Good morning and a very warm welcome to Rathbones' 2025 first half results. I hope you enjoyed the video. Invest well, live well. Rathbones at its best. Thank you, Simonetta. Thank you to everybody who is joining us in person here today. For those who are online, we are recording today's presentation. If I could politely ask you and remind everybody who's physically with us to switch off the phone, I would be most grateful. Put them on silent. For those who do not know me, my name is Clive Bannister and I have the honor to chair Rathbones Group Plc. I'm joined here today by our Chief Executive, Paul Stockton, our Chief Financial Officer, Iain Hooley, and our CEO designate, Jonathan Sorrell, awaiting formal approval from our regulators. Confidently awaiting approval from our regulators.
Jon is currently working closely with us and the team before formally stepping into the role at the end of September. What is today's format? We will start with a financial update from Iain, who will take us through the results for the first half of 2025. Paul will then give us an update on integration and share his perspective on how the business is positioned for our next chapter of growth. Following that, Jon will share his initial impressions as he continues to get to know the organization and his new colleagues. We will then open up to Q and A, and we will close the session with some personal reflections from Paul as he prepares to hand over leadership. Before I hand over to Iain, I would like to take a moment to reflect on what has been a significant and productive first half for the group.
Most importantly, we have completed the planned migration of Investec Wealth & Investment clients and all of their assets, a major milestone in our integration journey. At the same time, we strengthened our leadership team, appointing Jon as our incoming Group CEO and Camilla Stowell as CEO of Rathbones Wealth. Camilla joins us. Thank you. From Coutts and is here with us today. We also refined our capital allocation framework to ensure that it aligns with our long-term ambitions. With that, we have today announced a proposed share buyback of GBP 50 million, the first in Rathbones' 283-year history. This advertises the Board's confidence in Rathbones' business model, our future business prospects, and serves as a thank you to you, our shareholders. With that, I will now hand over to Iain to take us through the numbers.
Thank you, Clive. Good morning, everyone. I'm going to cover three main areas. First of all, I will run through the overview of the results for the first half of 2025. I'll then cover the figures relevant to the IW&I integration under our capital position, and I'll then conclude with our expectations for the second half of the year. To begin, we'll look at the financial highlights of the first half of 2025. Funds under management and administration, or FUMA, remained consistent with both the prior half year and the opening position for 2025 at GBP 109 billion. That reflects a recovery from the position at the end of the first quarter when funds under management and administration stood at GBP 104.1 billion, some 5% lower than at the start of the year as asset values fell following the announcement of U.S. trade tariffs on what was named Liberation Day.
That low point coincided with the first quarterly billing of investment management fees, which took place on 31st of March and 4th of April , and consequently had an adverse impact on the overall level of fee income for the first quarter. Despite that, our operating income has shown resilience, increasing to GBP 449.1 million for the first half. That increase in operating income reflects higher income in the asset management segment, which calculates its revenue on a daily basis, along with the benefit of revenue synergies relating to the integration of Investec Wealth & Investment, or IW&I, which started to be fully realized following the client migration in the second quarter. Underlying profit before tax reduced by GBP 4.4 million relative to the prior period. The reduction reflects the impact of certain temporary and longer-term cost factors, which I'll come on to shortly.
Looking now at PBT on a statutory basis, the same factors that have impacted underlying PBT are relevant here as well. Statutory PBT is stated after amortization of intangible assets and the short-term costs of integration, consistent with prior years. Underlying earnings per share reflects a reduction in underlying earnings, and the interim dividend we have announced today reflects our progressive dividend policy with a GBP 0.01 increase to GBP 0.31 per share. Underlying PBT, looking now at that, I would like to now just set out fully the movement in underlying profit before tax and margin for the 2025 first half of the year relative to that for the 2024 half year. Each element of the movement is shown on the waterfall. The continuing delivery of synergies has of course benefited the underlying performance we have reported.
The benefit of synergy to the 2025 half year results is GBP 12 million higher than it was for the prior period. Variable staff costs largely reflect performance, but this positive impact on costs has been offset by salary inflation, the 3% increase for 2025 alongside previously signposted increases in the rates of National Insurance contributions and higher FSCS levies. Temporary cost increases in the first half amounted to GBP 5.2 million including the one-off effect of transitioning to the arrangement with Investec Bank to outsource specific technology services which will deliver future synergy benefits. We'll now look at FUMA and flows for the first half. Overall, FUMA remained consistent with the 2024 closing position at GBP 109 billion, having increased by circa 5% since the low point at the end of the first quarter reflecting the recovery in the markets.
