Dear reader,
There are not many firms left in the City that can say they were around before the Napoleonic Wars. Rathbones (LON: RAT) is one of them. Founded in 1742, it manages money for wealthy families, charities and trustees, and has spent the better part of three centuries doing the one thing wealth managers are supposed to do, which is look after other people’s money carefully and without drama. Which is why the events of 16 June are worth your attention. In a single morning the shares fell around 17%, and not for any of the reasons you might expect.
There was no fraud. No failed acquisition. No profit warning in the ordinary sense. What did the damage was a skilled person review, the mechanism by which the FCA sends in an independent expert to examine a firm from the inside. The expert concluded that Rathbones had not properly embedded Consumer Duty, the rules requiring firms to demonstrate they deliver good outcomes for clients, and that there were weaknesses in its compliance and oversight alongside it. There is a certain irony in a wealth manager, of all businesses, being told it cannot adequately prove it treats its clients well.
The response was swift and, on the face of it, sensible. A two-year remediation programme carrying an estimated £60 million cost. A pause on onboarding new higher-risk clients for up to a year. A review of existing clients to check they have been well served. And an end to the practice of charging investment fees on cash left sitting in portfolios, which reduces profit but was always difficult to justify. The dividend is unchanged. The buyback proceeds. Management has been careful to frame all of this as a stumble rather than a crisis.
And yet the market did not price a £60 million problem. It wiped closer to £350 million off the company’s value in a day. That gap is the entire question. Either investors have overreacted to what is ultimately a two-year clean-up at a firm still earning north of £200 million a year, or they suspect the review has exposed something the announcement does not fully capture.
Because Rathbones does not often trade at a discount, and a name of this vintage falling this far in a morning is precisely the sort of moment that rewards a closer look. The question is whether it is cheap, or cheap for a reason.
Key financial ratios
Dividend yield: ~6.0%
P/E: ~9.6x underlying (~15x statutory)
Dividend cover: ~1.7x underlying
Operating margin: 25.8%
Price/tangible book: ~4.2x
What the regulator actually found
It is worth pausing on what a skilled person review is, because it is not a routine audit and not something a firm takes on lightly. Under section 166 of the Financial Services and Markets Act, the FCA can require a firm to appoint an independent expert to examine part of its business and report back. It is one of the more serious tools the regulator has short of full enforcement. Firms do not commission these for the good of their health. They happen because the FCA has seen something it wants looked at properly.
In this case the review landed on Consumer Duty, the 2023 rules that are the biggest shift in UK retail financial regulation in a generation. They require firms to show they deliver good outcomes for clients: fair products, fair value, clear communication, proper support. The operative word is show. It is no longer enough to treat clients well, a firm has to prove it. Rathbones, the review found, had not embedded that properly, with weaknesses in compliance and oversight alongside.
One failing is worth naming, because it is concrete. Rathbones had been charging clients a fee to manage the cash in their portfolios while also keeping a slice of the interest that cash earned. The regulator has a word for this. It calls it “double dipping”, and back in December 2023 it told the industry to stop. This was not an obscure rule nobody saw coming. It was one the FCA had put in writing two and a half years earlier, which is why scrapping the cash fees reads less like generosity than a firm falling into line.
That is what lifts this above a one-off. The FCA intends to move from guidance to enforcement on Consumer Duty, and wealth management, with its complicated fees and hard-to-judge products, is the obvious place to start. Pinsent Masons called the case a “warning shot” for the industry. Rathbones may simply be the first big name made an example of.
It is hard to separate any of this from the 2023 Investec deal, which doubled the size of the business overnight. Integrations of that scale are exactly where oversight gets stretched thin. Peel Hunt, which kept its buy rating through the sell-off, argued the problems predate the new chief executive, inherited rather than made.
Chief executive Jonathan Sorrell was unruffled, insisting the strategy was unchanged and the work would support the firm’s ambition to be “the best wealth manager in the UK, by far”. Whether the market believed him is another question. The share price that morning gave a blunt answer.
