. The dilutive effect of LTIP awards issued to date is nil.
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Remuneration Committee report continued
Directors’ share interests
At 30 June 2020, active Directors’ shareholdings were as set out below:
Number of shares
Executives
Caroline Connellan
Ben Thorpe
Non-Executives
Alan Carruthers (Chairman)
Richard Price (Senior Independent Director)
Robert Burgess (appointed 1 August 2020)
Dagmar Kershaw (appointed 1 July 2020)
John Linwood
Diane Seymour-Williams
David Stewart (resigned 31 July 2020)
Total
Beneficially
owned
shares
Value at
30 June
2020
Shareholding
as % of base
salary
10,448
8,908
£173,000
£148,000
1,450
1,450
–
–
300
4,000
–
26,556
N/A
N/A
N/A
N/A
N/A
N/A
N/A
48%
52%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Vesting profile of all share awards (audited)
The following tables set out details of the Directors’ share awards and their vesting profile.
Long Term Incentive Scheme (“LTIS”)
The Long Term Incentive Scheme was approved by shareholders at the 2010 Annual General Meeting. Awards made to Directors
under this scheme were for deferral of annual bonuses and to match awards forgone from previous employers. This scheme has
been replaced by the Long Term Incentive Plan and no awards were made under the previous scheme during the year.
The Long Term Incentive Scheme has no performance conditions attached but is subject to continued employment by
the Group.
C Connellan
Grant Date
21/08/2017
03/11/2017
Total
B Thorpe
Grant Date
21/12/2018
21/12/2018
21/12/2018
Total
Exercise
Price (p)
–
–
Options at
1 July 2019
7,458
1,525
8,983
Granted
during year
–
–
–
Exercised
during year
(7,458)
–
(7,458)
Lapsed
during year
–
–
–
Options at
30 June
2020
Vesting
Date
Expiry
Date
– 10/04/2020 21/08/2027
1,525 03/11/2020 03/11/2027
1,525
Exercise
Price (p)
–
–
–
Options at
1 July 2019
10,688
7,079
2,526
20,293
Granted
during year
–
–
–
–
Exercised
during year
(4,190)
–
–
(4,190)
Lapsed
during year
–
–
–
–
Options at
Expiry
Vesting
30 June
2020
Date
Date
6,498 30/11/2019 21/12/2028
7,079 30/11/2020 21/12/2028
2,526
21/12/2028
16,103
31/10/2021
Introduction
Strategic report
Corporate governance
Financial statements
Deferred Bonus Plan (“DBP”)
The Long Term Incentive Plan was approved by shareholders at the 2018 Annual General Meeting and encompasses deferral
of both annual bonuses (DBP) and conditional awards (LTIP).
The Deferred Bonus Plan awards have no performance conditions attached but are subject to continued employment by the Group.
C Connellan
Grant Date
27/11/2018
27/11/2018
31/10/2019
31/10/2019
31/10/2019
Total
B Thorpe
Grant Date
27/11/2018
27/11/2018
31/10/2019
31/10/2019
31/10/2019
Total
Exercise
Price (p)
–
–
–
–
–
Exercise
Price (p)
–
–
–
–
–
Options at
1 July 2019
3,287
3,287
–
–
–
6,574
Granted
during year
–
–
2,022
2,022
2,023
6,067
Exercised
during year
(3,287)
–
–
–
–
(3,287)
Lapsed
during year
–
–
–
–
–
–
Options at
30 June
2020
Vesting
Date
Expiry
Date
– 31/08/2019 27/11/2028
3,287 31/08/2020 27/11/2028
2,022 30/09/2020 31/10/2029
2,022 30/09/2021 31/10/2029
2,023 30/09/2022 31/10/2029
9,354
Options at
1 July 2019
1,452
1,453
–
–
–
2,905
Granted
during year
–
–
1,589
1,589
1,589
4,767
Exercised
during year
–
–
–
–
–
–
Lapsed
during year
–
–
–
–
–
–
Options at
Expiry
Vesting
30 June
2020
Date
Date
1,452 31/08/2019 27/11/2028
1,453 31/08/2020 27/11/2028
1,589 30/09/2020 31/10/2029
1,589 30/09/2021 31/10/2029
1,589 30/09/2022 31/10/2029
7,672
Long Term Incentive Plan (“LTIP”) Conditional Awards
The Long Term Incentive Plan conditional awards are discretionary awards subject to the performance conditions outlined
above and continued employment with the Group. All LTIP awards are subject to a two-year holding period post vest date.
C Connellan
Grant Date
04/04/2019
31/10/2019
Total
B Thorpe
Grant Date
31/10/2019
Total
Exercise
Price (p)
–
–
Options at
1 July 2019
9,682
–
9,682
Granted
during year
–
8,910
8,910
Exercised
during year
–
–
–
Lapsed
during year
–
–
–
Exercise
Price (p)
–
Options at
1 July 2019
–
–
Granted
during year
7,001
7,001
Exercised
during year
–
–
Lapsed
during year
–
–
Options at
Holding
Vesting
30 June
2020
Period
Date
9,682 01/11/2021 24 months
8,910 30/09/2022 24 months
18,592
Options at
30 June
Vesting
Holding
Period
Date
2020
7,001 30/09/2022 24 months
7,001
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Remuneration Committee report continued
Company Share Option Plan (“CSOP”)
The CSOP was approved by shareholders at the Annual General Meeting on 17 October 2013 and by HMRC on 21 November 2013.
The scheme is a discretionary scheme whereby employees or Directors are granted an option to purchase the Company’s shares
in the future at a price set on the date of the grant. The maximum award under the terms of the scheme for an individual at any
one time is a total market value of £30,000. There are performance conditions attaching to the scheme whereby there must be
an increase in the underlying diluted earnings per share of the Company of 2% more than the increase in RPI over the three years
starting with the financial year in which the option is granted. No awards were made under the scheme during FY20.
C Connellan
Grant Date
18/08/2017
Total
Exercise
Price (p)
2,011.0
Options at
1 July 2019
1,491
1,491
Granted
during year
–
–
Exercised
during year
–
–
Lapsed
during year
–
–
Options at
Expiry
Vesting
30 June
Date
Date
2020
1,491 18/08/2020 18/08/2027
1,491
Save As You Earn (“Sharesave”)
All Directors are entitled to take part in the HMRC-approved Brooks Macdonald Group Sharesave Scheme on the same terms
as all other employees. Annual invitations to participate in the scheme, which commences each year on 1 June, are sent to
Directors and option grants are made at 80% of the closing mid-market price on the day of the offer.
The benefit shown in the total remuneration table is the value of the discount on the Sharesave options granted in the year.
B Thorpe
Grant Date
10/05/2019
13/05/2020
Total
Exercise
Price (p)
1,400.0
1,172.0
Options at
1 July 2019
1,285
–
1,285
Granted
during year
–
1,535
1,535
Exercised
during year
–
–
–
Lapsed
during year
(1,285)
–
(1,285)
Options at
30 June
2020
Vesting
Date
Expiry
Date
– 01/06/2022 01/12/2022
1,535 01/06/2023 01/12/2023
1,535
Service contracts for Executive Directors
The Group has service contracts with its Executive Directors with a notice period of 12 months and it is Group policy that such
contracts should not normally contain notice periods of more than 12 months.
Advice to the Committee
During the year, the Committee received independent advice from FIT Remuneration Consultants LLP (“FIT”) who were
appointed by the Remuneration Committee Chair during the year. Fees were charged on a time and materials basis; the total
fees paid to FIT in respect of its services to the Committee were £24,000. No other services were provided by FIT during the
year, and the Committee is satisfied that the advice received is objective and independent.
Non-Executive Directors
Non-Executive Directors have a letter of appointment rather than contracts of employment. The Chairman and the Executive
Directors are responsible for reviewing and approving recommendations in respect of the amount of fees payable to Non-
Executive Directors, such recommendations being proposed on the basis of independent, market-based advice.
Non-Executive Directors’ fees
The Non-Executive Directors’ fees were reviewed and increased in March 2020 to reflect their responsibilities,
competitiveness against the market, and the time commitment required during a period of significant change for the Group.
Chairman
Base fee
Senior Independent Director
Committee Chair
30 June
2020
£200,000
£60,000
£10,000
£10,000
30 June
2019
£180,000
£55,000
£10,000
£10,000
Change
in fees
11%
9%
0%
0%
Introduction
Strategic report
Corporate governance
Financial statements
How the policy will be applied to Executive Director remuneration for the
financial year ending 30 June 2021
Base salary review
Following an overhaul of the Executive team, the Board regards Caroline Connellan and Ben Thorpe as central to the
successful delivery of tour strategy – delivering growth - the ongoing transformation and the Group’s expansion both
organically and inorganically. Brooks Macdonald operates in an extremely competitive market and the Board is cognisant of
the scarcity of high-quality talent in the wealth management sector.
In the light of this and to take account of both Executives’ increased experience and performance since joining Brooks
Macdonald, the Remuneration Committee is proposing adjustments to their base salaries. Caroline’s salary will be increased to
£410,000 from £358,000 and Ben’s will be increased to £331,000 from £281,000 from 1 September 2020. While benchmarking
has not been the main driver behind these increases, the Remuneration Committee takes comfort that the revised salaries are
more aligned with mid-market levels and are not excessive.
Performance targets for the FY21 annual bonus
For FY21, the annual bonus will be based on performance against a balanced scorecard comprising the following key
performance areas:
Underlying PBT
Net flows
Underlying profit margin
Strategic and personal objectives
Total
Weighting
20%
20%
20%
40%
100%
Threshold
10%
10%
10%
20%
50%
% of base
salary at
Target
20%
20%
20%
40%
100%
Maximum
30%
30%
30%
60%
150%
The Committee will set challenging non-financial performance targets for the Executive Directors aligned to the priorities of
the Group, including areas of strategy delivery, client, risk management, people and leadership. The performance targets will
be disclosed in the FY21 annual report for reasons of commercial sensitivity.
LTIP
Before the onset of the COVID-19 crisis, the Remuneration Committee had been considering moving to performance shares
as (i) Phase 1 of the Group’s strategy1 had been completed, (ii) performance shares provided better alignment with the Board’s
growth aspirations, and (iii) the outlook meant it had become easier to set robust three year goals (compared with the
uncertainty that coincided with Caroline’s appointment and the completion of the first phase of her strategic overhaul).
However, COVID-19 has created significant uncertainty in the short and medium-term outlook and, therefore, it is proposed
that restricted shares will continue to be granted to Executive Directors up to a maximum of 50% of base salary. The
Remuneration Committee will consider the appropriate long-term incentive mechanism in the second half of FY21.
Previous restricted share awards have been subject to a minimum of a maintained dividend and positive net organic growth
in FUM. Given the impact of COVID-19 on the financial year ended 30 June 2020 (upon which both underpins are based), the
Committee believes that retaining these underpins for the forthcoming award would be inappropriate and may incentivise
actions which are not in the long-term interests of the shareholders and not in line with the Board’s risk appetite. Therefore, the
FY21 award will vest subject to the following underpins:
i.
the maintenance of a satisfactory risk, compliance, governance and internal control environment; and
ii. a Remuneration Committee assessment that the value being delivered on vesting is commensurate with the underlying
financial performance of the Group over the three-year vesting period.
If either or both of these underpins are not met, the Remuneration Committee has the power to scale back vesting as it feels is
appropriate, including to nil.
1.
This included strengthening of the leadership team, building functional capability and exiting non-core activities
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Remuneration Committee report continued
Pension
Pension allowances to the Executive Directors will decrease from 10% down to 8% with effect from 1 September 2020 to bring
them more in line with other Group employees.
Compliance with the FCA Remuneration Code
The Committee regularly reviews its Remuneration Policy’s compliance with the principles of the Remuneration Code of the
UK financial services regulator, as applicable to the Group and appropriate to its size and complexity.
Directors’ Remuneration Policy
The Directors’ Remuneration Policy (“the Policy”) is determined by the Committee.
Remuneration policy principles
The Policy is designed to:
• provide a framework to attract, motivate, retain and reward employees;
•
•
•
align remuneration with our business strategy, objectives, guiding principles and long-term interests of the Group and
shareholders;
ensure that remuneration is set at an appropriate level, taking into account market rates and best practice;
ensure the ratio between fixed and variable remuneration is appropriate and does not encourage excessive risk-taking;
• be consistent with and promote sound and effective risk management; and
•
comply with all regulatory requirements.
Summary of remuneration elements for Executive Directors for FY21
Element
Base
salary
Pension
Benefits
Annual
bonus
Purpose
Provides fixed
remuneration at an
appropriate level to
attract and retain talent.
To aid retention of
key talent.
To provide valued
benefits to the
individual.
Rewards annual
Group and personal
performance and aligns
reward with longer-term
performance through
deferral into shares.
LTIP
Rewards performance
over the long term.
Detail
Individual levels of base salary are reviewed annually with
any increases effective from 1 September, unless there are any
exceptional reasons for increases at another time of the year.
Executive Directors receive a pension contribution from the
Company equal to 8% of salary, which can either be sacrificed into
the Group’s defined contribution pension scheme, paid into an
alternative pension scheme, or taken in cash (in part or in full).
Executive Directors receive benefits including private medical
insurance, private health insurance, life assurance, critical illness
cover, as well as an annual health assessment.
Based on financial and non-financial performance metrics.
One-third of annual bonus is deferred into shares over three years
with tranche vesting in three equal portions after 12, 24 and 36
months.
Malus and clawback principles apply to annual bonus awards
under the Group’s malus and clawback policy.
Executive Directors may be considered for a conditional award of
shares of up to 50% of base salary.
The award vests after three years subject to continued service,
the general good health of the business and prudent risk
management. Post-vesting, recipients are required to hold the
shares, net of sales to settle income tax and National Insurance
contributions due on vesting, for a further two years. This will
create further long-term alignment with shareholders’ interests by
creating a combined vesting and holding period of five years.
Malus and clawback principles apply under the Group’s malus
and clawback policy.
Maximum
opportunity
Benchmarked
against
relevant
market levels.
8% of base
salary.
In line with
Group Policy.
150% of base
salary.
Up to 50%
of base salary
(in face value
of shares
at grant).
Introduction
Strategic report
Corporate governance
Financial statements
FY21
Y1
Y2
Y3
Y4
Y5
Basic pay
Base pay and benefits
67% in cash
Bonus
33% vests in one year
33% deferred in shares
33% vests in two years
33% vests in three years
Long-term
incentives
Three-year vesting
Two-year holding period
In accordance with the 2018 Corporate Governance Code, the Committee has ensured that the remuneration structure above
is clear, transparent, and predictable, given that the maximum opportunity of variable pay is capped. The annual bonus
metrics and deferral have been kept simple and easy to measure. The delivery of variable pay, part in cash and share awards
that are subject to malus and clawback mitigates risk and ensures that the Executive Directors are aligned to the interests of
shareholders. The balanced scorecard of metrics and targets provides a clear link between performance against the Group’s
strategic and commercial goals and individual awards, with behaviours consistent with our guiding principles forming a key
part of this assessment.
Shareholding requirements
Executive Directors are required to build and maintain a holding in Brooks Macdonald shares or rights to shares equal to 200%
of base salary within five years of commencing in role, or the date of adoption of the Policy. The Group does not currently have
a formal policy for post-employment shareholding. The Committee is mindful that full compliance with the 2018 Corporate
Governance Code requires such a policy to be in place and the Committee therefore plans to review this during FY21.
Statement of consideration of shareholder views
The Committee regularly compares the Policy with shareholder guidelines and takes account of the results of shareholder
votes on remuneration. The Remuneration Committee Chair consults with major investors ahead of any material changes to
the Policy, and is available to meet with institutional shareholders to discuss any of the policy-related disclosures or outcomes
contained in this Directors’ Remuneration Report. During FY20, consultations with major investors have taken place to seek
feedback on proposed changes to elements of Executive Director compensation, including base salaries and LTIPs.
Statement of consideration of employment conditions elsewhere in the Company
A consistent remuneration philosophy is applied to all employees across the Group. For the financial year ending 30 June
2021, all employees continue to be eligible for discretionary performance-related annual bonus based on a balanced scorecard
of financial and non-financial metrics. The principle of bonus deferral applies to annual bonuses for all employees whose
bonuses exceed certain monetary thresholds.
Employees are able to provide direct feedback on the Group’s remuneration policies to their manager or the HR department
and as part of our regular “Speak Up” employee engagement survey. In addition, the HR Director chairs a regular People
Committee meeting which covers, inter alia feedback on the effectiveness of the Group’s Remuneration Policy and how it is
viewed by employees. The HR Director also provides similar updates to the Board.
External appointments
Executive Directors are normally permitted to take on one external appointment as a Non-Executive Director. Prior Board
approval is required for any new appointment. Fees in excess of £15,000 per annum are paid to the Group.
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Introduction
Strategic report
Corporate governance
Financial statements
Remuneration Committee report continued
Approach to remuneration for new Executive Director appointments
The remuneration package for a new Executive Director is set in line with the terms and maximum levels of the Group’s
approved remuneration policy in force at the time of appointment. Currently, for annual bonus and LTIPs, the maximum
opportunity is 150% and 50% of base salary respectively. The Committee may also offer additional cash and/or share-based
elements to replace awards or potential earnings forgone on becoming an Executive Director (if in the interests of the Group
and shareholders and in accordance with regulatory requirements). In considering any such payments the Committee could
take account of the amount forgone and its nature, vesting dates and any performance requirements attached.
Service contracts and loss of office payments
Service contracts normally continue until the Executive Director’s retirement date unless otherwise agreed, and the service
contracts provide a mechanism for early termination. The Group is able to enter into settlement agreements with Executive
Directors and to pay compensation in resolution of potential legal claims. The default treatment of any outstanding share-
based entitlements granted to an Executive Director under the Group’s LTIP or other share plans is that any outstanding
awards lapse on cessation of employment. However, in certain prescribed circumstances such as death, disability,
redundancy, retirement or other circumstances at the discretion of the Committee (taking into account the individual’s
performance and the reasons for their departure), “good leaver” status can be applied. In such cases, the normal practice is
for LTIP awards held to be retained and prorated (where necessary) on the original vesting schedule, with the performance
conditions continuing to apply, with the exception of Deferred Bonus shares which vest in full on the original vesting schedule.
Approval
This report in its entirety has been approved by the Committee and the Board of Directors on its behalf by:
John Linwood
Remuneration Committee Chair
16 September 2020
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27566 17 September 2020 11:20 am Proof 6Role and responsibilitiesThe Risk and Compliance Committee (“RCC”) assists the Board in meeting its risk management, regulatory, compliance and internal control responsibilities. In discharging these governance responsibilities, the Committee Chair liaised closely with the Chair of the Audit Committee to ensure a clear allocation of responsibilities between the two Committees, ensuring governance completeness across the risk landscape. The commonality in the membership of each Committee ensures effective management of any remaining risk.The Committee considers best practice, taking account of the requirements of the Code, where appropriate, and those of the FCA and other relevant regulatory bodies, including guidance on risk management and internal controls, as well as other requirements set by the Board. The Committee has established procedures to ensure that each of its roles and responsibilities is adequately covered over the year.The full responsibilities of the Committee are set out in the Committee’s Terms of Reference, which are reviewed annually and available on the Group’s website.Composition and meetingsDavid Stewart was the Chairman of the Committee until 31 July 2020, following which Robert Burgess was appointed as his replacement (subject to FCA approval). All of the Group’s Non-Executive Directors are members of the Committee.Collectively, the Committee considers that its membership has the appropriate expertise to discharge its responsibilities effectively, including relevant wealth management, financial, risk management, compliance, regulatory, and legal experience.The Committee’s attendance during the year ended 30 June 2020 is set out in the summary table on page 63. During the year the Committee sustained focus on embedding the risk management framework. David Stewart Chair of the Risk and Compliance Committeeup to 31 July 2020Risk and Compliance CommitteeThe Committee’s areas of focusRisk appetite, strategy and exposure management• Overseeing and recommending to the Board, the Group’s Risk Appetite Statement, and of limits and policies for controlling risk within the Board’s stated appetite;• Reviewing any breaches to the limits and policies, and assessing the adequacy of mitigating or remedial actions;• Monitoring steps taken by management to bring breaches in line with the Board’s Risk Appetite; and • Assessing regularly and updating, where appropriate, the Risk Appetite Statement, involving a regular reassessment of the Group’s Principal Risks and Uncertainties, underpinned by key metrics which articulate the status and tolerance levels of key business risks. The process is underpinned by the capture of outputs from the review of risks undertaken by the Executive Committee and independent challenge provided by the CRO and the Group Risk team.90Brooks Macdonald Group plc / Annual Report and Accounts 2020Brooks Macdonald AR2020 Governance.indd 9017/09/2020 13:11:3827566 17 September 2020 11:20 am Proof 6Capital requirements• Overseeing the Group’s Internal Capital Adequacy Assessment Process (“ICAAP”) and its compliance with regulatory capital and liquidity requirements;• Recommending the risks to be considered and stress tested in the ICAAP, as well as liquidity stress tests to be undertaken;• Reviewing and challenging the methodology and output of stress tests, considering recommended management responses, and ensuring that results are incorporated appropriately in the Group’s capital and liquidity planning; and• Ensuring that ongoing consideration is given to capital and liquidity matters as decisions are taken by the Group Board and Executive Committee.Top-down and emerging risks• Monitoring external developments, for example competition, market conditions, macroeconomic environment, regulatory, taxation and legal developments, and assessing the potential impact on the Group;• Periodically reviewing the Group’s potential risk exposures, and considering and challenging management’s methodology to identify and address such exposures; and• Recommending to the Board the Principal Risks and Uncertainties to be reported in the Annual Report and Accounts.Risk management framework• Reviewing, on at least an annual basis, the adequacy and effectiveness of the Group’s risk and control processes to support its strategy and objectives, and monitoring the implementation of enhancements identified;• Reviewing the Group’s approach to the management of outsourcing arrangements;• Maintaining oversight of material issues, errors, breaches and complaints, including consideration of the adequacy of management actions proposed and any consequent implications for the Group’s Risk Appetite status and framework; and• Overseeing the scope and effectiveness of second line assurance work and considering the results of work undertaken by the third line insofar as it affects the Committee’s areas of responsibilities. Ensuring that the assurance programme undertaken is adequate in view of the complexity and risk profile of the Group, monitoring its completion and agreeing remedial actions arising as appropriate.Overseeing regulatory compliance• Considering regulatory developments and the potential impact on the Group;• Reviewing key regulatory topics through reports prepared by second (and third) line assurance teams; and• Overseeing regulatory related projects.91Brooks Macdonald Group plc / Annual Report and Accounts 2020IntroductionStrategic reportCorporate governanceFinancial statementsBrooks Macdonald AR2020 Governance.indd 9117/09/2020 13:11:38 Risk and Compliance Committee continued
Introduction
Strategic report
Corporate governance
Financial statements
Looking forward
The Committee recognises that the current
political and macroeconomic environment
will remain uncertain for the foreseeable
future, especially given the COVID-19
pandemic induced volatility in the
financial markets. The RCC will monitor
the implications of this carefully. The
further embedding of the Group’s risk
management framework will continue
to be an area of focus, as will the review
in detail of significant risks such as
cybercrime and outsourcing, to
ensure that the Group’s defences
and controls are maintained at an
appropriate level. The Committee
believes that the pace of regulatory
change will continue, and it will
consider management plans to
meet new requirements. Among
other matters, the Committee
will review the embeddedness
of SM&CR.
Approval
This report in its entirety
has been approved by the
Committee and the Board of
Directors on its behalf by:
David Stewart
Risk and Compliance
Committee Chair
(up to 31 July 2020)
Further
evolution of
risk reporting
Structured review of Top Down and
Emerging Risks and developing
management reporting, including
new dashboards, for review by Senior
Management.
