Select Committee on Treasury Minutes of Evidence

Memorandum submitted by Brewin Dolphin Securities (Incorporating Bell Lawrie White, Hill Osborne, Wise Speke)


  1.  Brewin Dolphin Securities Ltd is a private client portfolio manager and stockbroker. It specialises in advising individual investors and small quoted companies from its 33 offices throughout the UK. The Group employs 1,300 staff, and provides face to face financial advice for a broad range of private investors and companies in England, Wales and Scotland.

  2.  In 1993 Brewin Dolphin merged with Bell Lawrie White, the Edinburgh based stockbroker and in 1998 acquired Wise Speke, which is based in the north of England. In August 2000, the five offices of Hill Osborne joined Brewin Dolphin ("The Group"). The Group's main business is private client stockbroking and portfolio management and the Group manages GBP £16.8 Billion[28] within private client portfolios. In addition it has three other streams of business: Execution-Only (or no advice) stockbroking; Financial Planning; Corporate Finance and Institutional Broking, usually referred to simply as "Corporate Broking." Corporate Broking includes providing advice to companies on specific matters such as the company capital structure, the prospectus and the requirements of the UK Listing Authority (UKLA) rules so that a company can list on the London Stock Exchange (LSE). These different parts of the business are all governed by FSA rules and the corporate broking activities are kept strictly segregated.

  3.  Brewin Dolphin's Corporate Broking Division is based principally in Edinburgh with offices in Glasgow, Leeds, London, Manchester and Newcastle. It presently advises 152 small and medium sized quoted companies, including five split capital investment trusts, several traditional investment trusts and a number of venture capital trusts.

  4.  A small Corporate Broking team dedicated to Investment Trust work has been based in London for the past six years. During this time the team has acted as LSE sponsor to 10 split capital trusts, one conventional investment trust and as joint broker to one other split capital trust. The team has handled two new issues and various acquisitions and reconstructions. There are 139 split capital trusts listed on the London Stock Exchange and Brewin Dolphin is presently broker to five. Of the 10 trusts we have acted for during the past six years, four have now suspended trading, two of which have been advised by other brokers.


  5.  Split capital investment trusts have been in existence in their modern form certainly since 1965, when the Dualvest Trust came to the market; since then the number of split trusts has grown to 139 today. A modern split capital trust is one where the capital is split between income shares and zero dividend preference shares. The income shareholders receive all the income and the zero dividend shares are, asset values permitting, repaid at a fixed price and date to provide capital appreciation. Zeros have the priority claim on the assets. This division of the capital was thought to be an ideal way of catering for the differing needs of investors, including private investors, for those who required immediate and higher income and those seeking long term capital growth.


  6.  Corporate Brokers act as sponsor and broker to companies, including investment trusts, which are listed on the LSE. Specific roles include advising on corporate capital structure, LSE Listing Rules and prospectus drafting. Independent third parties and other professional advisors to a company verify all listing material to which members of the Brewin Dolphin corporate team may contribute before it is approved by the Board, who have ultimate responsibility for its content. Once the approved prospectus is delivered the broker's role is complete. Corporate brokers may also attend institutional meetings and press briefings as directed by their clients who are the companies. Such meetings would involve presentation of research material for professional use only and would not be attended by private investors. In 2000 there were more than a dozen brokers, including Brewin Dolphin, providing corporate advice to the split capital trust sector.


  7.  Brewin Dolphin is not and never has been responsible for either the stock selection or the fund management of any Investment Trust.

  8.  Investment Trusts, both split capital and traditional, are listed on the LSE. The Boards of these quoted public companies appoint Fund Managers and contract with them for a specified period to meet performance targets as set out in the prospectus. For example, if the prospectus says that the trust is a fund of funds' this means that its assets will be invested in other funds. However, any decision to invest in a particular set of funds including other split capital investment trusts is the responsibility of the Fund Manager of the Investment Trust. The Boards are responsible for administering the corporate activity of the company and the Fund Manager for its investment and performance. In the UK, 37 fund management groups manage the assets of the 139 Split Capital Investment Trusts currently listed on the LSE.


  9.  In the late 1980s investment advisers and accountants realised that zero dividend preference shares (zeros), were particularly appropriate for some private investors due to their characteristics and tax treatment. They have been widely sold by advisers, through fund managers' advertising campaigns and have been generally recommended in the press since then and until very recently. It is not and never has been Brewin Dolphin's practice to distribute Fund Managers' marketing material to any private investor.


  10.  By far the largest part of Brewin Dolphin's business is advising over 80,000 private investors and savers, all around the UK. For some private client portfolios and in common with the rest of the industry, IFAs and particularly firms of accountants, we have recommended investments in both zeros and income shares of Split Capital Investment Trusts. Many of these investments have performed well and generated their anticipated retums for many years. They were widely accepted in the investment industry as useful investment products and the zeros in particular were generally thought to be at the lower end of the risk spectrum. Zeros were often referred to as safe by the media, the AITC, the FSA and The Securities Institute.

  11.  Each and every one of our clients' portfolios is different and each has been invested to achieve the client's investment objectives within whatever time horizon they set and risk profile they agree. In accordance with the FSA's "Know Your Client" rules these parameters are refreshed with client's personal circumstances periodically. With all the information we had at the time we believe we gave sound advice to our clients.

  12.  Brewin Dolphin has found that the Hill Osborne client base has a higher proportion of investors with sums invested in zeros than is the case elsewhere in the Group. Hill Osborne had been investing in shares of split capital trusts for 20 years and before its acquisition by Brewin Dolphin in August 2000. Brewin Dolphin has put in place a dedicated team to examine complaints from these Hill Osborne clients as well as any others from within the Group. In cases where clients have a complaint or concern our complaints procedure examines the merits of each individual case and looks to see if each client should have invested in a "split" in the first place. We are doing our very best to address the concerns of our individual clients, as quickly as possible, and within the confines of a number of inquiries and industry investigations.

  13.  The investment management of split capital investment trusts is outside Brewin Dolphin's control and we cannot presently address complaints relating to this.

  14.  Where it is not possible to resolve a client's complaint we have encouraged them to apply to the Financial Ombudsman Service (FOS) and have written to them all enclosing the FOS leaflet. Once the FSA investigation is complete, and particularly that part relating to the Fund Management firms, Brewin Dolphin will see if there is any further assistance that we can give to investors.


  15.  Brewin Dolphin is very concerned about the consequences for private investors arising from problems that have occurred within some split capital investment trusts. We are pleased to be giving oral evidence to the Treasury Select Committee on this matter. We are very keen to do everything we can to assist the Committee, the FSA and the Ombudsman in arriving at a resolution of this situation for all investors, as quickly as possible.

October 2002

28   As announced in Brewin Dolphin Holdings PLC Interim Results in May 2002. Back

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