Rathbones suffers near £1bn net outflows as it braces for FCA probe fallout
Rathbones took a near-£1bn hit in net outflows in the first half of the year as it braces for further costs from a probe into the company following concerns raised by the financial watchdog.
The wealth manager said it will take a knock from costs to improve its operations after a review by the Financial Conduct Authority uncovered compliance shortcomings.
Costs relating to the review, known as a skilled person review, have already racked up to £19m and are anticipated to reach £60m which executives at the firm confirmed remain unchanged.
Costs include the ceasing of charging fees on the cash elements of portfolios which is expected to reduce income and operating profit by £9m over the second half period.
Jonathan Sorrell, chief executive of Rathbones, said: “Our regulatory programme to address the recommendations from the FCA skilled person review has remained a key priority.
“Six weeks on, we have made good initial progress, client reaction has been supportive and resilient.”
Despite the decisions made off the back of the skilled person review, which included halting the onboarding of the group’s high risk clients, Sorrell doubled down on Rathbone’s ambition to become the “best wealth manager in the UK by far”.
He said: “I’m not sure the urge is to be the largest wealth manager…it’s to be the best wealth manager.
“I think size will follow. I can’t say I spend to much time worrying about the place in the FTSE ranking.”
Shares fell 0.7 per cent in early trading to 1,706p. The stock has fallen 10.8 per cent since the start of the year.
Net flow troubles
The FTSE 250 group’s asset management arm continued to struggle against industry-wide pressure on active equity strategies, leading to outflows of £0.4bn, and leaving group net outflows flat overall in the second quarter. Net outflows for the first half of the year overall stood at £0.9bn.
Sorrell said: “We’re operating in active asset management within the retail space in the UK and it’s a very challenging environment.”
Its wealth management channel recorded net inflows of £0.4bn in the second quarter, while its discretionary and managed channel attracted £0.5bn.
This offset net outflows of £0.4bn in the first quarter, resulting in “broadly neutral net flows” in wealth in the first half of the year overall.
Executives admitted that while “one quarter does not make a trend” in relation to the recovery of its wealth management business it was “pleasing numbers in the context of a demanding first half”.
Increasing funds and acquisition costs ending
Despite the costs off the back of the FCA probe, funds under management and administration (FUMA) rose 10.7 per cent year on year to £120.7bn, up from £109bn the prior year.
Profit before tax increased 15.7 per cent to £72.1m from £62.3m.
Acquisition and integration costs continued to decline as anticipated by the group, falling to £9.5m from £23.2m the previous year. This reflected the progression of Investec Wealth & Investment into the business, which has been fully completed. Costs relating to the acquisition are still present in the group’s balance sheet but this is expected to end in 2027.
The firm completed its £50m share buyback programme as well as a second share buy back of up to £20m. It is increasing its interim dividend to 31p from 32p, an increase of 3.2 per cent.