Oversight
of the
effectiveness
of the Risk and
Compliance
functions
•
Safeguarding the independence
of the Risk and Compliance teams,
and reviewing the adequacy of
resources, reporting any concerns
to the Board;
• Receiving reports from assurance
teams, and in particular the CRO,
and promoting an open and
transparent risk culture;
• Maintaining effective oversight of
the Risk and Compliance functions,
monitoring performance against
plan; and
• Reviewing key communication
with regulators and fostering
a culture of co-operation and
compliance.
Internal Capital
Adequacy
Assessment
Process and
Liquidity Risk
Management
Framework
(“LRMF”)
Money
Laundering
Reporting
Officer’s Report
Main activities during the year
Some of the Committee’s key considerations are outlined in
the table below:
Cyber Crime
and Resilience
Progression of
legacy matters
Development
of enhanced
Risk Appetite
Statement with
accompanying
framework and
development
of an
Overarching
Risk Appetite
Statement
Ensured progress of resolution of
previously reported Channel Islands
legacy matters related to a number
of discretionary portfolios formerly
managed by Spearpoint (acquired
by the Group in 2012). Continuing to
oversee ongoing discussions with
all stakeholders, including relevant
regulators, as the Group seeks to bring
these matters to conclusion.
Work was initiated to enhance Risk
Appetite Statements, develop further
metrics for reporting the Group’s
position across each of the key risks it
faces and identifying effective means
to regularly validate the overall risk
position, incorporate this into business
planning and make recommendations
for mitigating action as appropriate.
An Overarching Risk Appetite
Statement was developed to support
the Group in decision making by
considering the dimensions of Client
Outcome, Control Environment and
Financial Performance & Resources
and thus balancing risk versus reward.
Regulatory
developments
UK withdrawal
from the
European
Union (“Brexit”)
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Supervised the ICAAP undertaken in
the year, including development of risk
scenarios, the design of stress tests and
reporting to the Board on the level of
capital and liquidity resources required.
Considered in detail the Annual
Money Laundering Reporting
Officer’s Report, including the need
for any enhancements or other
recommendations made.
Given the heightening of cyber-related
crimes and regulatory focus on both
business and operational resilience,
especially during the COVID-19
pandemic, steps were taken to
strengthen the Group’s Cyber Security
team and the implementation of a
Cyber Security Improvement Plan. The
Committee will continue to review this
area as a priority.
Undertook regular horizon scanning of
the regulatory landscape, considering
the impact of planned and possible
regulatory developments in all
jurisdictions in which the Group
operates.
The Committee has considered
the potential impact on the Group’s
operations and strategy arising
from unfavourable terms beyond
the transition period, as well as
implications of increased political and
economic uncertainty arising from
Brexit related events.
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Report of the Directors
The Directors present herewith their Annual report, together
with the audited Financial statements of the Group for the
year ended 30 June 2020.
Principal activities and business review
Brooks Macdonald specialises in providing investment
management services in the UK and internationally. The
Company is a public limited company whose shares are
traded on the Alternative Investment Market of the London
Stock Exchange. A review of the business together with its
strategic outlook and future developments is set out in the
Strategic report on pages 8 to 57, which is incorporated by
reference in this Report.
Section 172 and stakeholder engagement
When making decisions and setting the Company’s strategy,
the Directors of Brooks Macdonald consider the long-term
interests of the Group. In doing so, they weigh the competing
interests of the Company’s stakeholders and the effect their
decision may have on the Company’s reputation. Further
information on how the Company considers the interests
of its stakeholders can be found on pages 48 to 50 and more
details of how the Company seeks to limit its impact on the
environment are provided in the Corporate responsibility
report starting on page 52.
Results and dividends
The Group’s statutory profit from continuing operations before
taxation for the year ended 30 June 2020 was £10,052,000
(FY19: £8,309,000) and the statutory profit from all operations
after taxation was £6,426,000 (FY19: £5,460,000).
The Directors recommend a final dividend of 32.0p (FY19:
32.0p) per share subject to approval by the shareholders
at the AGM on 27 October 2020. Once approved, this
will be paid on 6 November 2020 to shareholders on the
Company’s register at close of business on 25 September
2020. An interim dividend of 21.0p (FY19: 19.0p) per share
was paid on 24 April 2020. This results in total dividends
for the year ended 30 June 2020 of 53.0p (FY19: 51.0p) per
share, representing a total distribution to shareholders of
£7,680,000 (FY19: £6,714,000).
Share capital
Details of the Company’s authorised and issued share
capital, and movements thereof, are set out in Note 28 of
the Consolidated financial statements. The Company has
no preference shares in issue and has one class of ordinary
shares which carry no right to fixed income. There are
no specific restrictions on the size of a holding nor on the
transfer of shares, which are both governed by the general
provisions of the Articles of Association and prevailing
legislation. The Directors are not aware of any agreements
between holders of the Company’s shares that may result in
restrictions on the transfer of securities or on voting rights.
Directors and their interests
The Directors of the Company, who were in office during the
year and up to the date of signing the Financial statements,
are listed below together with their beneficial interests in the
share capital of the Company.
At 30 June
2020
Number of
shares
At 30 June
2019
Number of
shares
1,450
1,450
10,448
4,756
8,908
8,908
N/A
300
1,450
4,000
–
6,086
300
1,450
4,000
–
Chair
Alan Carruthers
Executives
Caroline Connellan
Ben Thorpe
(appointed on 6 August 2018)
Non-Executives1
Colin Harris
(resigned on 31 October 2019)
John Linwood
Richard Price
Diane Seymour-Williams
David Stewart
1.
Robert Burgess and Dagmar Kershaw were appointed after 30 June
2020 and did not have any beneficial interests in the share capital of the
Company on this date.
Details of share options held by the Directors at the beginning
and end of the year can be found in the Remuneration
Committee report on pages 74 to 88.
Employee share plans
Details of employee share plans are outlined in Note 30 to
the Consolidated financial statements. The shares are held
in trust for participants. The scheme is operated by Barclays
and voting rights are exercised by the employer-nominated
trustee on receipt of participants’ instructions.
Employee Benefit Trust
In 2010 the Group established an Employee Benefit Trust
(“EBT”) to acquire shares in the Company to satisfy awards
made under the Group’s share-based incentive schemes.
RBC cees Limited act as the trustee of the EBT. During the
year, the EBT purchased 244,714 shares.
Retirement and reappointment of Directors
All of the Directors of the Group Board will retire at the AGM
and are eligible to nominate themselves for election or re-
election, other than Diane Seymour-Williams who will be
stepping down after completing nine years’ service.
Employees
Details of the Group’s employment practices, and its policies
on diversity and inclusion, are set out in the Corporate
Responsibility report on page 52.
Introduction
Strategic report
Corporate governance
Financial statements
Political donations
The Group did not make any political donations during the
year (FY19: £nil).
Insurance and Directors’ indemnities
The Company maintains appropriate insurance cover
in respect of litigation against Directors and Officers. The
Company has granted indemnities to all of its Directors on
terms consistent with the applicable statutory provisions.
Accordingly, qualifying third party indemnity provisions, as
defined by Section 234 of the Companies Act 2006, were in
place during the financial year and remain in force at the date
of this Report.
Internal controls and risk management
The Directors confirm that they have carried out a robust
assessment of the principal risks facing Brooks Macdonald,
including those that could threaten the Group’s business
model, future performance, solvency or liquidity. The Board
considers that the information it receives enables it to review
the effectiveness of the Group’s internal controls in accordance
with the FRC’s Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting. Details on how
the Board monitors the Group’s risk management and internal
controls are contained in the Risk management and principal
risks section of the Strategic report on page 40.
Substantial shareholdings
As at 30 June 2020, the Company’s largest shareholders were
as follows:
Liontrust Asset Management
Octopus Investments
Fidelity International
Brooks Macdonald Asset
Management
Artemis Investment
Management
Invesco Perpetual Asset
Management
Aberdeen Standard Investments
Canaccord Genuity Wealth
Management
Chelverton Asset Management
Rathbones Investment
Management
Number of
shares
2,973,231
1,861,599
1,611,097
% of total
voting rights
18.44
11.54
9.99
1,134,193
1,128,784
864,142
721,627
589,699
500,000
488,191
7.03
7.00
5.36
4.47
3.66
3.10
3.03
Events since the end of the year
Details of events after the reporting date are set out in Note 38
to the Consolidated financial statements.
Independent auditors
The Audit Committee has recommended to the Board that
the incumbent auditor, PricewaterhouseCoopers LLP, are
reappointed for a further term. PricewaterhouseCoopers LLP
have expressed their willingness to continue in office as the
Group’s appointed auditor and a resolution to reappoint them
will be proposed at the forthcoming AGM.
Each of the Directors in office at the date of the signing of
this report confirms that, so far as they are aware, there is no
relevant audit information of which the Group’s auditor is
unaware. Each Director has taken all reasonable steps that
he or she ought to have taken as a director in order to make
him or herself aware of any relevant audit information and to
establish that the Group’s auditor is aware of that information.
Going concern
The Group’s business activities, performance and position,
together with the risks it faces and the factors likely to affect
its future development are set out in the Strategic report.
In view of the sharp decline in markets seen in March 2020
resulting from the outbreak of the COVID-19 pandemic, the
Directors reviewed updated Group forecasts prepared by
Management. These covered the Group’s expected future
profitability, dividend policy and capital and liquidity
projections including stressed scenarios such as a prolonged
market downturn. Management’s mitigating actions, should
these scenarios unveil, were also assessed by the Directors.
The Board also received regular reports from management
on the Group’s seamless transition to a remote working
environment in compliance with the Government advice.
As noted in the Viability statement on page 46, the Directors
have considered the Group’s prospects for a period exceeding
12 months from the date the Financial statements are
approved and have concluded that the Group has adequate
financial resources over that period and, accordingly, are
satisfied that the going concern basis for the preparation of
these Financial statements is appropriate.
Annual General Meeting
The 2020 AGM will be held on 27 October 2020 at 21 Lombard
Street, London, EC3V 9AH. The notice of the meeting together
with details of the resolutions proposed and explanatory
notes are enclosed with this Report and can also be found on
the Group’s website.
In the light of Government measures in place restricting
public gatherings as a result of the COVID-19 pandemic, this
year’s AGM will be run as a closed meeting with shareholders
unable to attend. Full details of the arrangements are given in
the AGM Notice of Meeting.
By order of the Board of Directors
Phil Naylor
Company Secretary
16 September 2020
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Introduction
Strategic report
Corporate governance
Financial statements
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual
Report and the Group and Parent Company financial
statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare Group and
Parent Company financial statements for each financial
year. Under that law the Directors have prepared the Group
financial statements in accordance with International
Financial Reporting Standards (“IFRSs”) as adopted by the
European Union and have elected to prepare the Parent
Company financial statements on the same basis.
Under company law the Directors must not approve the
Financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and
Parent Company and of their profit or loss for that period.
In preparing the Financial statements, the Directors are
required to:
•
select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable,
relevant and reliable;
•
•
state whether they have been prepared in accordance
with applicable IFRSs as adopted by the European Union;
assess the Group and Parent Company’s ability to
continue as a going concern, disclosing, as applicable,
matters related to going concern; and
The Directors are responsible for the maintenance and
integrity of the corporate and financial information
included on the Company’s website. Legislation in
the United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
Directors’ responsibility statement
We confirm that to our knowledge:
•
•
the Group and Parent Company financial statements,
which have been prepared in accordance with the
applicable set of accounting standards, give a true and
fair view of the assets, liabilities, financial position and
profit and loss of the Company and the undertakings
included in the consolidation taken as a whole; and
the Strategic report and Financial statements include
a fair review of the development and performance
of the business and the position of the Group and the
undertakings included in the consolidation taken as a
whole, together with a description of the principal risks
and uncertainties that they face.
We consider the Annual Report and Accounts taken as a
whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the
Group’s position and performance, business model and
strategy.
• use the going concern basis of accounting unless they
By order of the Board of Directors
Caroline Connellan
CEO
16 September 2020
either intend to liquidate the Group and Parent Company
or to cease operations, or have no realistic alternative but
to do so.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Parent Company’s transactions and disclose with
reasonable accuracy at any time the financial position of
the Parent Company and enable them to ensure that the
Financial statements comply with the Companies Act 2006.
The Directors are also responsible for such internal
controls as they determine are necessary to enable the
preparation of financial statements that are free from
material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps
as are reasonably open to them to safeguard the assets
of the Group and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic report, Report of the
Directors, Directors’ remuneration report and Corporate
governance report that comply with that law and those
regulations.
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Independent auditors’ report
to the members of Brooks Macdonald Group plc
Report on the audit of the Financial statements
Opinion
In our opinion, Brooks Macdonald Group plc’s Group Financial statements and Company financial statements (the “Financial
statements”):
•
give a true and fair view of the state of the Group’s and of the Company’s affairs as at 30 June 2020 and of the Group’s profit
and the Group’s and the Company’s cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the
European Union and, as regards the Company’s Financial statements, as applied in accordance with the provisions of the
Companies Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the Financial statements, included within the Annual Report and Accounts (the “Annual Report”), which
comprise: the Consolidated and Company statements of financial position as at 30 June 2020, the Consolidated statement
of comprehensive income for the year ended 30 June 2020, the Consolidated and Company statements of cash flows for the
year ended 30 June 2020, and the Consolidated and Company statements of changes in equity for the year ended 30 June
2020; and the Notes to the financial statements, which include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the
Financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled
our other ethical responsibilities in accordance with these requirements.
Our audit approach
Overview
• Overall Group materiality: £989,400 (FY19: £766,400), based on 5% of profit before tax adjusted
for goodwill impairment, acquisition and integration costs and head office relocation costs.
Materiality
• Overall Company materiality: £679,098 (FY19: £402,800), based on 1% of net assets.
Audit Scope
• The Group has three business segments, UK Investment Management and International
Financial Planning, consisting of 12 legal entities that operated in the UK and Channel Islands
during the reporting period. We audited the complete financial information of six legal entities,
due to their size and specific procedures on a further four legal entities. Taken together, our
audit work accounted for more than 99% of Group revenues and 92% of Group profit before tax.
• Acquisition of Cornelian Asset Managers Group Limited
Key Audit
Matters
• Consideration of the impact of COVID-19
• Recognition of investment management fee revenue
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all
of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was
evidence of bias by the Directors that represented a risk of material misstatement due to fraud.
Introduction
Strategic report
Corporate governance
Financial statements
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
Financial statements of the current period and include the most significant assessed risks of material misstatement (whether
or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed in the context of our audit of the Financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete
list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Acquisition of Cornelian Asset Managers Group
Limited (“CAM”)
Refer to pages 126 and 131 (Notes 10 and 14:
Business combinations and Goodwill) and page
114 (Note 2 (e): Principal accounting policies).
On 28 February 2020, the Group acquired the
entire share capital of Cornelian Asset Managers
Group Limited (“the acquisition”).
Consideration for the acquisition consisted of four
elements – initial cash, cash for surplus capital
of the value of net assets acquired, shares issued
to the previous shareholders and contingent
consideration over three instalments if certain
criteria are met as at February 2021, September
2021 and February 2022.
Management have assessed whether the
conditions of the contingent consideration will be
satisfied in line with the terms of the acquisition
agreement and have concluded they will be met.
Assets and liabilities existing on the date of
acquisition were recorded on the Consolidated
statement of financial position, with intangible
assets in relation to client contracts identified and
valued. The difference between the fair value of
assets and liabilities acquired and the fair value of
consideration paid was recorded as goodwill.
The business combination is considered a key
audit matter due to the complexity and high level
of judgement around identification and valuation
of intangible assets.
We assessed whether the classification as a business combination and
treatment of the various aspects of the transaction were in accordance
with IFRS 3 ‘Business Combinations’.
With respect to the acquisition, we inspected the purchase agreement
and assessed at the acquisition date the fair value of consideration and
of the assets and liabilities acquired.
In respect of the fair value of consideration paid, we reviewed the
purchase agreement and management’s basis of valuation for the
contingent consideration. The assumptions used in determining that
the conditions of contingent consideration were probable to be met and
were verified to supporting documentation.
In respect of assets and liabilities that existed on the acquisition balance
sheet, we performed procedures on a sample basis. We reviewed
management’s assessment of the identification of intangible assets in
relation to discretionary and fund management contracts.
We assessed the appropriateness of the methodology used and the
reasonableness of the key assumptions within the model by:
• Corroborating key inputs to the discounted cash flow model
to relevant supporting documentation, including funds under
management (“FUM”) data, revenues and costs;
• Assessing key assumptions used, including the FUM growth rates,
revenue yield and attrition rates;
• Engaging our valuation experts in assessing the discount rate and
• Testing the mechanics and mathematical accuracy of the model.
We ensured the deferred tax liability was calculated accurately in
relation to the recognised intangible assets. We recalculated the
goodwill as the difference between fair value of assets and liabilities
acquired and the fair value of the consideration paid.
We are satisfied that based on the work performed, the acquisition has
been accounted for appropriately with adequate disclosures made in
the Annual Report.
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Independent auditors’ report continued
to the members of Brooks Macdonald Group plc
Key audit matter
How our audit addressed the key audit matter
Consideration of the impact of COVID-19
Refer to the CEO’s review (page 16), Key risks (page
42), the Viability statement (page 46) and the going
concern paragraph (page 95), which disclose the
impact of the COVID-19 coronavirus pandemic.
The COVID-19 viral infection has become a global
pandemic in 2020. It has caused disruption to
supply chains and travel, slowed global growth
and caused volatility in global markets during the
first half of 2020 and to date.
The Directors have prepared the Financial
statements of the Group on a going concern basis,
and believe this assumption remains appropriate.
This conclusion is based on the assessment
that, notwithstanding the significant market
uncertainties, they are satisfied that the Group
has adequate resources to continue in operational
existence for the foreseeable future and that the
Group and its key third party service providers
have in place appropriate business continuity
plans and will be able to maintain service levels
through the coronavirus pandemic.
We evaluated the Directors’ assessment of the impact of the COVID-19
pandemic on the Group up to the point of approval of the Annual
Report by:
• Evaluating the Group’s updated risk assessment and considering
whether it addresses the relevant threats presented by COVID-19;
• Evaluating management’s assessment of operational impacts,
considering their consistency with other available information
and our understanding of the business and assessing the potential
impact on the Financial statements; and
• Obtaining evidence to support the key assumptions and forecasts
driving the Directors’ going concern assessment. This included
reviewing the Directors’ assessment of the Group’s financial position
and forecasts as well as their assessment of liquidity.
We assessed the disclosures presented in the Annual Report in relation
to COVID-19 by:
• Reading the other information, including the Key risks and
Viability statement set out in the Strategic report, and assessing its
consistency with the Financial statements and the evidence we
obtained in our audit.
Our conclusions relating to going concern and other information are set
out in the ‘Going concern’ and ‘Reporting on other information’ sections
of our report.
Recognition of investment management
fee revenue
We performed the following procedures in relation to investment
management fee income:
Refer to Note 2 Principal accounting policies and
Note 4 Revenue.
Investment management fee income is generated
by the Brooks Macdonald Asset Management
Limited (“BMAM”), Brooks Macdonald Asset
Management (International) Limited (“BMI”)
and CAM entities and is included within
portfolio management fee income in the Notes
to the financial statements. The investment
management fee income component represents
63% of the Group’s £108.6m total revenue. This
is a key audit matter due to its size and the
significant audit effort involved in testing this
revenue stream.
The fees are calculated by applying each client’s
fee rate to their funds under management (“FUM”).
The calculation is largely automated, however
there are a number of inherent risks including
the manual input of key contractual terms and
the existence and valuation of funds under
management, which could result in errors.
• We understood and evaluated the design and implementation
of key controls, including relevant Information Technology (“IT”)
controls, in place around the investment management fee process;
• As we did not rely on controls over the investment management
system;
• For quarter ends, we reperformed the reconciliations of client
cash and stockholding positions to external custody and bank
confirmations; and obtained evidence for any differences on a
sample basis;
• We further tested management’s review controls over the
performance of these reconciliations and agreed the FUM used for
investment management fee calculations to these client cash and
stock reconciliations;
• We agreed, on a sample basis, fee rates to client contracts;
• We tested the valuation for a sample of investment positions by
agreeing the prices used to calculate FUM to independent market
prices;
• We tested the accuracy of fees, by reperforming the calculation
of the investment management fees using data techniques for a
sample; and
• We reconciled the fees calculated by the investment management
system to the general ledger postings.
Our testing did not identify any evidence of material misstatement.
We determined that there were no key audit matters applicable to the Company to communicate in our report.
Introduction
Strategic report
Corporate governance
Financial statements
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the Financial
statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and
controls, and the industry in which they operate.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the Financial statements as a whole.
Based on our professional judgement, we determined materiality for the Financial statements as a whole as follows:
Overall materiality
£989,400 (FY19: £766,400).
£679,098 (FY19: £402,800).
Group financial statements
Company financial statements
How we determined it
Rationale for benchmark
applied
5% of profit before tax adjusted for goodwill
impairment, acquisition and integration costs
and head office relocation costs.
As with prior years, the most appropriate
metric to apply to Group materiality is
profit before tax on the basis that the Group
is primarily measured on its financial
performance via its Consolidated statement
of comprehensive income. We have adjusted
profit before tax for the one-off costs of
goodwill impairment, acquisition and
integration costs and head office relocation
costs.
1% of net assets (FY19: 1% of net assets).
1% of net assets which is the benchmark used
in prior year.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality.
The range of materiality allocated across components was between £5,187 and £989,400. Certain components were audited to
a local statutory audit materiality that was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £49,470
(Group audit) (FY19: £38,300) and £33,955 (Company audit) (FY19: £20,100) as well as misstatements below those amounts that,
in our view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add
or draw attention to in respect of the Directors’ statement
in the Financial statements about whether the Directors
considered it appropriate to adopt the going concern basis
of accounting in preparing the Financial statements and the
Directors’ identification of any material uncertainties to the
Group’s and the Company’s ability to continue as a going
concern over a period of at least twelve months from the date
of approval of the Financial statements.
We have nothing material to add or to draw attention to.
However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the Group’s
and Company’s ability to continue as a going concern.
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Independent auditors’ report continued
to the members of Brooks Macdonald Group plc
Reporting on other information
The other information comprises all of the information in the Annual Report other than the Financial statements and our
auditors’ report thereon. The Directors are responsible for the other information. Our opinion on the Financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the Financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the Financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the Financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based
on these responsibilities.
With respect to the Strategic report and Report of the Directors, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006
(“CA06”) and ISAs (UK) require us also to report certain opinions and matters as described below (required by ISAs (UK) unless
otherwise stated).
Strategic report and Report of the Directors
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and
Report of the Directors for the year ended 30 June 2020 is consistent with the Financial statements and has been prepared in
accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the Strategic report and Report of the Directors. (CA06)
The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or
liquidity of the Group
As a result of the Directors’ reporting on how they have applied the UK Corporate Governance Code (the “Code”), we are
required to report to you if we have anything material to add or draw attention to regarding:
• The Directors’ confirmation on page 46 of the Annual Report that they have carried out a robust assessment of the
principal risks facing the Group, including those that would threaten its business model, future performance, solvency or
liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The Directors’ explanation on page 46 of the Annual Report as to how they have assessed the prospects of the Group,
over what period they have done so and why they consider that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities
as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
We have nothing to report in respect of this responsibility.