What it actually changes
The £60 million is the number in the headlines, but it badly understates what the review does to the business. The real costs are harder to put a figure on, and most of them point the same way.
The trust hit. Wealth management is sold on reputation. A firm whose whole pitch is careful stewardship being publicly told it cannot prove it delivers good outcomes is a marketing wound as much as a regulatory one, and in a business where clients move by word of mouth, that feeds straight back into the flows.
The distraction. Two years of senior management time and money aimed at remediation is two years not spent on growth, the margin push toward 30%, winning advisers, competing with Quilter for new money. The £60 million is the visible cost. A management team with one eye on the regulator is the invisible one.
The overhang. Until the review is closed and the flows turn, the shares carry an uncertainty discount that good operating news will not fully clear. The market is unlikely to re-rate the stock while the question mark still sits over it.
The precedent risk. If the FCA is using Rathbones to set a marker for the sector, the scope could widen before it narrows, and the remediation bar could rise. That is a genuine risk, though it cuts both ways: if Rathbones is now first through the process, it may end up ahead of peers who have yet to face the same scrutiny.
None of this is fatal. The capital base is solid, the dividend is intact, and the issues look fixable rather than structural. But it does mean the honest cost of the affair is not £60 million. It is £60 million plus two years of divided attention, a dented brand and a share price that stays under a cloud until the firm proves the worst is behind it.
The financials
On the face of it, this is a good business having a good run.
Income up, margin widening toward a 30% target set for the end of 2026, profit growing, dividend lifted for the year. The gap between underlying and statutory profit is closing fast as the Investec integration costs roll off. On operations alone there is not much to complain about. This is not a business in trouble.
The balance sheet is where a closer eye is needed.
Of £1.35 billion of equity, £947 million is goodwill and intangibles, almost all of it created by the Investec deal. Strip that out and the tangible equity of the entire group is around £405 million, worth roughly £3.90 a share. In plain terms, about two thirds of the book value rests on the assumption that the client relationships Rathbones paid for are worth what it paid for them.
That is the thread tying the balance sheet to everything else here. Goodwill holds its value only as long as the acquired business keeps earning. If clients walk, if the FCA episode bruises the brand, if the enlarged book shrinks rather than grows, that goodwill comes under pressure and eventually the auditors ask whether it should be written down. An impairment would be non-cash and would not touch the dividend or the capital base, which stay solid, the group ended the year with a capital surplus of about £197 million above its regulatory minimum. But it would be a formal admission that the biggest deal the sector has seen is worth less than the price on the ticket. A strategic risk, then, not a solvency one.
The issue of losing
Which brings us to the problem that predates the FCA and matters more than the fine ever did.
Rathbones is losing client money. In 2025 the group saw net outflows of £2.1 billion, split between £0.8 billion out of the core wealth arm and £0.7 billion out of asset management. Gross inflows were healthy at £11.2 billion, so this is not a firm that has stopped winning business. It is a firm that cannot yet keep enough of the money it already manages. Returning to positive net flows is the one objective management has put front and centre, and until that happens the growth story has a hole in it.
Now lay the FCA response on top. A twelve-month freeze on onboarding higher-risk clients takes out exactly the sort of larger, more complex accounts that move the needle, at the precise moment the firm needs every pound of net new money it can get. The risk that this deepens an outflow problem the company was already fighting is the thing worth watching.
Valuation: is it actually cheap?
This is the question the whole piece has been circling. After a fall of that size, is Rathbones good value, or simply less expensive than it was in February.
Start with income, since that is what most readers here came for. At around 1,630p the shares yield close to 6% on last year’s 99p dividend, and management has gone out of its way to confirm the payout policy is unchanged. That is a generous yield for a firm still earning well over £200 million a year, and it sits at the higher end of the wealth-management field