Gross inflows of GBP 5.2 billion remain solid, representing 9.5% of opening FUMA on an annualized basis. Gross inflows were lower than the prior period as a result of the need for investment management teams to focus on the final stages of the client migration process and subsequently adapting to new systems, which has temporarily impacted new business activity. Net outflows, including those relating to the asset management segment, with single strategy funds continuing to be affected by the factors relevant to the wider asset management industry backdrop. However, whilst we reported net outflows for the half year, overall the net flows position improved markedly in the second quarter with net outflows reducing GBP 0.2 billion from GBP 0.8 billion in the first quarter, driven by a significant reduction in gross outflows. Reflecting this improvement, the wealth management segment reported neutral net flows for the second quarter.
This is consistent with our expectation that the factors that have elevated gross outflows are now showing signs of receding. We'll now look at income for the group, which remained resilient despite the adverse impact of market volatility. Wealth management fees were broadly flat overall, reflecting the recovery in FUMA following the low point at the end of the first quarter. Asset management fees benefited from higher average fund values. Commission income saw some reduction in transaction volumes due to a flatter seasonal spike around the end of the tax year. Consistent with our previous guidance, interest income increased as a result of the migration of I W& I client money balances onto the Rathbones banking model with a corresponding reduction in other income. The increase in interest income also reflects the realization of synergies.
A significant portion of advice fees are charged on an ad valorem basis and hence were impacted by the market volatility in the first quarter. We continue to expect to see future growth in income driven by advice as the structural need for advice continues to drive demand and our capacity to deliver advice remains strong. Following the Saunderson House and I W& I integrations, the other income line includes GBP 9.3 million of I W& I's client interest margin up to the point IW & I clients migrated onto the Rathbones platform. We'll now look at our income margins. Income margins remain resilient with both fee and commission margins for the wealth management segment increasing relative to their prior year levels. The asset management fee income margin has shown some decrease as a result of the mix of funds continuing the shift towards lower margin multi-asset funds.
Our treasury income yield, which is based on the total value of the group's liquidity, increased to 225 basis points for the full year 2024 as a result of the changes in the mix of deposits and the benefit of our treasury strategy, which defers the full impact of rate reductions on interest receivable. Turning now to synergy delivery in relation to the integration of the I W& I business, synergies delivered at 30th of June 2025 amount to GBP 47.2 million on an annualized run rate basis. Synergy delivery since 31st of December mostly reflects revenue synergies, which includes a higher interest margin driven by the Rathbones banking model and technology costs where the transition to the outsourcing arrangement with Investec Bank is now delivering cost savings on a run rate basis.
The delivery of these synergies has arisen towards the end of the first half, thereby having a relatively limited benefit within the six-month period. We expect to deliver our full synergy target of GBP 60 million by the end of 2025, well ahead of the time frame we set out at completion of the combination. We'll now look at those costs which are recognized as non-underlying costs. The categories of costs which are recognized as non-underlying remain consistent with prior periods. Costs relating to the amortization of intangible assets reflect the normal ongoing run rate that we'll continue to see going forward. IW&I integration costs will mostly have been incurred by the end of 2025, with much lower costs in 2026 being the residue relating to employee incentive awards which are being spread over their vesting period.
The effective tax rate for the period reduced to 28.7% reflecting a normalization of the rate following the effect of non-recurring disallowable integration costs in the prior period, consistent with our previous guidance. Moving now on to capital, we said in February that we were reviewing our capital position as a result and as Clive referred to earlier, we have today announced a share buyback program of GBP 50 million, which will be the first that Rathbones has undertaken. The proposed buyback is subject to regulatory approval and is likely to commence in September. As a result of the buyback, Investec's voting and economic interest will be at or below those that applied at completion of the IW&I transaction. Our balance sheet remains very strong after allowing for the buyback.
The value of GBP 50 million reflects our preference for completion of the program in a time frame that takes into account the liquidity of our shares and the close link of the Rathbones share price with investment markets. We also referenced in February that we would establish a capital allocation framework for the combined group to set out our approach and discipline to how we will deploy capital going forward.
The framework we have established comprises five capital allocation priorities which are on the slide, which are to maintain a strong balance sheet and regulatory capital base to underpin the Group's financial strength, balancing a robust position with efficiency to retain an appropriate level of capital to invest in our strategic priorities that will drive future growth, to maintain our policy of regular progressive dividends underpinned by earnings growth, to retain capital to enable us to invest in inorganic growth opportunities of an appropriate size where they present the right level of return and strategic fit, and to the extent our capital base exceeds that required to meet these needs, we will retain the flexibility to return excess capital to shareholders.
The Group remains highly cash and capital generative, and this will increase as we move out of the integration phase and look towards benefiting fully from synergies, with the cost of integration reducing significantly after the end of this year. Looking forward and to recap on the matters I've covered that are related to our future performance with regards to income and net interest margin, we continue to see improvement in the outlook for net flows as the factors that have elevated gross outflows continue to recede and the business moves out of the integration phase. The opportunity to grow revenues as a result of providing greater levels of advice remains as the need for advice continues to grow, and we have an established capacity to deliver it. Commission income is expected to show the normal seasonality, being lower in the second half relative to the first half.