Other Code Provisions
As a result of the Directors’ reporting on how they have applied the Code, we are required to report to you if, in our opinion:
• The statement given by the directors, on page 46, that they consider the Annual Report taken as a whole to be fair, balanced
and understandable, and provides the information necessary for the members to assess the Group’s and Company’s
position and performance, business model and strategy is materially inconsistent with our knowledge of the Group and
Company obtained in the course of performing our audit.
• The section of the Annual Report on page 68 describing the work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
We have nothing to report in respect of this responsibility.
Introduction
Strategic report
Corporate governance
Financial statements
Responsibilities for the Financial Statements and the audit
Responsibilities of the Directors for the Financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 96, the Directors are responsible for the
preparation of the Financial statements in accordance with the applicable framework and for being satisfied that they give
a true and fair view. The Directors are also responsible for such internal control as they determine is necessary to enable the
preparation of Financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the Financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic
alternative but to do so.
Auditors’ responsibilities for the audit of the Financial statements
Our objectives are to obtain reasonable assurance about whether the Financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
Financial statements.
A further description of our responsibilities for the audit of the Financial statements is located on the FRC’s website at: www.frc.
org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
•
•
•
adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been
received from branches not visited by us; or
certain disclosures of Directors’ remuneration specified by law are not made; or
the Company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Natasha McMillan (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
16 September 2020
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27566 17 September 2020 8:16 am Proof 6ContentsConsolidated statement of comprehensive income106Consolidated statement of financial position107Consolidated statement of changes in equity108Consolidated statement of cash flows109Notes to the consolidated financial statements110Financial statementsConsolidated financial statementsBrooks Macdonald AR2020 Financials.indd 10417/09/2020 13:11:1427566 17 September 2020 8:16 am Proof 6 I must say that you guys have been fantastic in your response and support during these difficult times. Communication is essential and you have been stars at this. Client communication to Business Development DirectorIntroductionStrategic reportCorporate governanceFinancial statementsBrooks Macdonald AR2020 Financials.indd 10517/09/2020 13:11:20 Consolidated statement of
comprehensive income
For the year ended 30 June 2020
Consolidated statement of
financial position
As at 30 June 2020
Introduction
Strategic report
Corporate governance
Financial statements
Revenue
Administrative costs
Other gains/(losses) – net
Operating profit
Finance income
Finance costs
Profit before tax from continuing operations
Taxation on continuing operations
Profit for the period from continuing operations
Loss from discontinued operations
Profit for the period attributable to equity holders of the Company
Other comprehensive income
Total comprehensive income for the year
Earnings per share2
Basic
Diluted
2020
£’000
108,558
(93,794)
(4,519)
10,245
261
(454)
10,052
(3,626)
6,426
–
6,426
–
6,426
2019
restated1
£’000
105,650
(90,546)
(6,928)
8,176
227
(94)
8,309
(2,454)
5,855
(395)
5,460
–
5,460
43.2p
43.1p
39.7p
39.6p
Note
4
5
6
7
8
8
9
11
12
12
1.
See Note 4 for details regarding the restatement as a result of the Authorised Corporate Director (“ACD”) fees and associated costs and also the output VAT on
Platform MPS.
2. The comparative weighted average number of shares and therefore basic and diluted earnings per share have been restated for the effect of the share placing
issued in November 2019 (Note 28).
The accompanying notes on pages 110 to 154 form an integral part of the Consolidated financial statements.
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Right of use assets
Financial assets at fair value through other comprehensive income
Available for sale financial assets
Other non-current assets
Deferred tax assets
Total non-current assets
Current assets
Financial assets at fair value through profit or loss
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Non-current liabilities
Deferred consideration
Lease liabilities
Provisions
Other non-current liabilities
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Trade and other payables
Current tax liabilities
Lease liabilities
Provisions
Total current liabilities
Net assets
Equity
Share capital
Share premium account
Other reserves
Retained earnings
Total equity
30 June
2020
Note
£’000
30 June
2019
restated1
£’000
1 July
2018
restated1
£’000
14
15
16
17
19
18
20
21
22
23
24
26
19
25
23
24
28
28
29
29
83,804
3,181
6,991
500
–
–
1,524
96,000
549
26,081
50,168
76,798
172,798
(6,300)
(6,659)
(219)
(330)
(7,230)
(20,738)
(22,765)
(480)
(1,275)
(3,999)
(28,519)
123,541
161
77,982
6,398
39,000
123,541
50,167
3,177
–
500
–
94
1,223
55,161
613
26,732
34,590
61,935
117,096
(380)
–
(278)
(714)
(2,278)
(3,650)
(21,550)
(2,287)
–
(2,736)
(26,573)
86,873
139
39,068
4,575
43,091
86,873
60,556
3,996
–
–
1,578
–
1,176
67,306
1,267
26,019
30,939
58,225
125,531
(1,479)
–
–
(157)
(2,990)
(4,626)
(23,722)
(1,325)
–
(8,332)
(33,379)
87,526
138
38,404
3,114
45,870
87,526
1.
See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
The Consolidated financial statements on pages 106 to 154 were approved by the Board of Directors and authorised for issue
on 16 September 2020, and signed on their behalf by:
Caroline Connellan
CEO
Ben Thorpe
Group Finance Director
Company registration number: 4402058
The accompanying notes on pages 110 to 154 form an integral part of the Consolidated financial statements.
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Consolidated statement of
changes in equity
For the year ended 30 June 2020
Consolidated statement of
cash flows
For the year ended 30 June 2020
Introduction
Strategic report
Corporate governance
Financial statements
Balance at 30 June 2018
Adjustment on initial application of IFRS 9
Adjustment on restatement1
Adjusted balance at 1 July 2018
Comprehensive income
Profit for the year from continuing operations
Adjustment on restatement1
Loss for the year from discontinued operations
Other comprehensive income
Total comprehensive income
Transactions with owners
Issue of ordinary shares
Share-based payments
Share-based payments exercised
Purchase of own shares by Employee Benefit Trust
Tax on share options
Dividends paid
Total transactions with owners
Note
17
4
4
11
13
Share
capital
£’000
138
–
–
138
Share
premium
account
£’000
38,404
–
–
38,404
Other
reserves
£’000
3,114
(1)
–
3,113
Retained
earnings
£’000
46,301
–
(431)
45,870
–
–
–
–
–
1
–
–
–
–
–
1
–
–
–
–
–
664
–
–
–
–
–
664
–
–
–
–
–
–
2,634
(1,123)
–
(49)
–
1,462
6,123
(268)
(395)
–
5,460
–
–
1,123
(2,648)
–
(6,714)
(8,239)
Total
equity
£’000
87,957
(1)
(431)
87,525
6,123
(268)
(395)
–
5,460
665
2,634
–
(2,648)
(49)
(6,714)
(6,112)
Restated balance at 30 June 20191
139
39,068
4,575
43,091
86,873
Comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income
Transactions with owners
Issue of ordinary shares
Share-based payments
Share-based payments exercised
Purchase of own shares by Employee Benefit Trust
Tax on share options
Dividends paid
Total transactions with owners
13
–
–
–
22
–
–
–
–
–
22
–
–
–
38,914
–
–
–
–
–
38,914
–
–
–
6,426
–
6,426
6,426
–
6,426
–
3,571
(1,770)
–
22
–
1,823
–
–
1,770
(4,607)
–
(7,680)
(10,517)
38,936
3,571
–
(4,607)
22
(7,680)
30,242
Balance at 30 June 2020
161
77,982
6,398
39,000
123,541
1.
See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
The accompanying notes on pages 110 to 154 form an integral part of the Consolidated financial statements.
Cash flows from operating activities
Cash generated from operations
Taxation paid
Net cash generated from operating activities
Cash flows from investing activities
Purchase of intangible assets
Purchase of property, plant and equipment
Consideration paid
Deferred consideration paid
Proceeds from sale of discontinued operations
Interest received
Finance costs paid
Proceeds of sale of financial assets at fair value through profit or loss
Net cash used in investing activities
Cash flows from financing activities
Proceeds of issue of shares
Shares issued as consideration
Payment of lease liabilities and initial direct costs
Proceeds of lease reverse premium
Purchase of own shares by Employee Benefit Trust
Dividends paid to shareholders
Net cash generated/(used) in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
27
14
15
10
22
11
8
8
18
28
10
23
23
28
13
21
2020
£’000
36,088
(5,865)
30,223
(1,614)
(1,958)
(27,757)
(919)
568
252
(5)
–
(31,433)
38,936
(9,000)
(2,111)
1,250
(4,607)
(7,680)
16,788
2019
£’000
15,553
(2,301)
13,252
(1,106)
(572)
–
(1,251)
593
198
–
1,234
(904)
665
–
–
–
(2,648)
(6,714)
(8,697)
15,578
3,651
34,590
50,168
30,939
34,590
The accompanying notes on pages 110 to 154 form an integral part of the Consolidated financial statements.
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Introduction
Strategic report
Corporate governance
Financial statements
2. Principal accounting policies continued
Transition
The Group holds property leases in relation to offices which have previously been considered operating leases under IAS 17.
On transition to IFRS 16, the Group was permitted to choose from the following transition approaches:
•
•
full retrospective transition method, whereby IFRS 16 is applied to all its contracts as if it had always applied; or
a modified retrospective approach with optional practical expedients.
The Group has chosen to apply IFRS 16 using the modified retrospective approach resulting in no restatement of the
comparative information which continues to be reported under IAS 17 and IFRIC 4.
On adoption, lease agreements have given rise to both a right of use (“ROU”) asset and a lease liability. For leases previously
classified as operating leases at 30 June 2019 under IAS 17, lease liabilities were measured at the present value of the
remaining lease payments, discounted at the Group’s incremental borrowing rate as at 1 July 2019. ROU assets were measured
at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments on the Group’s
Consolidated statement of financial position at the date of transition. On 30 June 2019, the Group had prepaid expenses and
lease incentive balances in line with IAS 17 on the Consolidated statement of financial position, to be unwound over the life of
remaining leases. The prepaid and lease incentive balances at 30 June 2019 have been recognised as a depreciation charge to
the ROU asset on day one of the transition to IFRS 16.
The lease liability is subsequently measured by reducing for lease payments made, adjusting the carrying amount to reflect
the interest charge and any reassessment or lease modifications.
The ROU assets are subsequently measured at cost, less accumulated depreciation on a straight-line basis over the shorter of
the expected life of the asset and the lease term, adjusted for any remeasurements of the lease liability, for example a change in
lease term, or payments based on an index. In accordance with IAS 36, ROU assets are assessed for indicators of impairment at
the end of each reporting period.
The Group has used the following practical expedients when applying IFRS 16 to leases that were previously classified as
operating leases under IAS 17 at 30 June 2019:
•
•
•
•
applied the practical expedient to grandfather the assessment of which contracts are leases and applied IFRS 16 only
to those that were previously identified as leases. Contracts not identified as leases under IAS 17 and IFRIC 4 were not
reassessed for whether there is a lease. The identification of a lease under IFRS 16 was therefore only applied to contracts
entered into (or modified) on or after 1 July 2019;
the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
the accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 as short-term leases.
The Group recognises the lease payments associated with these leases as an administrative expense in the Consolidated
statement of comprehensive income on a straight-line basis over the lease term;
the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease;
and
•
reliance on previous assessments on whether leases are onerous.
Notes to the consolidated
financial statements
For the year ended 30 June 2020
1. General information
Brooks Macdonald Group plc (“the Company”) is the Parent Company of a group of companies (”the Group”), which offers a
range of investment management services to private high net worth individuals, pension funds, institutions, charities and
trusts. The Group also provides financial planning as well as offshore investment management and acts as fund manager
to two regulated Open-Ended Investment Companies (“OEICs”) (the IFSL Brooks Macdonald Fund and the SVS Cornelian
Investment Funds) providing a range of risk-managed multi-asset funds and a specialised absolute return fund.
The Company is a public limited company, incorporated and domiciled in the United Kingdom under the Companies Act
2006 and listed on AIM. The address of its registered office is 21 Lombard Street, London, EC3V 9AH.
2. Principal accounting policies
The general accounting policies applied in the preparation of these Financial statements are set out below. These policies have
been applied consistently to all years presented, unless otherwise stated.
Basis of preparation
a.
The Group’s Consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) and IFRS Interpretations Committee (“IFRS IC”) interpretations, as adopted by the European Union and the
Companies Act 2006 applicable to companies reporting under IFRS. The Financial statements have been prepared on the
historical cost basis, except for the revaluation of financial assets at fair value through other comprehensive income, financial
assets and financial liabilities at fair value through profit or loss and deferred consideration such that they are measured at
their fair value.
At the time of approving the Financial statements, after making enquiries and the work performed and actions already taken
by the Group in response to the COVID-19 pandemic, the Directors have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to
adopt the going concern basis in preparing the Financial statements.
Basis of consolidation
b.
The Group’s Financial statements are a consolidation of the financial statements of the Company and its subsidiaries. The
underlying financial statements of the subsidiaries are prepared for the same reporting period as the Company, using
consistent accounting policies. Subsidiaries and structured entities are all entities controlled by the Company, deemed to exist
where the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity. The financial statements of the subsidiaries are included from the date
on which control is transferred to the Group to the date that control ceases.
All intercompany transactions and balances between Group companies are eliminated on consolidation.
The Group has interests in structures entities, with one consolidated structured entity, being the Brooks Macdonald Group
Employee Benefit Trust (Note 28). The Group has interests in other structured entities as a result of contractual arrangements
arising from the management of assets on behalf of its clients, but are not consolidated as the Group does not commit to
financially support its funds, nor guarantee for the repayment of any borrowings (Note 37). The Group has disclosed all of its
subsidiary undertakings in Note 44 of the Company’s Financial statements.
Changes in accounting policies
c.
The Group’s accounting policies that have been applied in preparing these Financial statements are consistent with those
disclosed in the Annual Report and Accounts for the year ended 30 June 2019, except as explained below.
New accounting standards, amendments and interpretations adopted in the year
In the year ended 30 June 2020, the Group adopted one new standard being IFRS 16 ‘Leases’. The Group did not adopt any
other new standards and amendments issued by the International Accounting Standards Board (“IASB”) or interpretations
issued by the IFRS IC in the year ended 30 June 2020.
IFRS 16 ‘Leases’
IFRS 16 removes the classification of leases as either operating leases or finance leases for lessees. The standard introduces a
single, on-balance sheet accounting model, which requires:
•
•
•
recognition of a right of use asset and corresponding lease liability with respect to all lease arrangements in which the
Group is the lessee, except for short-term leases and leases of low value assets;
recognition of a depreciation charge on the right of use asset on a straight-line basis over the shorter of the expected life of
the asset and the lease term; and
recognition of an interest charge arising from the unwinding of the discounted lease liability over the lease term.
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
2. Principal accounting policies continued
Impact on the relevant extracts from the Consolidated statement of financial position as at 1 July 2019
Assets
Right of use assets
Trade and other receivables
Total assets
Liabilities
Trade and other payables
Lease liabilities
Total liabilities
Net assets
Equity
Retained earnings
Total equity
As reported
30 June
2019 Adjustments
£’000
£’000
–
26,732
117,096
(20,788)
–
(29,524)
87,572
43,790
87,572
1,555
(50)
1,505
294
(1,799)
(1,505)
–
–
–
Restated
1 July
2019
£’000
1,555
26,682
118,601
(20,494)
(1,799)
(31,029)
87,572
43,790
87,572
The adjustments to the Consolidated statement of financial position reflect the initial application of IFRS 16.
The table below presents operating lease commitments disclosed at 30 June 2019 and lease liabilities recognised at 1 July 2019.
Total operating lease commitments disclosed at 30 June 2019
Exemptions applied:
− Leases with remaining lease term of less than 12 months
Operating lease liabilities before discounting
Adjustments:
− Rental payments on date of initial application
Total lease liabilities before discounting
Discounted using incremental borrowing rate
Total lease liabilities recognised under IFRS 16 at 1 July 2019
£’000
2,930
(1,308)
1,622
314
1,936
(137)
1,799
On transition to IFRS 16 on 1 July 2019, the current lease liability was £530,000 and the non-current lease liability was
£1,269,000.
Impact on financial statements for the year ended 30 June 2020
During the year ended 30 June 2020, the Group recognised an interest charge arising on lease liabilities of £304,000 and
a depreciation charge on the ROU assets of £1,256,000. Included within the interest charge and depreciation charge was
£236,000 and £763,000 respectively for new leases that commenced during the year ended 30 June 2020.
An analysis of ROU assets is presented in Note 16 and lease liabilities presented in Note 23.
The Group applied judgement in calculating the discount rate to be used in computing lease liabilities. The Group performed
research into issued corporate debt in the comparable industry given the Group does not have any debt of its own, resulting in
estimating its incremental borrowing rate of 4.5% to measure lease liabilities.
Other new standards, amendments and interpretations listed in the table below were newly adopted by the Group but have
not had a material impact on the amounts reported in these Financial statements. They may however impact the accounting
for future transactions and arrangements.
Standard, Amendment or Interpretation
Recognition of deferred tax assets for unrealised losses (amendments to IAS 12)
Disclosure initiative (amendments to IAS 7)
Annual improvements to IFRS standards 2014–2016 cycle (IFRS 12)
Effective date
1 January 2018
1 January 2018
1 January 2018
Introduction
Strategic report
Corporate governance
Financial statements
2. Principal accounting policies continued
New accounting standards, amendments and interpretations not yet adopted
A number of new standards, amendments and interpretations, which have not been applied in preparing these Financial
statements, have been issued and are effective for annual years beginning after 1 July 2019:
Standard, Amendment or Interpretation
Uncertainty over Income Tax Treatments (IFRIC 23)
Annual improvements to IFRS standards 2015–2018 cycle (IFRS 3, IFRS 11, IAS 12, IAS 23)
Amendments to IAS 28: Long-term Interest in Associates and Joint Ventures
Amendments to References to the Conceptual Framework in IFRS Standards
Amendment to IFRS 3 Business Combinations
Amendments to IAS 1 and IAS 8: Definition of Material
Insurance Contracts (IFRS 17)
1. Not yet endorsed by the EU.
Effective date
1 January 2019
1 January 20191
1 January 20191
1 January 20201
1 January 2020
1 January 20201
1 January 2021
The impact of these changes is currently being reviewed and there is no intention to early adopt.
d. Critical accounting estimates and judgements
The preparation of financial information requires the use of assumptions, estimates and judgements about future conditions.
Use of currently available information and application of judgement are inherent in the formation of estimates. Actual results
in the future may differ from those reported. In this regard, the Directors believe that the accounting policies where important
estimations are used relate to the measurement of intangible assets, deferred consideration, the estimation of the fair value of
share-based payments and client compensation provisions.
There have been no critical judgements required in applying the Group’s accounting policies in this period, but there have
been the use of important estimations detailed separately below.
The underlying assumptions made are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
year in which the estimate is revised only if the revision affects both current and future periods.
Further information about key assumptions and sources of estimation uncertainty is set out below.
Intangible assets
The Group has acquired client relationships and the associated investment management contracts as part of business
combinations, through separate purchase or with newly employed teams of fund managers, as described in Note 14. In
assessing the fair value of these assets the Group has estimated their finite life based on information about the typical length of
existing client relationships. Contracts acquired with fund managers and acquired client relationship contracts are amortised
on a straight-line basis over their estimated useful lives, ranging from 5 to 20 years.
Goodwill recognised as part of a business combination is reviewed annually for impairment, or when a change in
circumstances indicates that it might be impaired. The recoverable amounts of cash generating units are determined by value
in use calculations, which require the use of estimates to derive the projected future cash flows attributable to each unit.
Details of the more significant assumptions are given in Note 14.
Deferred consideration
As described in Note 22, the Group has a deferred consideration balance in respect of the acquisition of Levitas Investment
Management Services Limited in July 2014 and Cornelian Asset Managers Group Limited in February 2020. Deferred
consideration is recognised at its fair value, being an estimate of the amount that will ultimately be payable in future periods.
For Levitas, as at 30 June 2020, there is one fixed payment remaining. For Cornelian, the deferred consideration has been
calculated allowing for estimated growth in the acquired funds and estimated cost savings, discounted by the estimated
interest rate.
Share-based payments
The Group operates various share-based payment schemes in respect of services received from certain employees.
Estimating the fair value of these share-based payments requires the Group to apply an appropriate valuation model and
determine the inputs to that model (Note 30). The charge to the Consolidated statement of comprehensive income in respect
of share-based payments is calculated using assumptions about the number of eligible employees that will leave the Group
and the number of employees that will satisfy the relevant performance conditions. These estimates are reviewed regularly.
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
2. Principal accounting policies continued
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, where it is probable that it will
result in an outflow of economic benefits and can be reliably estimated. Provisions are measured at the present value of
the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the obligation.
Where the outflow is not probable or cannot be reliably measured, the potential obligation is disclosed as a contingent liability
in the Financial statements.
Insurance recoveries relating to legal fees are recognised when, and only when, it is virtually certain that reimbursement
will be received if the corresponding obligation is settled. Reimbursements received are disclosed net in the Consolidated
statement of comprehensive income and gross in the Consolidated statement of financial position.
The Group may receive complaints from clients in relation to the services provided. Complaints are assessed on a case-by-case
basis and provisions are made where it is judged to be likely that compensation will be paid.
As described in Note 24, the Group has recognised a provision in respect of exceptional costs of resolving legacy matters.
The Group has a present obligation relating to a number of discretionary portfolios formerly managed by Spearpoint which
was acquired by the Group in 2012 and the provision has been reliably measured at the value of expenditures expected to be
required to settle the obligation.
Business combinations
e.
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured at the fair value
of the aggregate amount of the consideration transferred at the acquisition date, irrespective of the extent of any minority
interest. Acquisition costs are charged to the Consolidated statement of comprehensive income when incurred.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition
date. If the business combination is achieved in stages, the fair value of the Group’s previously held equity interest is
remeasured at the acquisition date and the difference is credited or charged to the Consolidated statement of comprehensive
income. Identifiable assets and liabilities assumed on acquisition are recognised in the Consolidated statement of financial
position at their fair value at the date of acquisition.
Any deferred consideration to be paid by the Group to the vendor is recognised at its fair value at the acquisition date, in
accordance with IAS 39. Subsequent changes to the fair value of deferred consideration are recognised in accordance with
IFRS 9 in the Consolidated statement of comprehensive income.
Goodwill is initially measured at cost, being the excess of the consideration transferred over the acquired company’s net
identifiable assets and liabilities assumed. If the consideration is lower than the fair value of the net assets acquired, the
difference is recognised as a gain on a bargain purchase in the Consolidated statement of comprehensive income.
Introduction
Strategic report
Corporate governance
Financial statements
2. Principal accounting policies continued
Impairment
Goodwill and other intangible assets with an indefinite life are tested annually for impairment. For the purposes of impairment
testing, goodwill acquired in a business combination is allocated to each of the Group’s cash generating units (“CGUs”) that are
expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquisition are assigned to
those units. The carrying amount of each CGU is compared to its recoverable amount, which is determined using a discounted
future cash flow model.
Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill associated with the
operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the
operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of
and the portion of the CGU retained.
Revenue
f.
Portfolio management fees and financial services commission
Portfolio management and other advisory and custody services are billed in arrears but are recognised over the period the
service is provided. Fees are calculated on the basis of a percentage of the value of the portfolio over the period. Dealing
charges are levied at the time a deal is placed for a client. Fees are only recognised when the fee amount can be estimated
reliably and it is probable that the fee will be received. Amounts are shown net of rebates paid to significant investors.
Performance fees are earned from some clients when contractually agreed performance levels are exceeded within specified
performance measurement periods. They are only recognised, at the end of these performance periods, when a reliable
estimate of the fee can be made and is virtually certain that it will be received.
