Rathbone Brothers chief executive Philip Howell has said the company has experienced higher costs from regulation and “incremental” spending on information technology (IT), yet profits have improved amid higher margins.
Total funds under management at 30 June 2017 were £36.6bn, up 7.0 per cent from £34.2bn at 31 December 2016.
Finance director Paul Stockton commented that £32bn of those assets are held in the private client business, with the remainder in the Unit Trust business.
Profit before tax rose by 22.7 per cent to £43.3m.
Mr Howell commented that while profit margins were broadly flat in the private client business, the unit trust business drove overall margins to 30.4 per cent, from the previous 29.4 per cent.
When asked about the impact of higher profit margins on clients, in light of regulatory investigations into the cost of fund management, he said: “As well as the headline number, we think transparency is important, and we have been ahead (of competitors) on that, introducing a flat fee for many clients.
"Costs have increased, costs of meeting regulatory change, and technological change.”
He added: “We have had to make investment to prepare to for Mifid II and General Data Protection Regulation. Both of those are quite material bits of regulation.”
Mr Howell continued that the costs of upgrading technology are more "incremental", but significant.
He cited the development of a new customer relationship management System (CRM) and developments in cloud technology as areas of expenditure.
Mr Howell concluded his comments with the remark that, “underlying growth in the market is there".
"We think the key to growing AUM in the year ahead will be attracting clients from rivals, and central to that is developing relationships with intermediaries, including IFAs, and that will be a focus for the year ahead.”
Rathbone Brothers also announced the business will bear the costs of all research payments currently charged to funds with effect from 1 January 2018.
In a separate note from Rathbone Unit Trust Management, it stated: "It is anticipated that the combined financial impact of this change and the banning of risk free box profits in response to the recent FCA Asset Management Market Study Final Report, will have an impact on margins in the unit trust business, with the benefit accruing to investors in the funds."
Mike Webb, chief executive of Rathbone Unit Trust Management, said: “Both the FCA Asset Management Market Report and MiFID II continue to have a profound effect on our industry and although they present challenges, we are broadly supportive of their proposals.
"In absorbing all costs associated with research, we hope to demonstrate our continued commitment to transparency and best practice, aligning our interests with those of our investors.
"While our margins will not be unaffected, we are confident that the robust growth in assets under management will ensure the continued profitability of our business.”
david.thorpe@ft.com
