Questor share tip: Sell Brewin Dolphin as stocks fall

Brewin Dolphin
251.3p
Questor says SELL

Wealth manager Brewin Dolphin could find its turnaround plans hit by a sharp adjustment in global stock markets.

Funds under management are the key driver of returns for wealth managers. The sharp sell-off in global markets during the past two weeks will be painful for the company as assets will naturally shrink in line with prices.

The other problem could come from clients becoming spooked by market falls who then withdraw funds. Brewin Dolphin has decided to focus on providing a service where clients hand over the management of their investment portfolios, called discretionary funds.

The wealth manager said it increased discretionary funds to £23.7bn at the end of June, up from £22.7bn three months earlier. Total funds under management increased to £36.7bn, up from £36.1bn three months earlier.

Wealth management firms are having to replace lost income from fund managers who use to pay “trail income” when clients were advised to invest in their funds.

Brewin managed to replace the loss of £12m in “trail income” with a £11m jump in advisory fees to keep total income at £219.4m for the nine months ended June, up from £212.3m in the comparable period.

The company has also reached a settlement at a cost of £2m with its IT provider over an investment in a new fund management system. Brewin decided a £32m investment was worthless earlier in the year.

We recommended Brewin Dolphin shares last year (Buy, 287.9p, December 7) and they are down 13pc since then. The turnaround has hit a tricky period and we are cutting our losses. Sell.