Advisory fees
Advisory fees are charged to clients using an hourly rate or by a fixed fee arrangement and are recognised over the period the
service is provided. Commissions receivable and payable are accounted for in the period in which they are earned.
Fund management fees
Where amounts due are conditional on the successful completion of fundraising for investment vehicles, revenue is
recognised where, in the opinion of the Directors, there is reasonable certainty that sufficient funds have been raised to enable
the successful operation of that investment vehicle. Amounts due on an annual basis for the management of third party
investment vehicles are recognised on a time apportioned basis.
Interest
Interest receivable is recognised on an accruals basis.
Cash and cash equivalents
g.
Cash comprises cash in hand and call deposits held with banks. Cash equivalents comprise short-term, highly liquid
investments, with a maturity of less than three months from the date of acquisition.
Share-based payments
h.
The Group engages in equity-settled share-based payment transactions in respect of services received from certain
employees. The fair value of the services received is measured by reference to the fair value of the shares or share options on
the grant date. This cost is then recognised in the Consolidated statement of comprehensive income over the vesting period,
with a corresponding credit to equity.
The fair value of the options granted is determined using option pricing models, which take into account the exercise price of
the option, the current share price, the risk-free rate of interest, the expected volatility of the Company’s share price over the
life of the award and other relevant factors.
114
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
Segmental reporting
2. Principal accounting policies continued
i.
The Group determines and presents operating segments based on the information that is provided internally to the Group
Board of Directors, which is the Group’s chief operating decision-maker.
Fiduciary activities
j.
The Group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf
of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded
from these Financial statements, as they are not assets of the Group.
The Group holds money on behalf of some clients in accordance with the client money rules of the Financial Conduct
Authority (“FCA”). Such monies and the corresponding liability to clients are not included within the Consolidated statement
of financial position as the Group is not beneficially entitled thereto.
Property, plant and equipment
k.
All property, plant and equipment is included in the Consolidated statement of financial position at historical cost less
accumulated depreciation and impairment. Costs include the original purchase cost of the asset and the costs attributable to
bringing the asset into a working condition for its intended use.
Provision is made for depreciation to write off the cost less estimated residual value of each asset, using a straight-line method,
over its expected useful life as follows:
Leasehold improvements
Fixtures, fittings and office equipment
IT equipment
–
–
–
over the lease term
5 years
4 or 5 years
The assets’ residual values and useful economic lives are reviewed, and adjusted if appropriate, at the end of each reporting
period. Gains and losses arising on disposal are determined by comparing the proceeds with the carrying amount. These are
included in the Consolidated statement of comprehensive income.
Intangible assets
l.
Amortisation of intangible assets is charged to administrative expenses in the Consolidated statement of comprehensive
income on a straight-line basis over the estimated useful lives of the assets (4 to 20 years).
Acquired client relationship contracts and contracts acquired with fund managers
Intangible assets are recognised where client relationship contracts are either separately acquired or acquired with
investment managers who are employed by the Group. These are initially recognised at cost and are subsequently amortised
on a straight-line basis over their estimated useful economic life. Separately acquired client relationship contracts are
amortised over 6 to 20 years and those acquired with fund managers over 5 years. Both types of intangible asset are reviewed
annually to determine whether there exists an indicator of impairment or an indicator that the assumed useful economic life
has changed.
Previously, all client relationship contracts were amortised over 15 to 20 years; however, on acquisition of Cornelian, the
acquired client relationship contracts consisted of discretionary-related business and fund-management related business.
The acquired client relationship contracts for the discretionary business are to be amortised over 20 years and the acquired
client relationship contracts for the fund-management business are to be amortised over 6 years.
Computer software
Costs incurred on internally developed computer software are initially recognised at cost, and when the software is available
for use, the costs are amortised on a straight-line basis over an estimated useful life of four years. Initial research costs and
planning prior to a decision to proceed with development of software are recognised in the Consolidated statement of
comprehensive income when incurred.
Introduction
Strategic report
Corporate governance
Financial statements
2. Principal accounting policies continued
Goodwill
Goodwill arising as part of a business combination is initially measured at cost, being the excess of the fair value of the
consideration transferred over the Group’s interest in the net fair value of the separately identifiable assets, liabilities and
contingent liabilities of the subsidiary at date of acquisition. In accordance with IFRS 3 ‘Business Combinations’, goodwill is not
amortised but is reviewed annually for impairment and is therefore stated at cost less any provision for impairment of value.
Any impairment is recognised immediately in the Consolidated statement of comprehensive income and is not subsequently
reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. On
acquisition, any goodwill acquired is allocated to CGUs for the purposes of impairment testing. If the cost of the acquisition is
less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the Consolidated
statement of comprehensive income.
m. Financial investments
The Group classifies financial assets in the following categories: fair value through profit or loss; fair value through other
comprehensive income; and amortised cost. The classification is determined by management on initial recognition of the
financial asset, which depends on the purpose for which it was acquired.
Fair value through profit or loss (Note 18)
Financial investments are classified as fair value through profit or loss if they are either held for trading or specifically
designated in this category on initial recognition. Assets in this category are initially recognised at fair value and subsequently
remeasured, with gains or losses arising from changes in fair value being recognised in the Consolidated statement of
comprehensive income.
Financial assets at fair value through profit or loss include investments in a regulated OEIC, which are managed and evaluated
on a fair value basis in line with the market value. Other financial assets at fair value through profit of loss include amounts
outstanding as contingent consideration, classified as this upon initial recognition, which are managed and evaluated on a fair
value basis in line with the estimated receivable.
Fair value through other comprehensive income (Note 17)
Financial investments are classified as fair value through other comprehensive income if the objective of the business
model is achieved by both collecting contractual cash flows and selling financial assets and that the asset’s contractual cash
flows represents solely payment of principal and interest. Assets in this category are initially recognised at fair value and
subsequently remeasured, with gains or losses arising from changes in fair value being recognised in the other comprehensive
income.
Financial assets at fair value through other comprehensive income include an investment of redeemable preference shares,
which are held to collect contractual cash flows via an annual fixed preferential dividend.
Amortised cost
Financial instruments are classified as amortised cost if the asset is held to collect contractual cash flows and the asset’s
contractual cash flows represents solely payment of principal and interest.
Foreign currency translation
n.
The Group’s functional and presentational currency is the Pound Sterling. Foreign currency transactions are translated using
the exchange rate prevailing at the transaction date. At the reporting date, monetary assets and liabilities that are denominated
in foreign currencies are retranslated at the prevailing rates on that date. Foreign exchange gains and losses resulting from
settlement of such transactions and from the translation of period-end monetary assets and liabilities are recognised in the
Consolidated statement of comprehensive income.
o. Retirement benefit costs
Contributions in respect of the Group’s defined contribution pension scheme are charged to the Consolidated statement of
comprehensive income as they fall due.
116
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
Taxation
2. Principal accounting policies continued
p.
Tax on the profit for the year comprises current and deferred tax. Current tax is the expected tax payable on the taxable
income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable
in respect of previous years.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the Group’s Financial statements. Deferred tax assets and liabilities are measured
at the tax rates that are expected to apply to the period when the asset is realised or the liability settled based on tax rates (and
laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax assets are only recognised to the extent that it is probable that future taxable profit will be available against which
the temporary differences can be utilised.
q. Trade receivables
Trade receivables represent amounts due for services performed in the ordinary course of business. They are recognised
in trade and other receivables and if collection is expected within one year they are recognised as a current asset and if
collection is expected in greater than one year, they are recognised as a non-current asset. Trade receivables are measured at
amortised cost less any expected credit losses.
Trade payables
r.
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. These are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of
the business if longer). Otherwise, they are presented as non-current liabilities in the Consolidated statement of financial position.
Trade payables are initially recognised at fair value and subsequently measured at amortised cost using the effective
interest method.
Employee Benefit Trust (“EBT”)
s.
The Company provides finance to an EBT to purchase the Company’s shares on the open market in order to meet its
obligation to provide shares when an employee exercises certain options or awards made under the Group’s share-based
payment schemes. The administration and finance costs connected with the EBT are charged to the Consolidated statement
of comprehensive income. The cost of the shares held by the EBT is deducted from equity. A transfer is made between other
reserves and retained earnings over the vesting periods of the related share options or awards to reflect the ultimate proceeds
receivable from employees on exercise. The trustees have waived their rights to receive dividends on the shares.
The EBT is considered to be a structured entity, as defined in Note 37. In substance, the activities of the trust are being
conducted on behalf of the Group according to its specific business needs, in order to obtain benefits from its operation. On
this basis, the assets held by the trust are consolidated into the Group’s Financial statements.
Share capital
t.
Ordinary share capital is classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or
options are shown in equity as a deduction, net of tax, from the proceeds.
Where the Company purchases its own equity share capital (treasury shares) the consideration paid, including any directly
incremental costs (i.e. net of income taxes) is deducted from equity attributable to the Company’s equity holders until the
shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received (net
of any directly attributable incremental transaction costs and the related income tax effects) is included within equity
attributable to the Company’s equity holders.
u. Dividend distribution
The dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s Financial statements in the
period in which the dividend is authorised and no longer at the discretion of the Company. Final dividends are recognised
when approved by the Company’s shareholders at the Annual General Meeting and interim dividends are recognised
when paid.
Introduction
Strategic report
Corporate governance
Financial statements
3. Segmental information
For management purposes the Group’s activities are organised into three operating divisions: UK Investment Management,
International and Financial Planning. The Group’s other activity, offering nominee and custody services to clients, is included
within UK Investment Management. These divisions are the basis on which the Group reports its primary segmental
information to the Executive Committee, which is the Group’s chief operating decision-maker. In accordance with IFRS 8
‘Operating Segments’, disclosures are required to reflect the information which the Board of Directors uses internally for
evaluating the performance of its operating segments and allocating resources to those segments. The information presented
in this Note is consistent with the presentation for internal reporting.
The UK Investment Management segment offers a range of investment management services to private high net worth
individuals, pension funds, institutions, charities and trusts. The International segment is based in the Channel Islands and
offers a similar range of investment management and financial planning services as the UK Investment Management segment
and the Financial planning segment. Financial planning offers wealth management services to high net worth individuals and
families, giving independent “whole of market” financial advice enabling clients to build, manage and protect their wealth.
The Group segment principally comprises the Group Board’s management and associated costs, along with the consolidation
adjustments.
Following the acquisition of Cornelian (Note 10), the activities since acquisition have been included in the UK Investment
Management segment.
Revenues and expenses are allocated to the business segment that originated the transaction. Sales between segments are
carried out at arm’s length. Centrally incurred expenses are allocated to business segments on an appropriate pro rata basis.
Year ended 30 June 2020
Total revenue
Inter segment revenue
External revenue
Underlying administrative costs
Operating contribution
Allocated costs
Net finance income
Underlying profit/(loss) before tax
Goodwill impairment
Acquisition related costs
Amortisation of client relationships and contracts
acquired with fund managers
Head office relocation costs
Finance cost of deferred consideration
Changes in fair value of contingent consideration
Finance income from contingent consideration
Profit mark-up on Group allocated costs
Profit/(loss) before tax
Taxation
Profit for the period attributable to equity holders
of the Company
UK
Investment
Management
£’000
International
£’000
Financial
Planning
£’000
Group &
consolidation
adjustments
£’000
95,950
(4,552)
91,398
(42,004)
49,394
(24,143)
1
25,252
–
(1,085)
(701)
(1,166)
–
–
–
221
22,521
13,335
–
13,335
(8,026)
5,309
(2,890)
50
2,469
–
(606)
(420)
–
–
–
–
(136)
1,307
3,831
–
3,831
(3,161)
670
(1,926)
–
(1,256)
–
–
–
–
–
(54)
7
(85)
(1,388)
(6)
–
(6)
(32,424)
(32,430)
28,959
29
(3,442)
(4,471)
(2,570)
(1,762)
–
(145)
–
2
–
(12,388)
Total
£’000
113,110
(4,552)
108,558
(85,615)
22,943
–
80
23,023
(4,471)
(4,261)
(2,883)
(1,166)
(145)
(54)
9
–
10,052
(3,626)
6,426
118
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Notes to the consolidated
Notes to the consolidated
financial statements continued
financial statements continued
For the year ended 30 June 2020
For the year ended 30 June 2020
3. Segmental information continued
4. Revenue
Introduction
Strategic report
Corporate governance
Financial statements
Year ended 30 June 2020
Statutory operating (costs)/income included the
following:
Amortisation
Depreciation
Interest income
UK
Investment
Management
£’000
Financial
Planning
£’000
Group &
consolidation
adjustments
£’000
Total
£’000
International
£’000
(3,134)
(2,937)
107
(429)
(324)
87
–
(3)
–
(1,764)
(120)
58
(5,327)
(3,284)
252
Year ended 30 June 2019 restated1
Total revenue
Inter segment revenue
External revenue
Underlying administrative costs
Operating contribution
Allocated costs
Net finance income/(costs)
Underlying profit/(loss) before tax
Goodwill impairment
Restructuring charge
Client relationship contracts impairment
Amortisation of client relationships and contracts
acquired with fund managers
Changes in fair value of deferred consideration
Finance cost of deferred consideration
Changes in fair value of contingent consideration
Disposal costs
Finance income from contingent consideration
Profit/(loss) before tax
Taxation
Loss from discontinued operations
Profit for the year attributable to equity holders of
the Company
UK
Investment
Management
£’000
87,749
(292)
87,457
(43,832)
43,625
International
£’000
14,609
–
14,609
(9,247)
5,362
Financial
planning
£’000
3,556
–
3,556
(2,926)
630
Group &
consolidation
adjustments
£’000
28
–
Total
£’000
105,942
(292)
28 105,650
(85,001)
20,649
(28,996)
(28,968)
(19,171)
18
24,472
–
(1,764)
–
(787)
–
–
–
–
–
21,921
(3,180)
(37)
2,145
(2,469)
–
(1,839)
24,820
28
(4,120)
–
9
20,658
–
(739)
–
(420)
–
–
–
–
–
986
–
–
–
–
–
–
–
(21)
5
(1,855)
(4,756)
(762)
(2,328)
(1,039)
419
(94)
(75)
(12)
24
(12,743)
(4,756)
(3,265)
(2,328)
(2,246)
419
(94)
(75)
(33)
29
8,309
(2,454)
(395)
5,460
1.
See Note 4 for details regarding the restatement to the UK Investment Management segment as a result of the Authorised Corporate
Director (“ACD”) fees and associated costs and also the output VAT on Platform MPS.
Year ended 30 June 2019
Statutory operating (costs)/income included the
following:
Amortisation
Depreciation
Interest income
UK
Investment
Management
Financial
Planning
Group &
consolidation
adjustments
Total
International
£’000
£’000
£’000
£’000
£’000
(2,304)
(293)
19
(433)
(108)
118
(135)
(990)
–
(1,539)
–
61
(4,411)
(1,391)
198
Portfolio management fee income
Financial services commission
Advisory fees
Fund management fees
Total revenue
2020
£’000
95,108
481
4,325
8,644
108,558
2019
restated
£’000
93,789
479
4,509
6,873
105,650
For information on the nature, timing and recognition of revenue see note 2(f).
Portfolio management fee income comprises revenue earnt in the UK Investment Management and International segments
(Note 3). The financial services commission and advisory fees are generated by the Financial Planning Segment, and some
of this revenue is also generated in the International segment. Fund management fees revenue is earnt in the UK Investment
Management segment.
Restatement – ACD fees and associated costs
During the year ended 30 June 2020, the Group noted that the recognition of the Authorised Corporate Director (“ACD”) fees
and associated costs in respect of the IFSL Brooks Macdonald Funds, one of the regulated OEICs managed by the Group, were
not in line with the investment management agreement between the Group and the ACD. The revenue recognised in the
Group was grossed up whereby the Annual Management Charge and other associated fees levied by the ACD to the OEICs
were recognised as revenue, and the fees that are subsequently paid out from this fee recognised as expenses. The Group has
no legal obligation to pay the ACD fees and other fund associated costs; therefore, only the investment management fee paid
to the Group for acting as the OEIC’s Investment Manager should have been recognised in the Group’s books as a revenue
item. As a result, for the year ended 30 June 2019, reported revenue and costs were overstated by £1,212,000. Accordingly,
the Consolidated statement of comprehensive income has been restated by this amount to reflect the correct accounting
treatment. There was no impact to total comprehensive income and retained earnings. The restatement has impacted the UK
Investment Management segment in Note 3, the Portfolio management fee income in the revenue table above and the revenue
generated in the United Kingdom per Note 4(a).
Restatement – VAT on Platform MPS
In the light of recent case law, the Group has been undergoing a review of its Managed Portfolio Service (“MPS”), with a view to
seeking a ruling from HMRC that MPS is not subject to VAT. When conducting this review, it was noted that the fees received on
MPS offered through third party platforms (“Platform MPS”) were not being correctly accounted for and historically treated as
exempt from VAT. As a result, income derived from this service was overstated, the VAT liability arising on the fees collected
was understated and consequently the Group has under-recovered its entitlement to input VAT credit. Upon identification of
this error, the Group notified HMRC of the situation and is currently awaiting a response on the resolution of the matter. Since
previously reported revenue from Platform MPS was overstated, the Directors concluded it prudent to rectify the error in
these Consolidated financial statements.
Accordingly, the Group recognised a prior year adjustment to reduce revenue by £408,000 for the output VAT on platform
MPS and reduce administrative costs by £77,000 for the entitlement to input VAT credit. The decrease to profit before tax as
a result of this restatement for the year ended 30 June 2019 was £331,000. This reduction in profit before tax has resulted in
the income tax expense to be reduced by £63,000. The total reduction to total comprehensive income for the year ended 30
June 2019 was £268,000. The restatement has impacted the UK Investment Management segment in Note 3, the Portfolio
management fee income in the revenue table above and the revenue generated in the United Kingdom per Note 4(a). The
Consolidated statement of financial position at 30 June 2019 was restated to reflect this increase in trade and other payables
to recognise the additional VAT liability due to HMRC of £331,000 and reduce current tax liabilities by the reduced income
tax expense of £63,000. The opening balances to the comparative information at 1 July 2018 were also restated to reflect the
reduction in retained earnings of £431,000 and an increase in trade and other payables of £431,000.
120
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
4. Revenue continued
a. Geographic analysis
The Group’s operations are located in the United Kingdom and the Channel Islands. The following table presents external
revenue analysed by the geographical location of the Group entity providing the service.
United Kingdom
Channel Islands
Total revenue
2020
£’000
95,223
13,335
108,558
2019
restated
£’000
91,041
14,609
105,650
b. Major clients
The Group is not reliant on any one client or group of connected clients for the generation of revenues.
5. Employee information
Administrative costs are recognised as the services are received. The biggest component of the Group’s administrative costs
are the costs of employee benefits as shown below. Other costs incurred in administrative costs can be seen in Note 7.
a.
Staff costs
Wages and salaries
Social security costs
Other pension costs
Share-based payments
Redundancy costs
Total staff costs
Pension costs relate entirely to a defined contribution scheme.
b. Number of employees
The average monthly number of employees during the year, including Directors, was as follows:
Business staff
Functional staff
Total staff from continuing operations
Total staff from discontinued operations
Total staff
2020
£’000
38,502
4,335
1,676
3,080
818
48,411
2019
£’000
38,843
4,551
1,331
2,029
3,265
50,019
2020
Number of
employees
243
192
435
–
435
2019
Number of
employees
252
190
442
10
452
c. Key management compensation
The compensation of the key management personnel of the Group, defined as the Group Board of Directors including both the
Executives and Non-Executives, is set out below.
Short-term employee benefits
Post-employment benefits
Share-based payments
Total compensation
2020
£’000
2,040
57
94
2,191
2019
£’000
2,638
15
248
2,901
Introduction
Strategic report
Corporate governance
Financial statements
5. Employee information continued
d. Directors’ emoluments
Further details of Directors’ emoluments are included within the Remuneration Committee report on pages 74 to 88.
Salaries and bonuses
Non-Executive Directors’ fees
Benefits in kind
Pension contributions
Amounts receivable under long-term incentive schemes
Total Directors’ remuneration
2020
£’000
1,560
475
5
2,040
57
94
2,191
2019
£’000
2,177
453
8
2,638
15
248
2,901
The aggregate amount of gains made by Directors on the exercise of share options during the year was £167,000
(FY19: £251,000). Retirement benefits are accruing to one Director (FY19: two) under a defined contribution pension scheme.
The remuneration of the highest paid Director during the year was as follows:
Remuneration and benefits in kind
Amounts received under long-term incentive schemes
Total remuneration
2020
£’000
814
63
877
2019
£’000
735
37
772
The amount of gains made by the highest paid Director on the exercise of share options during the year was £63,000
(FY19: £37,000).
6. Other gains/(losses) – net
Other gains/(losses) – net represent the net changes in the fair value of the Group’s financial instruments and intangible assets
recognised in the Consolidated statement of comprehensive income.
Goodwill impairment (Note 14)
Loss from changes in fair value of contingent consideration receivable (Note 18)
Gain/(loss) from changes in fair value of financial assets at fair value through profit or loss (Note 18)
Client relationship contracts impairment (Note 14)
Gain from changes in fair value of deferred consideration payable (Note 22)
Impairment of financial assets at fair value through other comprehensive income (Note 17)
Other gains/(losses) – net
2020
£’000
(4,471)
(54)
6
–
–
–
(4,519)
2019
£’000
(4,756)
(75)
(38)
(2,328)
419
(150)
(6,928)
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
7. Operating profit
Operating profit is stated after charging:
Staff costs (Note 5)
Impairment of goodwill (Note 14)
Acquisition related costs (Note 10 and 38)
Amortisation of computer software (Note 14)
Amortisation of client relationships and contracts acquired with fund managers (Note 14)
Depreciation of property, plant and equipment (Note 15)
Financial Services Compensation Scheme levy (see below)
Head office relocation costs
Auditors’ remuneration (see below)
Impairment of client relationship contracts (Note 14)
A more detailed analysis of auditors’ remuneration is provided below:
Fees payable to the Company’s auditors for the audit of the consolidated Group and Parent
Company financial statements
Fees payable to the Company’s auditors and its associates for other services:
− Audit of the Company’s subsidiaries pursuant to legislation
− Audit-related assurance services
− Other non-audit services
Total remuneration
2020
£’000
48,411
4,471
4,261
3,363
2,883
2,269
2,160
1,166
640
–
2019
£’000
50,019
4,756
–
2,165
2,246
1,391
1,167
–
550
2,328
2020
£’000
2019
£’000
195
193
252
–
640
136
160
174
80
550
Financial Services Compensation Scheme levies
Administrative costs for the year ended 30 June 2020 include a charge of £2,160,000 (FY19: £1,167,000) in respect of the
Financial Services Compensation Scheme (“FSCS”) levy, comprising £2,017,000 in respect of the estimated levy for the 2020/21
scheme year and £143,000 in respect of the final and supplementary levies for the 2019/20 scheme year.
8. Finance income and finance costs
Finance income
Dividends on preference shares
Bank interest on deposits
Finance income from contingent consideration (Note 18)
Total finance income
Finance costs
Interest on lease liabilities (Note 23)
Interest expense
Finance cost of deferred consideration (Note 22)
Total finance costs
2020
£’000
2019
£’000
42
210
9
261
304
5
145
454
82
116
29
227
–
–
94
94
Introduction
Strategic report
Corporate governance
Financial statements
9. Taxation
The tax charge on profit for the year was as follows:
UK Corporation Tax at 19% (FY19: 19%)
Over provision in prior years
Total current tax
Deferred tax credits
Under provision of deferred tax in prior years
Research and development tax credit
Income tax expense
2020
£’000
3,991
(66)
3,925
(674)
462
(87)
3,626
2019
restated1
£’000
4,006
(419)
3,587
(808)
–
(325)
2,454
1.
