Rathbones makes progress on restricted clients but faces new FCA probe

Rathbones Group PLC on Thursday said it hopes to start lifting restrictions relating to existing enhanced due diligence clients in the fourth quarter, as it backed fourth-quarter margin guidance.

The London-based investment and wealth manager said total operating income was £243.6 million for the quarter ended September 30, up 3.0% from £236.4 million a year prior.

Funds under management and administration increased 7.2% year on year to £121.1 billion at September 30 from £113.0 billion, of which £112.9 billion is in the Wealth Management business.

"This increase was supported by positive market and investment performance," the firm explained.

Wealth Management attracted net inflows of £24 million in the quarter compared to net outflows of £300 million a year ago, the second consecutive quarter of net inflows and a marked improvement on-year. This is despite the voluntary pause on inflows from enhanced due diligence clients and a cautious backdrop ahead of the UK autumn budget, Rathbones notes.

However, Asset Management saw net outflows of £425 million in the quarter, reflecting continued pressure on active equity investment in the UK retail market, bringing group net outflows to £401 million in the quarter.

Rathbones also revealed that wholly owned subsidiary Vision Independent Financial Planning Ltd has received a requirement notice from the Financial Conduct Authority under section 166.

Rathbones expects the costs associated with this UK regulatory review to be £2.5 million and said it has provided accordingly.

Following a reduction in the number of adviser firms on the Vision network during the course of this year, Rathbones expects the run-rate pretax profitability of the group with respect to Vision to be reduced by around £4.0 million from 2027 onwards.

Rathbones is already facing a skilled person review, which followed engagement with the UK financial watchdog.

In June, Rathbones said has voluntarily halted new inflows from some existing high-risk clients until they "meet certain requirements". It expects a £60 million profit hit over the next two years as a result.

"For a period of up to twelve months, a voluntary pause to the onboarding of new clients that require enhanced due diligence whilst the group focuses on implementing changes to its procedures and controls," Rathbones said at the time.

Potential clients that need enhanced due diligence include those that are politically exposed or from higher-risk nations. Rathbones said gross inflows from those EDD clients totalled around £370 million over the past 12 months.

On Thursday, Rathbones Chief Executive Jonathan Sorrell said: "We expect to start progressively lifting restrictions relating to existing enhanced due diligence clients in Q4."

Looking ahead, Rathbones continues to expect to meet its underlying operating margin target of 28.7% in the fourth quarter.

"The margin progression this will represent for the year leaves us in a strong position as we look forward to 2027," it added.

Shares in Rathbones were up 1.0% at 1,614.00 pence each in London on Thursday.

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