See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the time apportioned tax
rate applicable to profits of the consolidated entities in the UK as follows:
Profit before taxation from continued operations
Loss before taxation from discontinued operations
Profit before taxation
Profit multiplied by the standard rate of tax in the UK of 19% (FY19: 19%)
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
− Overseas tax losses not available for UK tax purposes
− Disallowable expenses
− Share-based payments
− Depreciation and amortisation
− Impairment charges
− Non-taxable income
− Research and development tax credit
− Under/(over) provision in prior years
Income tax expense
1.
See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
2020
£’000
10,052
–
10,052
2019
restated1
£’000
8,309
(395)
7,914
1,910
1,504
(24)
394
(139)
336
850
(10)
(87)
396
3,626
(56)
178
327
(25)
1,346
(76)
(325)
(419)
2,454
During the year, the Group made a claim for research and development tax relief in relation to qualifying expenditure on
software development incurred in the year ended 30 June 2019. This resulted in a reduction in the Corporation Tax liabilities
in the respective years, and a repayment of £87,000 (FY19: £325,000) is due from HM Revenue and Customs. The Group will
consider whether claims can also be made for qualifying expenditure incurred in the year ended 30 June 2020 and thereafter
in due course.
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
9. Taxation continued
The deferred tax charges/(credits) for the year arise from:
Share option reserve
Accelerated capital allowances
Accelerated capital allowances on research and development
Amortisation of acquired client relationship contracts
Unused overseas trading losses
Deferred tax credits
2020
£’000
(247)
(91)
(154)
(224)
42
(674)
2019
£’000
(6)
(96)
–
(712)
6
(808)
On 1 April 2017, the standard rate of Corporation Tax in the UK was reduced to 19%. As a result the effective rate of Corporation
Tax applied to the taxable profit for the year ended 30 June 2020 is 19% (FY19: 19%).
It was announced on 11 March 2020 (and substantively enacted on 17 March 2020) that the UK Corporation Tax rate would
remain at 19% and not reduce to 17% (the previously enacted rate) from 1 April 2020. As a result, the relevant deferred tax
balances have been remeasured. Deferred tax assets and liabilities are calculated at the rate that is expected to be in force
when the temporary differences unwind, but limited to the extent that such rates have been substantively enacted. The tax
rate used to determine the deferred tax assets and liabilities is therefore 19% (FY19: 17%) and will be reviewed in future years
subject to new legislation.
10. Business combinations
On 28 February 2020, the Group acquired the entire share capital of Cornelian Asset Managers Group Limited (“Cornelian”), an
Edinburgh based independent, well-established wealth manager with national distribution reach. Cornelian Asset Managers
Group Limited had two wholly owned subsidiaries: Cornelian Asset Managers Limited and Cornelian Asset Managers
Nominees Limited, which also formed part of the Group on acquisition.
The acquisition has been accounted for using the acquisition method and details of the purchase consideration are as follows:
Cash paid
Shares issued
Cash paid for final net assets acquired
Deferred contingent consideration at fair value
Total purchase consideration
Note
i
ii
iii
£’000
22,000
9,000
5,757
7,466
44,223
ii. The Group issued 1,690,141 ordinary shares in November 2019 to fund the cash consideration (Note 28), based on the share
price on 21 November 2020 of £18.25 discounted by £0.50 to £17.75 per share.
iii. The Group issued 453,172 ordinary shares to the previous shareholders of Cornelian Asset Managers Group Limited at a
price of £19.86 per share, based on the share price at 28 February 2020 (Note 28).
iv. The total cash deferred contingent consideration is £8,000,000, payable in up to three instalments in March 2021, October
2021 and March 2022, based on the future value of the funds under management acquired, and cost savings and synergies
achieved on integrating the business (Note 22).
The fair value of the deferred consideration liability has been remeasured at 30 June 2020, and remains unchanged, which
assumes the deferred consideration criteria will be met resulting in the full £8,000,000 to be paid at the various payment
dates. The growth of funds under management (“FUM”) has been forecast using a similar growth pattern to that experienced
by the rest of the Group. The future value of the FUM is dependent on several unpredictable variables including client
retention and market movements. The cost savings and synergies are expected to be yielded in full, which has been forecast
based on the Group’s five-year Medium-Term Plan (“MTP”).
Introduction
Strategic report
Corporate governance
Financial statements
10. Business combinations continued
Client relationship intangible assets of £25,623,000 were recognised on acquisition in respect of the expected cash inflows and
economic benefit from the discretionary and fund-management contracts acquired. Goodwill of £16,111,000 was recognised
on acquisition in respect of the expected growth in the funds under management and associated cash inflows. The fair value
of the assets acquired are the gross contractual amounts and all are considered to be fully recoverable. The fair value of the
identifiable assets and liabilities acquired, at the date of acquisition, are detailed in (a) below.
Directly attributable acquisition costs of £2,229,000 and integration costs, including staff retention costs of £1,426,000 were
incurred in the acquisition and integration of Cornelian, which have been charged to administrative costs in the Consolidated
statement of comprehensive income but excluded from underlying profit.
a. Net assets acquired through business combination
Computer software
Property, plant and equipment
Financial assets at fair value through profit and loss
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities
Total net assets recognised by acquired companies
Fair value adjustments:
− Client relationship contracts – discretionary business
− Client relationship contracts – fund-management business
Deferred tax liabilities
Net identifiable assets
Goodwill
Total purchase consideration
£’000
87
74
543
1,244
6,655
(1,229)
(17)
7,357
18,012
7,611
(4,868)
28,112
16,111
44,223
The trade and other receivables were recognised at their fair value, being the gross contractual amounts.
Impact on reported results from date of acquisition
b.
In the period from acquisition to 30 June 2020, Cornelian earned revenue of £3,048,000 and statutory profit before tax of
£452,000. Had Cornelian been consolidated from 1 July 2019, the Consolidated statement of comprehensive income would
show revenue of £7,328,000 and statutory profit before tax of £1,685,000.
c. Net cash outflow resulting from business combinations
Total purchase consideration (Note 10a)
Less:
− Shares issued as consideration
− Deferred cash consideration at fair value
Cash paid to acquire Cornelian
Less cash held by Cornelian
Net cash outflow – investing activities
£’000
44,223
(9,000)
(7,466)
27,757
(6,655)
21,102
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
11. Discontinued operations
No operations have been classed as discontinued operations for the year ended 30 June 2020.
On 10 May 2019, Brooks Macdonald Funds Limited, a subsidiary within the Group, resigned as investment manager of the
Ground Rents Income Fund plc (“GRIF”). The fund management of GRIF was classed as Property Funds within internal
management information and was managed separately to the other funds managed within the Group. As a result, the
operations were classified as discontinued operations upon resignation. Disposal costs of £12,000 were incurred by the Group
in relation to the resignation.
On 31 December 2018, the Group disposed of its Employee Benefits business within the Financial Planning segment. Profit
from discontinued operations is disclosed separately in the Consolidated statement of comprehensive income, being the
results of the disposal to 31 December 2018 and the gain on disposal. Initial cash consideration of £50,000 was received on
completion. Deferred contingent consideration was based on a multiple of revenue earned by the disposed business for the
year ended 31 December 2019. On disposal the contingent consideration receivable was estimated at £232,000, which was
recognised at its fair value of £219,000 based on the discounted forecast cash flows. The gain on disposal was presented within
profit from discontinued operations in the Consolidated statement of comprehensive income for the year ended 30 June 2019.
Disposal costs of £21,000 were incurred by the Group in relation to the sale. The contingent consideration was received during
the year ended 30 June 2020 (Note 18).
Loss for the year from discontinued operations
Gain on disposal of discontinued operations
Loss before tax from discontinued operations
Taxation
Loss from discontinued operations
a.
Loss of discontinued operations
Revenue
Administrative costs
Operating loss
Finance income
Loss before tax
b. Gain on disposal of discontinued operations
Initial consideration received
Additional consideration received
Fair value of contingent consideration (Note 18)
Total disposal consideration
Net assets on disposal
Gain on disposal of discontinued operations
2020
£’000
–
–
–
–
–
2020
£’000
–
–
–
–
–
2020
£’000
–
–
–
–
–
–
2019
£’000
(724)
329
(395)
–
(395)
2019
£’000
920
(1,644)
(724)
–
(724)
2019
£’000
50
60
219
329
–
329
Introduction
Strategic report
Corporate governance
Financial statements
12. Earnings per share
The Directors believe that underlying earnings per share provide a truer reflection of the Group’s performance in the year.
Underlying earnings per share, which is an alternative performance measure, are calculated based on ‘underlying earnings’,
which is also an alternative performance measure and is defined as earnings before finance costs of deferred consideration,
finance income of contingent consideration, changes in the fair value of deferred and contingent consideration, goodwill
impairment, client relationship contracts impairment, amortisation of client relationships and contracts acquired with fund
managers, acquisition related costs, head office relocation costs, restructuring charge, business disposal costs and profit or loss
from discontinued operations. The tax effect of these adjustments has also been considered.
Earnings for the year used to calculate earnings per share as reported in these Consolidated financial statements were as follows:
Profit from continued operations
Loss from discontinued operations
Earnings attributable to ordinary shareholders
Goodwill impairment (Note 14)
Acquisition related costs (Note 10 and 38)
Amortisation of acquired client relationship contracts (Note 14)
Head office relocation costs
Finance cost of deferred consideration (Note 22)
Changes in fair value of contingent consideration (Note 18)
Amortisation of contracts acquired with fund managers (Note 14)
Finance income of contingent consideration (Note 18)
Restructuring charge
Client relationship contracts impairment (Note 14)
Changes in fair value of deferred consideration (Note 22)
Loss from discontinued operations (Note 11)
Disposal costs (Note 11)
Tax impact of adjustments
Underlying earnings attributable to ordinary shareholders
2020
£’000
6,426
–
6,426
4,471
4,261
2,867
1,166
145
54
16
(9)
–
–
–
–
–
(939)
18,458
2019
restated1
£’000
5,855
(395)
5,460
4,756
–
2,144
–
94
75
102
(29)
3,265
2,328
(419)
395
33
(1,185)
17,019
1.
See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
Basic earnings per share is calculated by dividing earnings attributable to ordinary shareholders by the weighted average
number of shares in issue throughout the year. Diluted earnings per share represents the basic earnings per share adjusted for
the effect of dilutive potential shares issuable on exercise of employee share options under the Group’s share-based payment
schemes, weighted for the relevant period.
The weighted average number of shares in issue during the year was as follows:
Weighted average number of shares in issue
Effect of dilutive potential shares issuable on exercise of employee share options
Diluted weighted average number of shares in issue
2020
Number
of shares
14,870,729
46,052
14,916,781
20192
Number
of shares
13,730,530
6,211
13,736,741
2.
The comparative weighted average number of shares have been restated for the effect of new ordinary shares issued at a discount to their market value as
part of the share placing issued in November 2019 (Note 28).
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
12. Earnings per share continued
Earnings per share for the year attributable to equity holders of the Company were:
14. Intangible assets
Based on reported earnings:
Basic earnings per share from:
− Continuing operations
− Discontinued operations
Total basic earnings per share
Diluted earnings per share from:
− Continuing operations
− Discontinued operations
Total diluted earnings per share
Based on underlying earnings:
Basic earnings per share
Diluted earnings per share
2020
p
2019
restated1,2
p
43.2
–
43.2
43.1
–
43.1
42.5
(2.8)
39.7
42.6
(3.0)
39.6
124.1
123.7
123.6
123.5
1.
2.
See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
The comparative weighted average number of shares and therefore basic and diluted earnings per share have been restated for the effect of new ordinary
shares issued at a discount to their market value as part of the share placing issued in November 2019 (Note 28).
13. Dividends
Amounts recognised as distributions to equity holders of the Company in the year were as follows:
Final dividend paid for the year ended 30 June 2019 of 32.0p (FY18: 30.0p) per share
Interim dividend paid for the year ended 30 June 2020 of 21.0p (FY19: 19.0p) per share
Total dividends
2020
£’000
4,382
3,298
7,680
2019
£’000
4,123
2,591
6,714
Final dividend proposed for the year ended 30 June 2020 of 32.0p (FY19: 32.0p) per share
5,161
4,378
The interim dividend of 21.0p (FY19: 19.0p) per share was paid on 24 April 2020.
A final dividend for the year ended 30 June 2020 of 32.0p (FY19: 32.0p) per share was declared by the Board of Directors on 16
September 2020 and is subject to approval by the shareholders at the Company’s Annual General Meeting. It will be paid on
6 November 2020 to shareholders who are on the register at the close of business on 25 September 2020. In accordance with
IAS 10 ‘Events After the Reporting Period’, the aggregate amount of the proposed dividend expected to be paid out of retained
earnings is not recognised as a liability in these Financial statements.
Introduction
Strategic report
Corporate governance
Financial statements
Cost
At 1 July 2018
Additions
At 30 June 2019
Additions
Cost of intangible assets on acquisition of subsidiary
Disposals
At 30 June 2020
Accumulated amortisation and impairment
At 1 July 2018
Amortisation charge
Impairment
At 30 June 2019
Amortisation charge
Accumulated amortisation of intangible assets on
acquisition of subsidiary
Accumulated amortisation on disposals
Impairment
At 30 June 2020
Net book value
At 1 July 2018
At 30 June 2019
At 30 June 2020
Goodwill
£’000
Computer
software
£’000
Acquired
client
relationship
contracts
£’000
Contracts
acquired
with
fund
managers
£’000
35,776
–
35,776
16,111
–
–
51,887
1,986
–
4,756
6,742
–
–
–
4,471
11,213
33,790
29,034
40,674
7,768
1,106
8,874
1,614
1,006
(991)
10,503
1,027
2,165
–
3,192
2,444
919
(991)
–
5,564
6,741
5,682
4,939
32,161
–
32,161
25,623
–
–
57,784
12,254
2,144
2,328
16,726
2,867
–
–
–
19,593
19,907
15,435
38,191
3,521
–
3,521
–
–
–
3,521
3,403
102
–
3,505
16
–
–
–
3,521
118
16
–
Total
£’000
79,226
1,106
80,332
43,348
1,006
(991)
123,695
18,670
4,411
7,084
30,165
5,327
919
(991)
4,471
39,891
60,556
50,167
83,804
The amortisation charge of intangible assets is recognised within administrative costs in the Consolidated statement of
comprehensive income.
a. Goodwill
Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (“CGUs”) that are expected
to benefit from that business combination. The carrying amount of goodwill in respect of these CGUs within the operating
segments of the Group comprises:
Funds
Braemar Group Limited (“Braemar”)
Levitas Investment Management Services Limited (“Levitas”)
International
Brooks Macdonald Asset Management (International) Limited and Brooks Macdonald
Retirement Services (International) Limited (collectively “Brooks Macdonald International”)
Cornelian
Cornelian Asset Managers Group Limited (“Cornelian”)
Total goodwill
2020
£’000
3,320
–
3,320
2019
£’000
3,320
4,471
7,791
21,243
21,243
16,111
40,674
–
29,034
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Introduction
Strategic report
Corporate governance
Financial statements
Computer software
14. Intangible assets continued
b.
Costs incurred on internally developed computer software are initially recognised at cost and when the software is available
for use, the costs are amortised on a straight-line basis over an estimated useful life of four years.
During the year ended 30 June 2020, the Group conducted a review of the computer software assets and retired assets from
the fixed asset register with a £nil net book value, and no longer used in the business. This resulted in disposals of computer
software, with cost and accumulated amortisation both totalling £991,000.
c. Acquired client relationship contracts
This asset represents the fair value of future benefits accruing to the Group from acquired client relationship contracts. The
amortisation of client relationships is charged to the Consolidated statement of comprehensive income on a straight-line basis
over their estimated useful lives (6 to 20 years). At 30 June 2020, no impairment indicators were present for the acquired client
relationship contract intangible assets.
During the year ended 30 June 2020, the Group acquired client relationship contracts totalling £25,623,000, as part of the
acquisition of Cornelian (Note 10), which were recognised as separately identifiable intangible assets in the Consolidated
statement of financial position. The additions included contracts related to the Cornelian discretionary business of
£18,012,000, with a useful economic life of 20 years, and £7,611,000 related to the Cornelian funds-management business, with
a useful economic life of six years.
d. Contracts acquired with fund managers
This asset represents the fair value of the future benefits accruing to the Group from contracts acquired with fund managers.
Payments made to acquire such contracts are stated at cost and amortised on a straight-line basis over an estimated useful
life of five years. At 30 June 2020, no impairment indicators were present for the contracts acquired with fund managers
intangible assets.
Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
14. Intangible assets continued
During the year ended 30 June 2020, the Group acquired goodwill of £16,111,000 in relation to the acquisition of Cornelian
(Note 10).
Goodwill is reviewed annually for impairment and its recoverability has been assessed at 30 June 2020 by comparing the
carrying amount of the CGUs to their expected recoverable amount, estimated on a value-in-use basis. The value-in-use of
each CGU has been calculated using pre-tax discounted cash flow projections based on the most recent budgets approved by
the relevant subsidiary company boards of directors, covering a period of five years. Cash flows are then extrapolated beyond
the forecast period using an expected long-term growth rate.
At the end of the previous financial year, the Group entered into a new five-year partnership agreement in relation to Levitas
that carried a lower sponsorship fee, the aim of this reduction was to enhance FUM flows and deepen the relationship with
the fund distributor. Unfortunately for reasons beyond the Group’s control, the anticipated fund inflows have not been
forthcoming and the Levitas fund recorded net outflows during the financial year, impacting its rate of growth and future
cash flows. Based on an updated value-in-use calculation, the recoverable amount of the Levitas CGU at 30 June 2020 did not
support the goodwill balance of £4,471,000.
The key underlying assumption of the recoverable amount calculation is the growth in funds under management of the
Levitas funds. Given the fund outflows during the year ended 30 June 2020, flat fund flows have been forecast in the next five
financial years, resulting in a small recoverable amount that does not support the goodwill balance. As a result, the Levitas
goodwill balance has been fully impaired, recognising an impairment of £4,471,000, giving a goodwill balance of £nil at 30
June 2020. The five-year partnership is still active and fund flows could improve in due course, however given current market
conditions, the situation with the fund distributor, and the need for FUM to grow by £584 million over the five-year period, it is
prudent to write off the accounting goodwill balance in the Levitas CGU at 30 June 2020.
Based on a value-in-use calculation, the recoverable amount of the Brooks Macdonald International CGU at 30 June 2020 was
£59,063,000, indicating that there is no impairment. The key underlying assumptions of the calculation are the discount rate,
the short-term growth in earnings and the long-term growth rate of the business. A pre-tax discount rate of 11% (FY19: 12%) has
been used, based on the Group’s assessment of the risk-free rate of interest and specific risks relating to Brooks Macdonald
International. Annual cash inflow growth rates of up to 35% are forecast over the next five financial years, the period covered
by the most recent forecasts, which reflect historic actual growth and planned management actions and are considered to
be reasonable in the current market and industry conditions. The 2% long-term growth rate applied is considered prudent in
the context of the long-term average growth rate for the funds, investment management and financial planning industries in
which the CGU operates.
Sensitivity analysis has been performed and an impairment would arise if the following occurred:
• An increase of the pre-tax discount rate by 8%.
• A decrease in the perpetuity growth rate by 14%.
• A decrease in the pre-tax cash flows by 48% from the forecasts.
Based on a value-in-use calculation, the recoverable amount of the Braemar CGU at 30 June 2020 was £49,461,000, indicating that
there is no impairment. A pre-tax discount rate of 11% (FY19: 13%) has been used, based on the Group’s assessment of the risk-free
rate of interest and specific risks relating to Braemar. The key underlying assumptions of the calculation are the discount rate,
the growth in funds under management of the funds business and the long-term growth rate. Annual funds under management
growth rates of between 22% and 43% for the various funds are forecast in the next five financial years, the period covered by
the most recent forecasts, which reflect historic actual growth and planned management activities and are considered to be
reasonable in the current market and industry conditions. The 2% long-term growth rate applied is considered prudent in the
context of the long-term average growth rate for the funds industry in which the CGU operates. Sensitivity analysis has not been
performed given the vast headroom the recoverable amount provides over the goodwill balance.
At 30 June 2020 headroom exists in the calculations of the respective recoverable amounts of these CGUs over the carrying
amounts of the goodwill allocated to them, except for Levitas. On this basis, excluding Levitas, the Directors have concluded
that there is no impairment required to the goodwill balances at 30 June 2020.
132
Brooks Macdonald Group plc / Annual Report and Accounts 2020
Brooks Macdonald Group plc / Annual Report and Accounts 2020
133
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
15. Property, plant and equipment
Cost
At 1 July 2018
Additions
At 30 June 2019
Additions
Cost of property plant and equipment on acquisition of
subsidiary
Disposals
At 30 June 2020
Accumulated depreciation
At 1 July 2018
Depreciation charge
At 30 June 2019
Depreciation charge
Accumulated depreciation of property, plant and equipment
on acquisition of subsidiary
Depreciation on disposals
At 30 June 2020
Net book value
At 1 July 2018
At 30 June 2019
At 30 June 2020
Leasehold
improvements
£’000
Fixtures,
fittings
and office
equipment
£’000
IT
equipment
£’000
2,881
269
3,150
1,241
19
(466)
3,944
998
422
1,420
1,072
19
(466)
2,045
1,883
1,730
1,899
8,216
89
8,305
328
104
(7,720)
1,017
7,643
299
7,942
317
102
(7,720)
641
573
363
376
3,120
214
3,334
389
195
(1,436)
2,482
1,580
670
2,250
639
123
(1,436)
1,576
1,540
1,084
906
Total
£’000
14,217
572
14,789
1,958
318
(9,622)
7,443
10,221
1,391
11,612
2,028
244
(9,622)
4,262
3,996
3,177
3,181
Introduction
Strategic report
Corporate governance
Financial statements
16. Right of use assets
Cost
At 30 June 2019
Adjustment on initial application of IFRS 16
At 1 July 2019
Additions
At 30 June 2020
Depreciation
At 30 June 2019
Adjustment on initial application of IFRS 16
At 1 July 2019
Depreciation charge
At 30 June 2020
Right of use assets
At 30 June 2019
At 30 June 2020
Property
£’000
–
1,799
1,799
6,692
8,491
–
244
244
1,256
1,500
–
6,991
During the year ended 30 June 2020, the Group adopted IFRS 16 resulting in the recognition of right of use assets and
corresponding lease liabilities (Note 23). On transition, amounts previously recognised on the Consolidated statement of
financial position at 30 June 2019 for prepaid rental expenses and lease incentive accruals were recognised as depreciation.
Further details of the application of IFRS 16 can be found in Note 2(c).
The additions relate to additional leases that commenced during the year ended 30 June 2020. The Group received a lease
incentive by way of a reverse lease premium, receiving £1,250,000, and paid initial direct costs of £77,000 in relation to a new
lease during the year. These amounts have been included in the calculation for the additional right of use assets during the
period. The Group’s right of use assets relates solely to property-related leases.
17. Financial assets at fair value through other comprehensive income
During the year ended 30 June 2020, the Group conducted a review of the property, plant and equipment assets and retired
assets from the fixed asset register with a £nil net book value, and no longer used in the business. This resulted in disposals of
property, plant and equipment with cost and accumulated depreciation both totalling £9,622,000.
At 1 July
Impairment
At 30 June
2020
£’000
500
–
500
2019
£’000
650
(150)
500
At 30 June 2020, the Group held an investment of redeemable £500,000 preference shares in an unlisted company
incorporated in the UK, redeemable in April 2021. The preference shares carry an entitlement to a fixed preferential dividend
at a rate of 8% per annum.
The Group adopted IFRS 9 ‘Financial instruments’ on 1 July 2018 resulting in the ‘available for sale’ (“AFS”) financial assets
category being no longer available. As a result, the AFS assets were reclassified to fair value through other comprehensive
income and fair value through profit or loss (Note 18). The AFS reserves balance was £1,000 at 30 June 2018 and on
reclassification was revalued to £nil.
During the year ended 30 June 2019 ,the Group impaired its £150,000 investment in preference share capital in an unlisted
company incorporated in the Channel Islands to a net book value of £nil as the Group does not expect to recover its
investment.
134
Brooks Macdonald Group plc / Annual Report and Accounts 2020
Brooks Macdonald Group plc / Annual Report and Accounts 2020
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Introduction
Strategic report
Corporate governance
Financial statements
18. Financial assets at fair value through profit or loss
At 30 June
IFRS 9 reclassification from AFS
Adjusted balance at 1 July
Additions
Finance income of contingent consideration
Loss from changes in fair value of contingent consideration receivable
Net gain/(loss) from changes in fair value
Payments received
Disposals
At 30 June
2020
£’000
613
–
613
543
9
(54)
6
(568)
–
549
2019
£’000
1,267
928
2,195
219
29
(75)
(38)
(483)
(1,234)
613
The Group adopted IFRS 9 ‘Financial instruments’ on 1 July 2018 resulting in the AFS financial assets category being no longer
available. As a result, the AFS assets were reclassified to fair value through other comprehensive income (Note 17) and fair
value through profit or loss.
During the year ended 30 June 2020, the Group acquired Cornelian Asset Managers Group Limited (see Note 10). On
acquisition, Cornelian Asset Managers Group Limited held 500,000 shares in five of the SVS Cornelian Risk Managed Passive
Funds, totalling £543,000 on acquisition. In the period since acquisition to 30 June 2020, the Group recognised a gain on these
investments of £6,000. The Group’s holding in the SVS Cornelian Risk Managed Passive Funds at 30 June 2020 was £549,000.
These investments are classified as Level 1 as defined in Note 17.
During the year ended 30 June 2020, the Group received the remaining £178,000 in relation to the Group’s disposal of its
Employee Benefits business during the year ended 30 June 2019 (Note 11). Prior to receipt, the Group recognised finance
income on this balance of £7,000 and a loss in fair value of £54,000.
During the year ended 30 June 2020, the Group received the remaining £390,000 in relation to the Group’s disposal of
Braemar Estates (Residential) Limited in December 2017. Prior to receipt, the Group recognised finance income on this balance
of £2,000.
During the year ended 30 June 2019, the Group disposed of their 563,689 class A units in the IFSL Brooks Macdonald Balanced
Fund in November 2018 at their fair value of £1,229,000. In the period from 1 July 2018 to disposal, the Group recognised a
reduction in fair value of £33,000.
During the year ended 30 June 2019, the Group disposed of its investment in an offshore bond at its fair value of £5,000 and
reduced its other investment in an offshore bond from £5,000 to £nil as the Group does not expect to recover its investment.
Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
17. Financial assets at fair value through other comprehensive income continued
The table below provides an analysis of the financial assets and liabilities that, subsequent to initial recognition, are measured
at fair value. These are grouped into the following levels within the fair value hierarchy, based on the degree to which the
inputs used to determine the fair value are observable:
• Level 1 – derived from quoted prices in active markets for identical assets or liabilities at the measurement date;
• Level 2 – derived from inputs other than quoted prices included within Level 1 that are observable, either directly or
indirectly; and
• Level 3 – derived from inputs that are not based on observable market data.
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Financial assets
At 1 July 2019
Additions
Finance income of contingent consideration
Loss from changes in fair value of contingent consideration
receivable
Net gain from changes in fair value
Payments received
At 30 June 2020
Comprising:
Financial assets at fair value through other comprehensive income
Financial assets at fair value through profit and loss (Note 18)
Total financial assets
–
543
–
–
6
–
549
–
549
549
–
–
–
–
–
–
–
–
–
–
1,113
–
9
(54)
–
(568)
500
500
–
500
1,113
543
9
(54)
6
(568)
1,049
500
549
1,049
Unlisted preference shares are valued using a perpetuity income model which is based upon the preference dividend cash
flows. Offshore bonds are valued using the value of the underlying securities, some of which are illiquid and therefore prices
are not readily available in the market. Contingent consideration receivable is valued using the net present value of the
expected amount receivable based on management revenue forecasts.
Financial liabilities
At 1 July 2019
Additions
Finance cost of deferred consideration
Payments made
At 30 June 2020
Comprising:
Deferred consideration (Note 22)
Total financial liabilities
Level 1
£’000
Level 2
£’000
Level 3
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,299
7,466
145
(919)
7,991
7,991
7,991
Total
£’000
1,299
7,466
145
(919)
7,991
7,991
7,991
The inputs used for Level 3 include the estimated recoverable amount for financial assets and forecast estimated payable for
deferred consideration within financial liabilities (Note 22).
Deferred consideration is valued using the net present value of the expected amounts payable based on management’s
forecasts and expectations.
136
Brooks Macdonald Group plc / Annual Report and Accounts 2020
Brooks Macdonald Group plc / Annual Report and Accounts 2020
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
19. Deferred income tax
Deferred income tax assets are only recognised to the extent that it is probable that future taxable profit will be available
against which the temporary differences can be utilised. An analysis of the Group’s deferred assets and deferred tax liabilities
is shown below.
Deferred tax assets
Deferred tax assets to be settled after more than one year
Deferred tax assets to be settled within one year
Total deferred tax assets
Deferred tax liabilities
Deferred tax liabilities to be settled after more than one year
Deferred tax liabilities to be settled within one year
Total deferred tax liabilities
The gross movement on the deferred income tax account during the year was as follows:
At 1 July
Additional liability on acquisition of client-relationship intangible assets (Note 14)
Adjustment on acquisition of business combination
Credit to the Consolidated statement of comprehensive income
Credit/(charge) recognised in equity
At 30 June
The change in deferred income tax assets and liabilities during the year was as follows:
2020
£’000
430
1,094
1,524
(6,463)
(767)
(7,230)
2020
£’000
(1,055)
(4,868)
(17)
212
22
(5,706)
Deferred tax assets
At 1 July 2018
Credit/(charge) to the Consolidated statement of comprehensive
income
Charge to equity
At 30 June 2019
Adjustment on acquisition of business combination
Credit/(charge) to the Consolidated statement of comprehensive
income
Credit to equity
At 30 June 2020
Share-based
payments
£’000
Trading
losses
carried
forward
£’000
Accelerated
capital
allowances
£’000
663
6
(49)
620
–
247
22
889
505
(6)
–
499
–
(42)
–
457
8
96
–
104
(17)
91
–
178
2019
£’000
524
699
1,223
(1,566)
(712)
(2,278)
2019
£’000
(1,814)
–
–
808
(49)
(1,055)
Total
£’000
1,176
96
(49)
1,223
(17)
296
22
1,524
Introduction
Strategic report
Corporate governance
Financial statements
19. Deferred income tax continued
The carrying amount of the deferred tax asset is reviewed at each reporting date and is only recognised to the extent that it is
probable that future taxable profits of the Group will allow the asset to be recovered.
Deferred tax liabilities
At 1 July 2018
Credit to the Consolidated statement of comprehensive income
At 30 June 2019
Additional liability on acquisition of client-relationship intangible
assets (Note 10)
Credit to the Consolidated statement of comprehensive income
Under provision in prior years charged to the Consolidated statement
of comprehensive income
At 30 June 2020
20. Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
Total current trade and other receivables
Accelerated
capital allowances
on research &
development
£’000
Intangible
asset
amortisation
£’000
Intangible
asset
amortisation
£’000
–
–
–
–
(154)
462
308
2,990
(712)
2,278
4,868
(224)
–
6,922
2020
£’000
1,184
1,054
23,843
26,081
2,990
(712)
2,278
4,868
(378)
462
7,230
2019
£’000
1,070
1,198
24,464
26,732
The credit risk balance is immaterial in relation to trade receivables, refer to Note 33(c) for details on the credit risk assessment.
Accrued income includes portfolio management fee income for the quarter ended 30 June 2020, outstanding at the
Consolidated statement of financial position date.
21. Cash and cash equivalents
Cash at bank
Cash held in Employee Benefit Trust
Total cash and cash equivalents
2020
£’000
50,168
–
50,168
2019
£’000
34,523
67
34,590
Cash and cash equivalents are distributed across a range of financial institutions with high credit ratings in accordance with
the Group’s treasury policy. Cash at bank comprises current accounts and immediately accessible deposit accounts.
138
Brooks Macdonald Group plc / Annual Report and Accounts 2020
Brooks Macdonald Group plc / Annual Report and Accounts 2020
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
22. Deferred consideration
Deferred consideration payable is split between non-current liabilities (see below) and provisions within current liabilities
(Note 24) to the extent that it is due for payment within one year of the reporting date. It reflects the Directors’ best estimate of
amounts payable in the future in respect of certain client relationships and subsidiary undertakings that were acquired by the
Group. Deferred consideration is measured at its fair value based on discounted expected future cash flows. The movements
in the total deferred consideration balance during the year were as follows:
At 1 July
Additions
Finance cost of deferred consideration
Fair value adjustments
Payments made during the year
At 30 June
Analysed as:
Amounts falling due within one year
Amounts falling due after more than one year
Total deferred consideration
2020
£’000
1,299
7,466
145
–
(919)
7,991
1,691
6,300
7,991
2019
£’000
2,875
–
94
(419)
(1,251)
1,299
919
380
1,299
During the year ended 30 June 2020, the Group acquired Cornelian Asset Managers Group Limited (Note 10) and part of
the consideration was deferred over a period of up to two years. The total cash deferred consideration of £8,000,000 was
recognised at its fair value of £7,466,000 on acquisition. The deferred consideration is payable in up to three instalments in
March 2021, October 2021 and March 2022 based on the future value of the funds under management acquired, and cost
savings and synergies achieved on integrating the business. During the period from acquisition to 30 June 2020, the Group
recognised a finance cost of £110,000 on the Cornelian deferred consideration. The fair value of the Cornelian deferred
consideration at 30 June 2020 was £7,576,000.
During the year ended 30 June 2020, payments totalling £919,000 (FY19: £1,251,000) were made to the vendors of Levitas. Full
details of the Levitas acquisition are disclosed in Note 13 of the 2015 Annual Report and Accounts. A total increase in the fair
value of deferred consideration of £nil (FY19: £419,000) was recognised during the year in respect of Levitas. The fair value of
the Levitas deferred consideration at 30 June 2020 was £415,000.
Deferred consideration is classified as Level 3 within the fair value hierarchy, as defined in Note 17.
Amounts falling due after more than one year from the reporting date are presented in non-current liabilities as shown below:
At 1 July
Additions
Finance cost of deferred consideration
Fair value adjustments
Transfer to current liabilities
At 30 June
2020
£’000
380
7,466
145
–
(1,691)
6,300
2019
£’000
1,479
–
94
(419)
(774)
380
An amount of £1,691,000 (FY19: £774,000), representing deferred consideration payable in respect of the acquisitions of
Cornelian and Levitas, was transferred to provisions within current liabilities (Note 24).
Introduction
Strategic report
Corporate governance
Financial statements
23. Lease liabilities
At 30 June 2019
Adjustment on initial application of IFRS 16
At 1 July 2019
Additions
Payments made against lease liabilities
Interest on lease liabilities
At 30 June 2020
Analysed as:
Amounts falling due within one year
Amounts falling due after more than one year
Total lease liabilities
£’000
–
1,799
1,799
7,865
(2,034)
304
7,934
1,275
6,659
7,934
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as
‘operating leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining
lease payments, discounted using the lessee’s estimated incremental borrowing rate. Further details of the application of
IFRS 16 can be found in Note 2(c).
The additions relate to additional leases that commenced during the year ended 30 June 2020.
24. Provisions
Exceptional
costs of
resolving
legacy
matters
£’000
6,225
Client
compensation
£’000
22
Deferred
consideration
£’000
1,396
FSCS levy
£’000
689
Leasehold
dilapidations
£’000
–
Total
£’000
8,332
100
–
(22)
100
266
–
–
(328)
38
38
–
38
–
–
1,036
416
1,552
–
(5,524)
701
–
–
–
(93)
608
608
–
608
774
(1,251)
919
–
–
1,691
(919)
1,691
1,691
–
1,691
–
(797)
928
2,171
–
–
(1,598)
1,501
1,501
–
1,501
–
(50)
366
381
103
–
(470)
380
774
(7,644)
3,014
2,818
103
1,691
(3,408)
4,218
161
3,999
219
380
219
4,218
At 1 July 2018
Charge to the Consolidated
statement of comprehensive
income
Transfer from non-current
liabilities
Utilised during the year
At 30 June 2019
Charge to the Consolidated
statement of comprehensive
income
Additions on acquisition of
subsidiary
Transfer from non-current
liabilities
Utilised during the year
At 30 June 2020
Analysed as:
Amounts falling due within one
year
Amounts falling due after more
than one year
Total provisions
140
Brooks Macdonald Group plc / Annual Report and Accounts 2020
Brooks Macdonald Group plc / Annual Report and Accounts 2020
141
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
24. Provisions continued
a.
Client compensation
Client compensation provisions relate to the potential liability arising from client complaints against the Group. Complaints are
assessed on a case-by-case basis and provisions for compensation are made where judged necessary. The amount recognised
within provisions for client compensation represents management’s best estimate of the potential liability. The timing of the
corresponding outflows is uncertain as these are made as and when claims arise.
Exceptional costs of resolving legacy matters
b.
Following a review into legacy matters arising from the former Spearpoint business, which was acquired by the Group in 2012,
a provision was recognised for costs of resolving these including associated expenses in the years ended 30 June 2017 and
30 June 2018. These matters relate to a number of discretionary portfolios formerly managed by Spearpoint, now managed
by Brooks Macdonald Asset Management (International) Limited, and a Dublin-based fund, for which Spearpoint acted as
investment manager. The amount utilised during the year of £93,000 represented goodwill payments made to clients of
£96,000 and net legal fees credit of £3,000. The amount remaining at 30 June 2020 of £608,000 relates to the remaining
goodwill offers yet to be accepted by clients. During the year ended 30 June 2019, a contingent liability was recognised in
relation to potential claims related to the legacy matters (Note 35), which is still recognised as at 30 June 2020.
c. Deferred consideration
Deferred consideration has been included within provisions as a current liability to the extent that it is due for payment
within one year of the reporting date. The amount outstanding at 30 June 2020 was £1,691,000 (FY19: £919,000). Deferred
consideration was recognised on the acquisition of Cornelian Asset Managers Group Limited (Notes 10 and 22). At 30 June
2020, the current deferred consideration in relation to Cornelian was £1,277,000.
Deferred consideration was recognised on the previous acquisition of Levitas, and a final annual payment has now been
calculated and is due in November 2020. At 30 June 2020, the current deferred consideration in relation to Levitas was
£414,000.
An amount of £1,691,000 (FY19: £774,000) was transferred from non-current liabilities, representing amounts falling due
within one year of the reporting date. Provisions of £919,000 (FY19: £1,251,000) were utilised during the year on payment to the
vendors of Levitas.
FSCS levy
d.
Following confirmation by the FSCS in April 2020 of its final industry levy for the 2020/21 scheme year, the Group has made a
provision of £1,501,000 (FY19: £928,000) for its estimated share.
Leasehold dilapidations
e.
Leasehold dilapidations relate to dilapidation provisions expected to arise on leasehold premises held by the Group, and
monies due under the contract with the assignee of leases on the Group’s leased properties.
As part of the acquisition of Cornelian Asset Managers Group Limited (Note 10), leasehold dilapidations totalling £103,000
were acquired.
Introduction
Strategic report
Corporate governance
Financial statements
25. Trade and other payables
Trade payables
Other taxes and social security
Other payables
Accruals and deferred income
Total trade and other payables
2020
£’000
4,573
6,070
51
12,071
22,765
2019
restated1
£’000
4,079
3,503
475
13,493
21,550
1.
See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
Included within other taxes and social security is a liability of £1,126,000 (FY19: £762,000) in respect of the restatement
regarding output VAT on Platform MPS due to HMRC as described in Note 4.
Included within accruals and deferred income is an accrual of £306,000 (FY19: £273,000) in respect of employer’s National
Insurance contributions arising from share option awards under the LTIS (Note 30b). The options have been valued using a
Black–Scholes model based on the market price of the Company’s shares at the grant date (Note 30).
26. Other non-current liabilities
At 1 July
Additional liability in respect of share option awards
Liability for transitional allowance
Transfer to current liabilities
At 30 June
2020
£’000
714
193
–
(577)
330
2019
£’000
157
275
441
(159)
714
Other non-current liabilities include employer’s National Insurance contributions arising from share option awards under
the LTIS and LTIP schemes. During the year an additional liability was recognised during the year of £193,000 (FY19: 275,000)
in respect of existing awards, granted in previous years, that are expected to vest in the future. During the year, an amount of
£577,000 (FY19: £159,000) was transferred to current liabilities, reflecting awards that are expected to vest within the next 12
months. At 30 June 2020 the non-current liability for employer’s National Insurance contributions arising from share option
awards under the LTIS and LTIP schemes was £330,000 (FY19: £273,000).
At 30 June 2020, the Group recognised a non-current liability of £nil for long-term employee benefits (FY19: £441,000).
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
27. Reconciliation of operating profit to net cash inflow from operating activities
Operating profit/(loss)
Continuing operations
Discontinued operations (Note 11)
Operating profit
Adjustments for:
Amortisation of intangible assets
Depreciation of property, plant and equipment
Depreciation of right of use assets
Other (gains)/losses – net
Decrease/(increase) in receivables
Increase/(decrease) in payables
Increase/(decrease) in provisions
(Decrease)/increase in other non-current liabilities
Share-based payments charge
Net assets acquired in business combination
Net cash inflow from operating activities
2020
£’000
10,245
–
10,245
5,327
2,028
1,256
4,519
694
1,044
431
(384)
3,571
7,357
36,088
1.
See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
28. Share capital and share premium account
The movements in share capital and share premium during the year were as follows:
At 1 July 2018
Shares issued:
− on exercise of options
− to Sharesave Scheme
At 30 June 2019
Shares issued:
− on placing
− as consideration
− on exercise of options
− to Sharesave Scheme
At 30 June 2020
Number of
shares
13,903,033
Exercise
price
p
6,469
1,381.0 – 1,719.0
40,569 1,237.0 – 1,738.0
13,950,071
1,690,141
453,172
25,862
–
–
1,381.0 – 1,725.0
7,856 1,400.0 – 1,738.0
16,127,102
Share
capital
£’000
138
Share
premium
account
£’000
38,404
–
1
139
17
5
–
–
161
95
569
39,068
29,387
8,995
424
108
77,982
2019
restated1
£’000
8,176
(724)
7,452
4,411
1,391
–
6,928
(807)
(2,172)
(4,841)
557
2,634
–
15,553
Total
£’000
38,542
95
570
39,207
29,404
9,000
424
108
78,143
The total number of ordinary shares issued and fully paid at 30 June 2020 was 16,127,102 (FY19: 13,950,071) with a par value of
1p per share.
On 27 November 2019, the Group issued 1,690,141 ordinary shares by way of a non-pre-emptive placing for non-cash
consideration. The shares were placed at an equivalent of 1,775p per share, which raised £29,404,000, net of £600,000 share
issue costs, offset against share premium arising on the issue. The shares were issued to fund the acquisition of Cornelian
(Note 10).
In addition, on 28 February 2020, the Group issued 453,172 ordinary shares to the previous shareholders of Cornelian Asset
Managers Group Limited as non-cash consideration for the acquisition. The non-cash consideration of £9,000,000 was
calculated at an equivalent of 1,986p per share in accordance with the Sale and Purchase Agreement.
Introduction
Strategic report
Corporate governance
Financial statements
28. Share capital and share premium account continued
There was £nil share capital issued on exercise of options and to Sharesave Scheme members in the year ended 30 June 2020
(FY19: £1,000).
Employee Benefit Trust
The Group established an Employee Benefit Trust (“EBT”) on 3 December 2010 to acquire ordinary shares in the Company to
satisfy awards under the Group’s Long Term Incentive Scheme, see Note 30(b). At 30 June 2020, the EBT held 409,163 (FY19:
268,045) 1p ordinary shares in the Company, acquired for a total consideration of £7,519,000 (FY19: £4,597,000) with a market
value of £6,800,000 (FY19: £5,358,000). They are classified as treasury shares in the Consolidated statement of financial
position, their cost being deducted from retained earnings within shareholders’ equity.
29. Other reserves and retained earnings
Other reserves comprise the following balances:
Share option reserve
Merger reserve
Total other reserves
2020
£’000
6,206
192
6,398
2019
£’000
4,383
192
4,575
Share option reserve
a.
The share option reserve represents the cumulative charge to the Consolidated statement of comprehensive income for the
Group’s equity-settled share-based payment schemes, as described in Note 30.
b. Merger reserve
The merger reserve arises when the consideration and nominal value of the shares issued during a merger and the fair value
of assets transferred during the business combination differ.
The movements in other reserves during the year were as follows:
At beginning of the year
Share-based payments
Transfer to retained earnings
Tax credit/(charge) on share-based payments
At end of the year
The movements in retained earnings during the year were as follows:
At beginning of the year
Profit for the financial year
Loss profit from discontinued operations
Transfer from share option reserve
Purchase of own shares by Employee Benefit Trust
Dividends paid
At end of the year
1.
See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
2020
£’000
4,383
3,571
(1,770)
22
6,206
2020
£’000
43,091
6,426
–
1,770
(4,607)
(7,680)
39,000
2019
£’000
2,921
2,634
(1,123)
(49)
4,383
2019
restated1
£’000
45,870
5,855
(395)
1,123
(2,648)
(6,714)
43,091
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
30. Equity-settled share-based payments
All share options granted to employees under the Group’s equity-settled share-based payment schemes are valued using
a Black–Scholes model, based on the market price of the Company’s shares at the grant date and annualised volatility of up
to 50%, covering the period to the end of the contractual life. Volatility has been estimated on the basis of the Company’s
historical share price subsequent to flotation. The risk-free annual rate of interest is deemed to be the yield on a gilt edged
security with a maturity term between seven months and five years, ranging from 0.01% to 2.00%. No options outstanding at
30 June 2020 (FY19: none) carry any dividend or voting rights.
The share options in issue under the various equity-settled share-based payment schemes have been valued at prices ranging
from £2.31 to £20.96 per share. The charge to the Consolidated statement of comprehensive income for the year in respect of
these was £3,952,000 (FY19: £2,078,000). The weighted average remaining contractual life of all equity-settled share-based
payment schemes at 30 June 2020 was years 1.88 years (FY19: 2.25 years). The weighted average share price of all options
exercised during the year was £19.86 (FY19: £18.63).
A summary of the inputs into the fair value calculations for options granted during the period is set out below.
Grant date
Share price at grant £
Vesting period
Volatility %
Annual dividend %
Risk-free rate %
Option value £
Long Term
Incentive
Plan
Various
14.00–19.50
9–48 months
29–46%
2.62–3.64%
0.01–0.62%
13.30–19.22
Save As You
Earn (SAYE)
13/05/2020
14.48
36 months
35%
3.52%
0.01%
3.56
The total charge to the Consolidated statement of comprehensive income for the year for all share-based payment schemes,
including employer’s National Insurance contributions, was £3,055,000 (FY19: £2,440,000).
The exercise price and fair value of share options granted during the year was as follows:
Long Term Incentive Plan
Employee Sharesave Scheme
Exercise price
£
–
11.72
Fair value
£
12.41 – 19.22
3.57
Number of
options
270,760
198,276
At the end of the period, amounts totalling £1,079,000 (FY19: £879,000) had vested and were eligible for exercise by scheme
participants.
Long Term Incentive Plan
a.
The Long Term Incentive Plan was approved by shareholders at the 2018 Annual General Meeting and encompasses annual
deferral of bonuses into a Deferred Bonus Plan (“DBP”), Long Term Incentive Plan (“LTIP”) awards made to senior management
and Exceptional Share Option Awards (“ESOA”). Certain ESOA grants carry performance conditions. All awards are subject to
continued employment and are made at the discretion of the Remuneration Committee. No awards expired during the year
(FY19: none).
At 1 July
Awarded in the year
Exercised in the year
Forfeited in the year
At 30 June
2020
2019
Weighted
average
exercise
price
£
–
–
–
–
–
Number of
options
–
514,915
–
(22,355)
492,560
Weighted
average
exercise
price
£
–
–
–
–
–
Number of
options
492,560
270,760
(24,961)
(79,891)
658,468
Introduction
Strategic report
Corporate governance
Financial statements
30. Equity-settled share-based payments continued
i.
The number of share options outstanding at the reporting date was as follows:
Deferred Bonus Plan (“DBP”) Awards
Scheme year (grant date)
2018
2019
All years
Exercise
price
£
–
–
Vesting
period
2019 – 2021
2020 – 2022
2020
Number of
options
73,995
75,810
149,805
2019
Number of
options
92,476
–
92,476
Long Term Incentive Plan (“LTIP”) Awards
ii.
The number of share options outstanding at the reporting date was as follows:
Scheme year (grant date)
2018
2019
All years
Exercise
price
£
–
–
Vesting
period
2021
2022
2020
Number of
options
29,300
26,352
55,652
2019
Number of
options
33,903
–
33,903
iii. Exceptional Share Option Awards (“ESOA”)
The number of share options outstanding at the reporting date was as follows:
Financial year of grant
2019
2020
All years
Exercise
price
£
–
–
Vesting
period
2019 – 2024
2020 – 2024
2020
Number of
options
297,652
155,449
453,101
2019
Number of
options
366,181
–
366,181
Long Term Incentive Scheme (“LTIS”)
b.
The Group made no new awards under the LTIS during the year. The existing conditional awards, which vest three years
after the grant date, are subject to the satisfaction of specified performance criteria, measured over a three-year performance
period. No awards expired during the year (FY19: none). The off-cycle awards made in 2017 and 2018 were to two senior
executives to replace awards forfeited from previous employers.
At 1 July
Granted in the year
Exercised in the year
Forfeited in the year
At 30 June
2020
Number of
options
209,216
–
(78,635)
(6,735)
123,846
2019
Number of
options
253,656
21,127
(52,839)
(12,728)
209,216
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
30. Equity-settled share-based payments continued
The number of share options outstanding at the reporting date was as follows:
Scheme year (grant date)
2010
2011
2012
2013
2014
2015
2016
2017 (off-cycle)
2017
2018 (off-cycle)
All years
Exercise
price
£
–
–
–
–
–
–
–
–
–
–
Vesting
period
2013
2014
2015
2016
2017
2018
2019
2020
2020
2019 – 2020
2020
Number of
options
–
–
552
5,021
8,855
10,173
16,502
–
66,214
16,529
123,846
2019
Number of
options
1,862
4,883
4,410
7,207
14,964
17,139
57,259
7,458
72,907
21,127
209,216
At 30 June 2020, options for schemes up to and including the 2016 scheme have vested and are able to be exercised.
Employee Benefit Trust (“EBT”)
c.
Brooks Macdonald Group plc established an Employee Benefit Trust on 3 December 2010 to acquire ordinary shares in
the Company to satisfy awards under the LTIS and LTIP. All finance costs and administration expenses connected with the
EBT are charged to the Consolidated statement of comprehensive income as they accrue. The EBT has waived its rights to
dividends. The following table shows the number of shares held by the EBT that have not yet vested unconditionally.
At 1 July
Acquired in the year
Exercised in the year
At 30 June
2020
Number of
shares
268,045
244,714
(103,596)
409,163
2019
Number of
shares
164,582
156,883
(53,420)
268,045
d. Company Share Option Plan (“CSOP”)
The Company has established a Company Share Option Plan, which was approved by HMRC in November 2013. The CSOP is a
discretionary scheme whereby employees or Directors are granted an option to purchase the Company’s shares in the future
at a price set on the date of the grant. The maximum award under the terms of the scheme is a total market value of £30,000
per recipient. The performance conditions attached to the scheme require an increase in the diluted earnings per share of the
Company of 2% more than the increase in the RPI over the three years starting with the financial year in which the option is
granted.
At 1 July
Exercised in the year
Forfeited in the year
At 30 June
2020
2019
Weighted
average
exercise
price
£
16.76
16.39
16.78
16.92
Number of
options
90,676
(6,469)
(10,710)
73,497
Weighted
average
exercise
price
£
16.70
15.46
17.36
16.76
Number of
options
73,497
(25,862)
(7,132)
40,503
Introduction
Strategic report
Corporate governance
Financial statements
30. Equity-settled share-based payments continued
The number of share options outstanding at the reporting date was as follows:
Scheme year (grant date)
2013
2014
2015
2016
2017 (off-cycle)
2017
All years
Exercise
price
£
14.52
13.81
17.19
17.25
20.11
19.66
Vesting
period
2016
2017
2018
2019
2020
2020
2020
Number of
options
4,134
4,349
16,678
9,914
1,491
3,937
40,503
2019
Number of
options
9,991
7,611
28,508
20,968
1,491
4,928
73,497
At 30 June 2020, options for the 2015 scheme have vested and are able to be exercised. The off-cycle award was issued in
August 2017 to one member of senior management and vests in August 2020. No awards expired during the year (FY19: none).
Employee Sharesave Scheme (“SAYE”)
e.
Under the scheme, employees can contribute up to £500 a month over a three-year period to acquire shares in the Company.
At the end of the savings period, employees can elect to receive shares or receive their savings in cash.
At 1 July
Granted in the year
Exercised in the year
Forfeited in the year
At 30 June
2020
2019
Weighted
average
exercise
price
£
14.79
11.72
14.70
14.68
12.73
Number of
options
211,244
95,249
(40,569)
(61,807)
204,117
Weighted
average
exercise
price
£
15.21
14.00
14.02
15.49
14.79
Number of
options
204,117
198,276
(7,856)
(104,688)
289,849
The number of share options outstanding at the reporting date was as follows:
Scheme year (grant date)
2016
2017
2018
2019
2020
All years
Exercise
price
£
14.00
17.38
14.94
14.00
11.72
Vesting
period
2019
2020
2021
2022
2023
2020
Number of
options
–
12,641
44,370
34,562
198,276
289,849
2019
Number of
options
4,764
26,004
78,100
95,249
–
204,117
At 30 June 2020, options for the 2016 scheme have vested and are able to be exercised. 6,326 awards under the 2016, 2017 and
2018 schemes expired during the year (FY19: none).
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
31. Lease commitments
The Group leases a portfolio of office properties with varying lease end dates. Prior to adoption of IFRS 16 Leases on 1 July 2019,
these were classified as operating leases (Note 2(c)). The following table represents the future minimum lease payments under
non-cancellable operating leases, which are not recognised as liabilities in the Financial statements. No disclosure is provided
for 2020 as from 1 July 2019, the distinction between finance and operating leases disappeared for lessees, with the Group now
recognising right of use assets for these leases (Note 16).
Within one year
After one year but not more than five years
After five years
Total future minimum lease payments
2020
£’000
–
–
–
–
2019
£’000
1,789
1,141
–
2,930
32. Discretionary funds under management
The Group holds client money and assets on behalf of clients in accordance with the client money rules of the Financial
Conduct Authority. Such money and the corresponding liabilities to clients are not shown in the Consolidated statement of
financial position as the Group is not beneficially entitled thereto. The total market value of client money and assets held at the
end of the reporting year is shown below:
Client money bank accounts
Client assets under management
Total client funds under management
2020
£’000
726,354
12,958,080
13,684,434
2019
£’000
985,342
12,165,242
13,150,584
33. Financial risk management
The Group has identified the financial risks arising from its activities and has established policies and procedures as part of a
formal structure for managing risk, including establishing risk lines, reporting lines, mandates and other control procedures.
The structure is reviewed regularly. The Group does not use derivative financial instruments for risk management purposes.
Liquidity risk
a.
Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities when
they fall due.
The primary objective of the Group’s treasury policy is to manage short-term liquidity requirements and to ensure that
the Group maintains a surplus of immediately realisable assets over its liabilities, such that all known and potential cash
obligations can be met.
Introduction
Strategic report
Corporate governance
Financial statements
33. Financial risk management continued
The table below shows the cash inflows and outflows from the Group under non-derivative financial assets and liabilities,
together with cash and bank balances available on demand.
At 30 June 2020
Cash flows from financial assets
Financial assets at fair value through
other comprehensive income
Financial assets at fair value through
profit or loss
Cash and balances at bank
Trade receivables
Other receivables
Cash flows from financial liabilities
Trade payables
Other financial liabilities
Not more
than 3
months
£’000
After 3
months but
not more
than 1 year
£’000
After 1
year but
not more
than 6 years
£’000
No fixed
payment
date
£’000
On demand
£’000
–
–
–
50,168
–
–
50,168
–
–
–
–
–
1,181
24,897
26,078
4,573
18,605
23,178
–
–
–
3
–
3
–
–
–
–
–
–
–
4,861
4,861
–
13,508
13,508
500
549
–
–
–
1,049
–
–
–
Total
£’000
500
549
50,168
1,184
24,897
77,298
4,573
36,974
41,547
Net liquidity gap
50,168
2,900
(4,858)
(13,508)
1,049
35,751
At 30 June 2019 restated1
Cash flows from financial assets
Financial assets at fair value through
other comprehensive income
Financial assets at fair value through
profit or loss
Cash and balances at bank
Trade receivables
Other receivables
Cash flows from financial liabilities
Trade payables
Other financial liabilities
–
–
–
34,590
–
–
34,590
–
–
–
388
–
1,070
25,319
26,777
4,079
18,272
22,351
–
225
–
–
343
568
–
2,795
2,795
–
–
–
–
–
–
–
1,372
1,372
500
–
–
–
–
500
–
–
–
500
613
34,590
1,070
25,662
62,435
4,079
22,439
26,518
Net liquidity gap
34,590
4,426
(2,227)
(1,372)
500
35,917
1.
See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2020
33. Financial risk management continued
b. Market risk
Interest rate risk
The Group may elect to invest surplus cash balances in short-term cash deposits with maturity dates not exceeding three
months. Consequently, the Group has a limited exposure to interest rate risk due to fluctuations in the prevailing level of
market interest rates.
A 1% fall in the average monthly interest rate receivable on the Group’s cash and cash equivalents would have the impact of
reducing interest receivable and therefore profit before taxation by £502,000 (FY19: £346,000). An increase of 1% would have
an equal and opposite effect.
Foreign exchange risk
The Group does not have any material exposure to transactional foreign currency risk and therefore no analysis of foreign
exchange risk is provided.
Price risk
Price risk is the risk that the fair value of the future cash flows from financial instruments will fluctuate due to changes in
market prices (other than those arising from interest rate risk or currency risk). The Group is exposed to price risk through
its holdings of equity securities and other financial assets, which are measured at fair value in the Consolidated statement of
financial position (Notes 17 and 18). A 1% fall in the value of these financial instruments would have the impact of reducing total
comprehensive income by £27,000 (FY19: £28,000). An increase of 1% would have an equal and opposite effect.
Credit risk
c.
The Group may elect to invest surplus cash balances in highly liquid money market instruments with maturity dates not
exceeding three months. The difference between the fair value and the net book value of these instruments is not material. To
reduce the risk of a counterparty default, the Group deposits the rest of its funds in approved, high-quality banks. At 30 June
2020 there was no significant concentration of credit risk in any particular counterparty (FY19: none).
Assets exposed to credit risk recognised on the Consolidated statement of financial position total £50,168,000 (FY19:
£34,590,000), being the Group’s total cash and cash equivalents.
Trade receivables with a carrying amount of £1,184,000 (FY19: £1,070,000) are neither past due nor impaired. Trade receivables
have no external credit rating as they relate to individual clients, although the value of investments held in each individual
client’s portfolio is always in excess of the total value of the receivable. All trade receivables fall due within one year (FY19:
three months).
34. Capital management
Capital is defined as the total of share capital, share premium, retained earnings and other reserves of the Company. Total
capital at 30 June 2020 was £123,541,000 (FY19 restated: £86,873,000). Regulatory capital is derived from the Group Internal
Capital Adequacy Assessment Process (“ICAAP”), which is a requirement of the Capital Requirements Directive. The ICAAP
draws on the Group’s risk management process which is embedded within the individual businesses, function heads and
executive committees within the Group.
The Group’s objectives when managing capital are to comply with the capital requirements set by the Financial Conduct
Authority, to safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for
shareholders and benefits for other stakeholders and to maintain a strong capital base to support the development of the
business.
Capital adequacy and the use of regulatory capital are monitored daily by the Group’s management. The Group’s 2020 ICAAP
will be approved in December 2020. There have been no capital requirement breaches during the year. Brooks Macdonald
Group plc’s Pillar III disclosure is presented on our website at www.brooksmacdonald.com.
Introduction
Strategic report
Corporate governance
Financial statements
35. Guarantees and contingent liabilities
In the normal course of business the Group is exposed to certain legal issues which, in the event of a dispute, could develop
into litigious proceedings and in some cases may result in contingent liabilities. Similarly, a contingent liability may arise in the
event of an unexpected finding in respect of the Group’s tax affairs which could result in a financial outflow to the relevant tax
authorities.
A claim for unspecified losses has been made by a client against Brooks Macdonald Financial Consulting Limited, a subsidiary
of the Group, in relation to alleged negligent financial advice. The claimant has not yet advised the quantum of their claim
so it is not possible to reliably estimate the potential impact of a ruling in their favour. There remains significant uncertainty
surrounding the claim and the Group’s legal advice indicates that it is not probable that the claim will be upheld; therefore, no
provision for any liability has been recognised at this stage.
Brooks Macdonald Asset Management Limited, a subsidiary company of the Group, has an agreement with the Royal Bank of
Scotland plc to guarantee settlement for trading with CREST stock on behalf of clients. The Group holds client assets to fund
such trading activity.
Additional levies by the Financial Services Compensation Scheme may give rise to further obligations based on the Group’s
income in the current or previous years. Nevertheless, the ultimate cost to the Group of these levies remains uncertain and is
dependent upon future claims resulting from institutional failures.
During the year ended 30 June 2019, a small number of clients rejected goodwill offers made by Brooks Macdonald Asset
Management (International) Limited in connection with the exceptional costs of resolving legacy matters (Note 24(b)), which
were released from the provision. It is possible that one or more of these clients might issue claims against Brooks Macdonald
Asset Management (International) Limited but no such claims have been issued as at 30 June 2020. As a result, it is not
possible to estimate the potential outcome of claims or to assess the quantum of any liability with any certainty at this stage.
36. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, are eliminated on consolidation. The
Company’s individual financial statements include the amounts attributable to subsidiaries. These amounts are disclosed in
aggregate in the relevant company financial statements and in detail in the following table:
Braemar Group Limited
Brooks Macdonald Asset Management Limited
Brooks Macdonald Asset Management (International) Limited
Brooks Macdonald Retirement Services (International) Limited
Brooks Macdonald Financial Consulting Limited
Brooks Macdonald Funds Limited
Brooks Macdonald Nominees Limited
Levitas Investment Management Services Limited
All of the above amounts are interest-free and repayable on demand.
Amounts owed by
related parties
2020
£’000
–
–
14
29
–
–
–
–
2019
£’000
661
–
–
–
–
–
–
9
Amounts owed to
related parties
2020
£’000
–
22,641
–
–
2,638
–
–
2019
£’000
–
6,993
24
–
11,918
4,786
2,583
–
–
The Group manages a number of collective investment funds that are considered related parties. During the year ended
30 June 2019 the Group disposed of their 563,689 class A units in the IFSL Brooks Macdonald Balanced Fund (Note 18). These
transactions were conducted on an arm’s length basis.
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27566 17 September 2020 8:16 am Proof 637. Interest in unconsolidated structured entities Structured entities are those entities that have been designed so that voting or similar rights are not the dominant factor in deciding who has control, such as when any voting rights relate to administrative tasks only, or when the relevant activities are directed by means of contractual arrangements. The Group’s interests in consolidated and unconsolidated structured entities are described below.The only consolidated structured entity is the Brooks Macdonald Group Employee Benefit Trust, details of which are given in Note 28.The Group has interests in structured entities as a result of contractual arrangements arising from the management of assets on behalf of its clients. Assets under management within the UK Investment Management segment include those managed within structured entities. These structured entities consist of unitised vehicles such as OEICs which entitle investors to a percentage of the vehicle’s net asset value. The structured entities are financed by the purchase of units or shares by investors. As fund manager, the Group does not guarantee returns on its funds or commit to financially support its funds. Where external finance is raised, the Group does not provide a guarantee for the repayment of any borrowings. The business activity of all structured entities, in which the Group has an interest, is the management of assets in order to maximise investment returns for investors from capital appreciation and/or investment income. The Group earns a management fee from its structured entities, based on a percentage of the entity’s net asset value. The funds under management of unconsolidated structured entities total £2,051bn (FY19: £1,584bn). Included in revenue on the Consolidated statement of comprehensive income is management fee income of £8,644,000 (FY19: £6,873,000) from unconsolidated structured entities managed by the Group. 38. Events since the end of the yearOn 24 June 2020, the Group entered into a binding agreement to acquire the Lloyds Bank International’s Channel Islands wealth management and funds business, subject to regulatory approval. Lloyds Channel Islands’ wealth management and funds business is expected to bring circa £1.0 billion of FUM and is a strong fit for the Group. It brings a high-quality discretionary client base, adds a multi-asset and fixed income fund range to the Group’s offering, and increases distribution reach through well-established intermediary relationships. The total consideration is expected to be up to £9,630,000, including £2,500,000 of regulatory capital, with initial consideration being up to £9,300,000. A contingent cash consideration of up to £330,000 will be payable two years after completion depending upon the acquired business meeting certain pre-agreed performance targets relating to the retention of portfolio clients. Completion is expected to take place in the fourth quarter of the 2020 calendar year subject to regulatory approval.The Group incurred costs amounting to £606,000 in relation to the acquisition. These have been recognised in the Consolidated statement of comprehensive income and excluded from underlying profit in view of their non-recurring nature.At the time of approving these Consolidated financial statements, the transaction has not yet completed. Accordingly, these Consolidated financial statements do not reflect the accounting of the acquisition and this will be performed and recognised as at the completion date.154Brooks Macdonald Group plc / Annual Report and Accounts 2020Notes to the consolidatedfinancial statements continuedFor the year ended 30 June 2020Brooks Macdonald AR2020 Financials.indd 15417/09/2020 13:11:3127566 17 September 2020 8:16 am Proof 6ContentsCompany statement of financial position156Company statement of changes in equity157Company statement of cash flows158Notes to the Company financial statements159Company information166Glossary167Financial statementsCompany financial statementsIntroductionStrategic reportCorporate governanceFinancial statementsBrooks Macdonald AR2020 Financials.indd 15517/09/2020 13:11:33 Company statement of
financial position
As at 30 June 2020
Assets
Non-current assets
Intangible assets
Investment in subsidiaries
Financial assets at fair value through other comprehensive income
Deferred tax assets
Total non-current assets
Current assets
Trade and other receivables
Financial assets at fair value through profit or loss
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Non-current liabilities
Deferred consideration
Total non-current liabilities
Current liabilities
Trade and other payables
Total current liabilities
Net assets
Equity
Share capital
Share premium account
Share option reserve
Retained earnings
Total equity
Note
2020
£’000
2019
£’000
43
44
45
46
47
48
49
50
52
52
951
119,047
500
–
120,498
75
–
13,628
13,703
1,461
74,251
500
140
76,352
690
–
11,101
11,791
134,201
88,143
(6,300)
(6,300)
(380)
(380)
(27,913)
(27,913)
(29,394)
(29,394)
99,988
58,369
161
77,982
6,501
15,344
99,988
139
39,068
4,682
14,480
58,369
As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own Statement of
comprehensive income for the year ended 30 June 2020. Brooks Macdonald Group plc reported profit after tax for the year
ended 30 June 2020 of £12,696,000 (FY19: £14,785,000).
The Company financial statements were approved by the Board of Directors and authorised for issue on 16 September 2020,
and signed on their behalf by:
Caroline Connellan
CEO
Company registration number: 4402058
Ben Thorpe
Group Finance Director
The accompanying notes on pages 159 to 165 form an integral part of the Company financial statements.
Introduction
Strategic report
Corporate governance
Financial statements
Company statement of
changes in equity
For the year ended 30 June 2020
Balance at 1 July 2018
Comprehensive income
Profit for the year
Total comprehensive income
Transactions with owners
Issue of ordinary shares
Share-based payments
Share-based payments transfer
Purchase of own shares by Employee Benefit Trust
Dividends paid
Total transactions with owners
Balance at 30 June 2019
Comprehensive income
Profit for the year
Total comprehensive income
Transactions with owners
Issue of ordinary shares
Share-based payments
Share-based payments transfer
Purchase of own shares by Employee Benefit Trust
Dividends paid
Total transactions with owners
Share
capital
£’000
138
Share
premium
account
£’000
38,404
Share
option
reserve
£’000
3,192
Retained
earnings
£’000
8,785
Total
£’000
50,519
Note
41
42
41
42
–
–
1
–
–
–
–
1
–
–
664
–
–
–
–
664
–
–
14,785
14,785
14,785
14,785
–
1,762
(272)
–
–
1,490
–
–
272
(2,648)
(6,714)
(9,090)
665
1,762
–
(2,648)
(6,714)
(6,935)
139
39,068
4,682
14,480
58,369
–
–
22
–
–
–
–
22
–
–
–
–
12,696
12,696
12,696
12,696
38,914
–
–
–
–
38,914
–
2,274
(455)
–
–
1,819
–
–
455
(4,607)
(7,680)
(11,832)
38,936
2,274
–
(4,607)
(7,680)
28,923
Balance at 30 June 2020
161
77,982
6,501
15,344
99,988
The accompanying notes on pages 159 to 165 form an integral part of the Company financial statements.
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Company statement of
cash flows
For the year ended 30 June 2020
Cash flow from operating activities
Cash generated from operations
Tax refund
Net cash generated from operating activities
Cash flows from investing activities
Purchase of intangible assets
Investment in subsidiaries
Finance income
Proceeds of sale of financial asset at fair value through profit or loss
Deferred consideration paid
Net cash used in investing activities
Cash flows from financing activities
Proceeds of issue of shares
Shares issued as consideration
Purchase of own shares by Employee Benefit Trust
Dividends paid to shareholders
Net cash generated/(used) in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
51
43
44
48
49
52
42
2020
£’000
15,931
106
16,037
–
(30,257)
17
–
(919)
(31,159)
38,936
(9,000)
(4,607)
(7,680)
17,649
2019
£’000
25,683
–
25,683
(149)
(6,000)
21
1,229
(1,251)
(6,150)
664
–
(2,648)
(6,714)
(8,698)
2,527
10,835
11,101
13,628
266
11,101
The accompanying notes on pages 159 to 165 form an integral part of the Company financial statements.
Introduction
Strategic report
Corporate governance
Financial statements
Notes to the Company
financial statements
For the year ended 30 June 2020
39. Principal accounting policies
General information
Brooks Macdonald Group plc (“the Company”) is the Parent Company of a group of companies. The Company is a public
limited company, incorporated and domiciled in the United Kingdom under the Companies Act 2006 and listed on AIM.
The address of its registered office is 21 Lombard Street, London, EC3V 9AH.
Statement of compliance
The individual Financial statements of the Company are presented as required by the Companies Act 2006 and have been
prepared in accordance with International Financial Reporting Standards as adopted by the European Union.
Developments in reporting standards and interpretations
Developments in reporting standards and interpretations are set out in Note 2(c) to the Consolidated financial statements.
The principal accounting policies adopted are set out below:
Basis of preparation
a.
The Financial statements have been prepared on the historical cost basis, except for the revaluation of financial assets at fair
value through other comprehensive income, financial assets at fair value through profit and loss and deferred consideration
such that they are measured at their fair value.
At the time of approving the Financial statements, the Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the Financial statements.
Intangible assets
b.
Amortisation of intangible assets is charged to administrative expenses in the Statement of comprehensive income on a
straight-line basis over the estimated useful lives of the assets.
Computer software
Costs incurred on internally developed computer software are initially recognised at cost and when the software is available
for use, the costs are amortised on a straight-line basis over an estimated useful life of four years. Initial research costs and
planning prior to a decision to proceed with development of software are recognised in the Statement of comprehensive
income when incurred.
Investments in subsidiary companies
c.
Where the Company has investments in subsidiary companies whereby one entity (the “subsidiary”) is controlled by another
entity (the “parent”), the investments are stated at cost less, where appropriate, provision for impairment. The carrying values
of investments in subsidiary companies are reviewed annually to determine whether any indicator of impairment exists. Any
impairment is recognised immediately in the Statement of comprehensive income and is not subsequently reversed.
Subsidiary company guarantees and contingent liabilities
d.
As required by section 479C of the Companies Act, the Company guarantees all outstanding liabilities to which its unaudited
subsidiary companies are subject at the end of the financial year. Where the outflow is not probable or cannot be reliably
measured, the potential obligation is disclosed as a contingent liability in the Financial statements.
e. Retirement benefit costs
Contributions in respect of the Group’s defined contribution pension scheme are recognised in the Statement of
comprehensive income as they fall due.
Employee Benefit Trust
f.
Where the Company holds its own equity shares through an Employee Benefit Trust these shares are shown as a reduction in
shareholders’ equity. Any consideration paid or received for the purchase or sale of these shares is shown as a reduction in the
reconciliation of movements in shareholders’ funds. No gain or loss is recognised in the Statement of comprehensive income
on the purchase, sale, issue or cancellation of these shares.
158
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Notes to the Company
financial statements continued
For the year ended 30 June 2020
40. Critical accounting judgements and key sources of estimation and uncertainty
The preparation of financial information requires the use of assumptions, estimates and judgements about future conditions.
Use of currently available information and application of judgement are inherent in the formation of estimates. Actual results
in the future may differ from those reported. In this regard, the Directors believe that the accounting policies where judgement
is necessarily applied are those that relate to the measurement of investment in subsidiaries and deferred consideration.
There have been no critical judgements required in applying the Company’s accounting policies in this period, apart from
those involving estimations which are detailed separately below.
The underlying assumptions made are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
year in which the estimate is revised only if the revision affects both current and future periods.
Further information about key assumptions and sources of estimation uncertainty are set out below.
Investment in subsidiaries
The Company’s investment in subsidiaries are reviewed annually for impairment, or when a change in circumstances
indicates that it might be impaired. When required, the recoverable amounts of subsidiaries are determined by value in use
calculations, which require the use of estimates to derive the projected future cash flows attributable to each subsidiary. If the
projected cash flows cannot support the cost of investment, an impairment in the investment in subsidiary may be required.
Details of the investment in subsidiaries are given in Note 44.
Deferred consideration
As described in Note 49, the Company has a deferred consideration balance in respect of the acquisition of Levitas Investment
Management Services Limited in July 2014 and Cornelian Asset Managers Group Limited in February 2020. Deferred
consideration is recognised at its fair value, being an estimate of the amount that will ultimately be payable in future periods.
For Levitas, this has been calculated allowing for estimated growth in the acquired funds, discounted by the estimated
interest rate, and as at 30 June 2020, there is one fixed payment remaining. For Cornelian, the deferred consideration has
been calculated allowing for estimated growth in the acquired funds and estimated cost savings, discounted by the estimated
interest rate.
41. Profit for the year
Brooks Macdonald Group plc reported profit after tax for the year ended 30 June 2020 of £12,696,000 (FY19: £14,785,000).
Auditors’ remuneration is disclosed in Note 7 of the Consolidated financial statements. The average monthly number of
employees during the year was eight (FY19: eight). Directors’ emoluments are set out in Note 5(d) of the Consolidated financial
statements.
42. Dividends
Details of the Company’s dividends paid and proposed, subject to approval at the Annual General Meeting, are set out in Note
13 of the Consolidated financial statements.
Introduction
Strategic report
Corporate governance
Financial statements
43. Intangible assets
Cost
At 1 July 2019
Additions
At 30 June 2020
Accumulated amortisation
At 1 July 2019
Amortisation charge
At 30 June 2020
Net book value
At 30 June 2019
At 30 June 2020
44. Investment in subsidiaries
Net book value
At 1 July 2018
Additions:
– Investment in subsidiaries
– Capital contribution relating to share-based payments
Impairment of subsidiary
At 30 June 2019
Additions:
– Investment in subsidiaries
– Capital contribution relating to share-based payments
Impairment of subsidiary
At 30 June 2020
Software
£’000
1,985
–
1,985
524
510
1,034
1,461
951
Group
undertakings
£’000
71,540
6,000
1,467
(4,756)
74,251
46,723
2,595
(4,522)
119,047
Investments in group undertakings are recorded at cost, which is the fair value of the consideration paid to acquire the
Company’s subsidiaries. During the year, the Company acquired the entire share capital of Cornelian Asset Managers Group
Limited at a cost of £44,223,000 (Note 10).
During the year, the Company recognised £2,595,000 (FY19: £1,467,000) of capital contributions relating to share-based
payment charges of its subsidiaries. These share-based payment transactions were awarded in respect of services received
by the subsidiary and, accordingly, the subsidiary recognises the equity-settled share-based payment charge in its own
accounts. The Company has the obligation to deliver the equity instruments to meet these awards and so recognises a capital
contribution.
During the year, the Company recognised an impairment in relation to a subsidiary company, Levitas Investment
Management Services Limited. Based on a value-in-use calculation, the recoverable amount of the Levitas CGU as at 30 June
2020 did not support the investment value. At the end of the previous financial year, the Group entered into a new five-year
partnership agreement in relation to Levitas that carried a lower sponsorship fee, the aim of this reduction was to enhance
FUM flows and deepen the relationship with the fund distributor. Unfortunately for reasons beyond the Group’s control, the
anticipated fund inflows have not been forthcoming and the Levitas fund recorded net outflows during the financial year,
impacting its rate of growth and future cash flows and therefore investment value. For further details, see Note 14.
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Notes to the Company
financial statements continued
For the year ended 30 June 2020
44. Investment in subsidiaries continued
Details of the Company’s subsidiary undertakings at 30 June 2020, all of which were 100% owned and included in the
Consolidated financial statements, are provided below:
Company
Braemar Group Limited
Brooks Macdonald Asset Management Limited
Type of shares
and par value
Ordinary 1p
Ordinary £1
Ordinary 1p and
Preference £1
Brooks Macdonald Asset Management (International) Limited
Ordinary 5p
Brooks Macdonald Financial Consulting Limited
Ordinary £1
Brooks Macdonald Funds Limited
Brooks Macdonald Nominees Limited
Ordinary £1
Brooks Macdonald Retirement Services (International) Limited Ordinary £1
Cornelian Asset Managers Group Limited
Ordinary 20p
Cornelian Asset Managers Limited
Cornelian Asset Managers Nominees Limited
Levitas Investment Management Services Limited
Secure Nominees Limited
Ordinary £1
Ordinary £1
Ordinary £1
Ordinary £1
Country of
incorporation Nature of business
UK
UK
Investment management
Investment management
Channel Islands Investment management
UK
UK
UK
Channel Islands Retirement planning
UK
Financial consulting
Fund management
Non-trading
Investment management
Investment and fund
management
Non-trading
Fund sponsor
UK
UK
UK
Channel Islands Non-trading
The registered office for all subsidiaries is 21 Lombard Street, London, EC3V 9AH except for the following:
Company
Registered office
1st Floor Royal Chambers, St. Julian’s Avenue, St. Peter Port,
Guernsey, GY1 2HH
Brooks Macdonald Asset Management (International) Limited
Brooks Macdonald Retirement Services (International) Limited Liberation House, Castle Street, St. Helier, Jersey, JE2 3AT
Cornelian Asset Managers Group Limited
Cornelian Asset Managers Limited
Cornelian Asset Managers Nominees Limited
Hobart House, 80 Hanover Street, Edinburgh, EH2 1EL
Hobart House, 80 Hanover Street, Edinburgh, EH2 1EL
Hobart House, 80 Hanover Street, Edinburgh, EH2 1EL
1st Floor Royal Chambers, St. Julian’s Avenue, St. Peter Port,
Guernsey, GY1 2HH
Secure Nominees Limited
Brooks Macdonald Group plc has guaranteed the liabilities of the following subsidiaries in order that they qualify for the
exemption from audit under Section 479A of the Companies Act 2006 in respect of the year ended 30 June 2020:
• Braemar Group Limited
• Brooks Macdonald Nominees Limited
• Cornelian Asset Managers Nominees Limited
• Levitas Investment Management Services Limited
As a condition of the exemption, the Company has guaranteed the year-end liabilities of the relevant subsidiaries until they
are settled in full. The liabilities of the subsidiaries at 30 June 2020 were £15,000.
45. Financial assets at fair value through other comprehensive income
IFRS 9 reclassification from AFS
At beginning of year
Net changes in fair value
At end of year
2020
£’000
–
500
–
500
2019
£’000
500
500
–
500
The Company adopted IFRS 9 ‘Financial instruments’ on 1 July 2018, resulting in the AFS financial assets category being no
longer available. As a result, the AFS assets were reclassified to fair value through other comprehensive income.
At 30 June 2020, the Company held an investment of 500,000 redeemable £1 preference shares in an unlisted company
incorporated in the UK. The preference shares carry an entitlement to a fixed preferential dividend at a rate of 8% per annum.
Introduction
Strategic report
Corporate governance
Financial statements
46. Deferred tax assets
At 1 July
(Charge)/credit to the Statement of comprehensive income
At 30 June
2020
£’000
140
(140)
–
2019
£’000
–
140
140
The deferred taxation charge of £140,000 (FY19: credit of £140,000) arises out of the cost of share-based payments at the
Statement of financial position date.
47. Trade and other receivables
Amounts owed by subsidiary undertakings
Prepayments and accrued income
Total trade and other receivables
Amounts owed by subsidiary companies are unsecured, interest-free and repayable on demand.
48. Financial assets at fair value through profit or loss
At beginning of year
Net loss from changes in fair value
Disposals
At end of year
2020
£’000
44
31
75
2020
£’000
–
–
–
–
2019
£’000
670
20
690
2019
£’000
1,262
(33)
(1,229)
–
The Company disposed of 563,689 class A units in the IFSL Brooks Macdonald Balanced Fund in November 2018 at their fair
value of £1,229,000. In the period from 1 July 2018 to disposal, the Company recognised a reduction in fair value of £33,000.
49. Deferred consideration
Deferred consideration is split between non-current liabilities (see below) and trade and other payables in current liabilities
to the extent that it is due to be paid within one year of the reporting date. It reflects the Directors’ best estimate of amounts
payable in the future in respect of certain client relationships and subsidiary undertakings that were acquired by the
Company. Deferred consideration is measured at its fair value based on discounted expected future cash flows. The
movements in the total deferred consideration balance during the period were as follows:
At beginning of year
Additions
Finance cost of deferred consideration
Fair value adjustments
Payments made during the year
At end of year
Analysed as:
Amounts falling due within one year
Amounts falling due after more than one year
Total deferred consideration
2020
£’000
1,299
7,466
145
–
(919)
7,991
1,691
6,300
7,991
2019
£’000
2,875
–
94
(419)
(1,251)
1,299
919
380
1,299
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Notes to the Company
financial statements continued
For the year ended 30 June 2020
49. Deferred consideration continued
During the year ended 30 June 2020, the Company acquired Cornelian Asset Managers Group Limited (Note 10) and part of
the consideration was deferred over a period of up to two years. The total cash deferred consideration of £8,000,000 was
recognised at its fair value of £7,466,000 upon acquisition. The deferred consideration is payable in up to three instalments in
March 2021, October 2021 and March 2022 and based on the future value of the funds under management acquired and cost
savings and synergies achieved on integrating the business. During the period from acquisition to 30 June 2020, the Company
recognised a finance cost of £110,000 on the Cornelian deferred consideration. The fair value of the Cornelian deferred
consideration at 30 June 2020 was £7,576,000.
During the year ended 30 June 2020, payments totalling £919,000 (FY19: £1,251,000) were made to the vendors of Levitas. Full
details of the Levitas acquisition are disclosed in Note 13 of the 2015 Annual Report and Accounts. A total decrease in the fair
value of deferred consideration of £nil (FY19: £419,000) was recognised during the year in respect of Levitas. The fair value of
the Levitas deferred consideration at 30 June 2020 was £415,000.
50. Trade and other payables
Trade payables
Amounts owed to subsidiary undertakings
Deferred consideration (Note 49)
Accruals and deferred income
Total trade and other payables
2020
£’000
113
25,279
1,692
829
27,913
Amounts owed to subsidiary companies are unsecured, interest-free and repayable on demand.
51. Reconciliation of operating profit to net cash inflow from operating activities
Operating profit
Adjustments for:
Impairment of subsidiary
Changes in fair value of financial assets at fair value through profit or loss
Changes in fair value of deferred consideration
Decrease/(increase) in receivables
(Decrease)/increase in payables
Share-based payments
Net cash inflow from operating activities
52. Share capital and share premium account
The movements in share capital and share premium during the year were as follows:
2020
£’000
12,857
4,522
–
–
615
(2,140)
77
15,931
At 1 July 2018
Shares issued:
− on exercise of options
− to Sharesave Scheme
At 30 June 2019
Shares issued:
− on placing
− as considerations
− on exercise of options
− to Sharesave Scheme
At 30 June 2020
Number of
shares
13,903,033
6,469
40,569
13,950,071
1,690,141
453,172
25,862
7,856
16,127,102
Share
capital
£’000
138
Share
premium
account
£’000
38,404
–
1
139
17
5
–
–
161
95
569
39,068
29,387
8,995
424
108
77,982
2019
£’000
58
26,304
919
2,113
29,394
2019
£’000
14,717
4,756
33
(419)
(106)
6,407
295
25,683
Total
£’000
38,542
95
570
39,207
29,404
9,000
424
108
78,143
Introduction
Strategic report
Corporate governance
Financial statements
52. Share capital and share premium account continued
The total number of ordinary shares, issued and fully paid at 30 June 2020, was 16,127,102 (FY19: 13,950,071) with a par value of
1p per share. Excluding 409,163 (FY19: 268,045) treasury shares held by the Employee Benefit Trust (see below), the Company
had 15,717,939 (FY19: 13,682,026) ordinary 1p shares in issue as at 30 June 2020. Details of the shares issued are given in Note 28
of the Consolidated financial statements.
Employee Benefit Trust
The Company established an Employee Benefit Trust (“EBT”) on 3 December 2010 to acquire ordinary shares in the Company
to satisfy awards under the Group’s Long Term Incentive Scheme, see Note 30(c) to the Consolidated financial statements. All
finance costs and administration expenses connected with the EBT are charged to the Statement of comprehensive income as
they accrue. The EBT has waived its rights to dividends.
During the year, the EBT received instructions to exercise 103,596 (FY19: 53,420) options. The cost of the shares released
on exercise of these options amounted to £1,738,000 (FY19: £760,000). At 30 June 2020, the number of shares held by the
EBT was 409,163 (FY19: 268,045) with a market value of £6,800,000 (FY19: £5,358,000) acquired for a total consideration of
£7,519,000 (FY19: £4,597,000). These shares are presented as treasury shares in the Company financial statements and their
cost is deducted from retained earnings within shareholders’ equity.
The Company has made annual awards under the LTIP to Executive Directors and other senior executives. The conditional
awards, which vest three years after the grant date, are subject to the satisfaction of specified performance criteria, measured
over a three-year performance period. All such conditional awards are made at the discretion of the Remuneration
Committee.
53. Related party transactions
The remuneration of key personnel of the Company, defined as the Company’s Directors, is set out below:
Short-term employee benefits
Post-employment benefits
Share-based payments
Total compensation
2020
£’000
2,040
57
94
2,191
2019
£’000
2,638
15
248
2,901
Dividends totalling £9,000 (FY19: £52,000) were paid in the year in respect of ordinary shares held by key management
personnel and their close family members.
During the year, the Company entered into the following transactions with its subsidiaries:
Dividends received:
− Brooks Macdonald Asset Management Limited
− Levitas Investment Management Services Limited
− Cornelian Asset Managers Group Limited
− Braemar Group Limited
Total transactions with subsidiaries
2020
£’000
17,500
1,500
4,000
–
23,000
2019
£’000
20,000
–
–
3,000
23,000
The Company’s balances with fellow Group companies at 30 June 2020 are set out in Note 36 to the Consolidated financial
statements. All transactions with fellow Group companies are carried out at arm’s length and all outstanding balances are to be
settled in cash. None of the balances are secured and no provisions have been made for doubtful debts in respect of any of the
amounts due from fellow Group companies.
54. Financial risk management objectives and policies
The financial risk management objectives and policies applied by the Company are in line with those of the Group as
disclosed in Note 33 to the Consolidated financial statements.
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Company information
Glossary
Introduction
Strategic report
Corporate governance
Financial statements
Company Secretary
Company registration number
Phil Naylor
4402058
Registered office
Website
21 Lombard Street, London, EC3V 9AH
www.brooksmacdonald.com
Financial calendar
Results announcement
17 September 2020
Ex-dividend date for final dividend
24 September 2020
Record date for final dividend
25 September 2020
Annual General Meeting
Final dividend payment date
27 October 2020
6 November 2020
Officers and advisers
Independent auditors
PricewaterhouseCoopers LLP
7 More London Riverside
London
SE1 2RT
Principal bankers
The Royal Bank of Scotland plc
280 Bishopsgate
London
EC2M 4RB
Nominated adviser and broker
Public relations
Peel Hunt LLP
Moor House
120 London Wall
London
EC2Y 5ET
MHP Communications Limited
4th Floor
60 Great Portland Street
London
W1W 7RT
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Abbreviation
Definition
Abbreviation
Definition
ACD
AFS
AGM
AI
AIM
ANLA
APS
ARC
BCP
BMG, Company,
Parent Company
BMIS
BPR
BPS
CASS
CEO
CGU
CIP
Cornelian
Authorised Corporate Director
Available for sale financial assets
Annual General Meeting
Artificial intelligence
Alternative Investment Market
Adjusted Net Liquid Asset
AIM Portfolio Service
Asset Risk Consultants
Business continuity planning
Brooks Macdonald Group plc
Brooks Macdonald Investment Solutions
Business Property Relief
Bespoke Portfolio Service
Client Assets Sourcebook
Chief Executive Officer
Cash generating unit
Centralised Investment Process
Cornelian Asset Managers Group
Limited and its controlled entities
COVID-19
Coronavirus global pandemic
GDPR
GRIF
Group
HNWI
IAS
IASB
ICAAP
IFA
IFPRU
IFRIC
IFRS
LRMF
LTIS
LTIP
M&A
MAF
General Data Protection Regulation
Ground Rents Income Fund
Brooks Macdonald Group plc and its
controlled entities
High net worth individuals
International Accounting Standard
International Accounting Standards
Board
Internal Capital Adequacy Assessment
process
Independent Financial Advisor
The FCA’s Prudential Sourcebook for
Investment Firms
International Financial Reporting
Interpretations Committee
International Financial Reporting
Standard
Liquidity Risk Management Framework
Long term incentive scheme
Long term incentive plan
Mergers and acquisitions
Multi-Asset Fund
CPD
CREST
CRO
CSOP
DBP
DCF
DFM
EBT
EMEA
EPS
ESG
ESOA
EU
FCA
FRC
FSCS
FUM
FVOCI
Continuing professional development
MiFID II
The settlement system used by the
London Stock Exchange for settling all its
transactions
Markets in Financial Instruments
Directive II which is legislation for the
regulation of investment services within
the European Economic Area
Chief Risk Officer
Company Share Option Plan
Deferred Bonus Plan
Defensive Capital Fund
Discretionary Fund Managers
Employee Benefit Trust
Europe, Middle East and Africa
Earnings per share
Environmental, social and governance
Exceptional Share Options Awards
European Union
UK Financial Conduct Authority
UK Financial Reporting Council
Financial Services Compensation
Scheme
Funds under management
MRT
MTP
MPS
Material Risk Takers
Medium-Term Plan
Managed Portfolio Service
NOMAD
Nominated advisor
OEIC
PBT
R&D
RCC
RDR
RIS
RMF
RPI
ROU
SAYE
SM&CR
Open-Ended Investment Company
Profit before tax
Research and development
Risk and Compliance Committee
Retail distribution review
Responsible Investment Service
Risk management framework
Retail price index
Right of use asset
Employee Sharesave Scheme
Senior Managers and Certification
Regime
Fair value through other comprehensive
income
The Code
UK Corporate Governance Code
UKIM
UK Investment Management
FVPL
Fair value through profit or loss
166
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Our offices
London – Head Office
1
21 Lombard Street
London
EC3V 9AH
North
2
3
Manchester
1 Marsden Street
Manchester
M2 1HW
Leeds
St Pauls House
23 Park Square South
Leeds
LS1 2ND
Wales and West
4
5
6
Leamington Spa
36 Hamilton Terrace
Holly Walk
Leamington Spa
Warwickshire
CV32 4LY
Taunton
4 Heron Gate
Hankridge Way
Taunton
TA1 2LR
Wales
3 Ty Nant Court
Morganstown
Cardiff
CF15 8LW
South East
7
8
9
Hampshire
The Long Barn
Dean Estate
Wickham Road
Fareham
Hampshire
PO17 5BN
Tunbridge Wells
2 Mount Ephraim Road
Tunbridge Wells
Kent
TN1 1EE
East Anglia
Suite 2, Beacon House
4 Kempson Way
Bury St. Edmunds
Suffolk
IP32 7AR
Scotland
10
2nd Floor Suite
Hobart House
80 Hanover Street
Edinburgh
EH2 1EL
Channel Islands
11
Jersey
Liberation House
Castle Street
St. Helier
Jersey
JE2 3AT
12
Guernsey
1st Floor Royal Chambers
St Julian’s Avenue
St. Peter Port
Guernsey
GY1 2HH
Introduction
Strategic report
Corporate governance
Financial statements
10
3
2
6
5
11
12
4
7
9
8
1
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Brooks Macdonald AR2020 Financials.indd 3
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27566 17 September 2020 8:16 am proof 6Brooks Macdonald Group plc Annual Report and Accounts 202021 Lombard Street London EC3V 9AHwww.brooksmacdonald.comBrooks Macdonald AR2020 Strategic.indd 317/09/2020 13:08:51