Our net interest margin for 2025 is expected to remain consistent with the half year level. Further reductions in central bank interest rates will result in some modest reduction in the net interest margin as we look further forward, with the downward pressure increasing once the U.K. base rate falls below 4%, being the point at which we expect to absorb a greater proportion of rate reductions. Fee income would, of course, benefit from any positive market reaction to interest rate reductions materializing. With regards to costs and synergies, as I said earlier, we expect to achieve our GBP 60 million synergy target ahead of schedule by the end of 2025. The benefit to the second half of the additional synergy delivery will be tempered by some cost headwinds and the effect of the 2025 salary reviews.
With regards to our underlying margin for 2025, our guidance at the 2024 year end was that improvements in the underlying operating margin will be weighted towards 2026. Given the timing of synergy delivery and expectations of the delivery of future growth following the first quarter billing taking place at a relative low point for asset values and the factors I've just set out relating to costs, we expect the underlying margin for the full 2025 year to be broadly consistent with the 2024 full year margin, which was 25.4%. That reflects an improved margin in the second half relative to the first half, being the net effect of all the factors I've set out, which include the delivery of the remaining synergy benefits.
Our guidance regarding our 30% margin target remains consistent, being that the delivery of the remaining synergies and our ongoing cost discipline is expected to result in a 28% margin by the fourth quarter of 2026, with the delivery of the remaining 2% to take us to 30% dependent upon growth in FUMA and advice revenues. With that I'll hand over to y ou, Paul.
Iain, thank you very much and good morning to you all. As Clive mentioned earlier, it's been a pretty busy first half for Rathbones, as we've been balancing both operational integration and, of course, continuing to respond to market conditions that seem to be ever changing, as well as positioning the business for the future. Let me talk a little bit about how that client migration progressed, but then a little bit more about how we're positioning the business for the future. It would be no surprise to anybody in this room to know that when you put two significant businesses together operationally, it's obviously going to involve a huge amount of hard work. We are very pleased, as Clive mentioned earlier, to be able to report that the migration of client accounts from Investec Wealth onto the Rathbones platform is now complete.
The migration itself was completed in two tranches, and it really marks a milestone post the combination, enabling us now to press ahead with the next phase, as Iain mentioned, of synergy realization over the next six months and getting the business back onto full focus of growth. There are two real important opportunities. We have an opportunity now that we have one platform to work on improvements to streamline processes and make efficiencies that better enable client-facing teams. Secondly, an opportunity to harness the great amount of client feedback we've gotten over the last six to nine months to improve the overall client experience and as well our internal process.
Clearly, there's also the prospect of a much greater environment where there's less distraction from internal things and much more focus on external factors that are impacting the business. It is very reassuring that inside of Rathbones, terms like integration and migration are now dwindling and being used much less frequently, which demonstrates that the business itself is moving very much on as we focus on improvement and growth in the future. In February, I talked a lot about the real exciting opportunity we do see for the enlarged group to lead the U.K. wealth management and financial advice sector, fueled, of course, by the ongoing rise in U.K. household wealth, which is already estimated at around GBP 2.4 trillion, but rising to around GBP 2.9 trillion within a five-year period.
We are now one of the key firms in the sector and well positioned to take advantage of this rising demand for investment and advice services. More people are of course approaching retirement with money and assets and looking for a personalised service that we are increasingly seeing supported by a regulatory environment that is trying to support growth. So Rathbones is now a business with a full range of services to support people across a wide spectrum of assets and needs, delivered of course through 22 offices around the U.K., two offices offshore in the Channel Islands. We also have dedicated specialists in charities, Greenbank, quarter protection, and for higher net worth individuals, an expanding private office that gives us breadth and depth. The market, however, is changing rapidly.
Alongside our extensive migration work, we've been progressing a number of new propositions that will be launched in the near term. As I hope you can see from this slide, these propositions are focused on our three main channels. For direct private clients, we're aligning our services much more closely with financial life stages, leveraging key components of our investment process to enhance the way in which we deliver our advice and investment management services. We're also teaming up with the National Philanthropic Trust U.K. to offer a bespoke and select donor-advised fund option to clients wishing to make a philanthropic contribution. With over 3/4 of U.K. advisors reporting an increased appetite for tailored solutions, we're excited to have just announced a truly active model portfolio service range that offers a suite of seven MPS portfolios, including three in-house funds launched exclusively for this purpose.
This is the first indication that we can combine the strength of both Rathbones and Investec Wealth to make a market impact, and this product will be available on 14 advisor platforms in the autumn. Rathbone Asset Management itself has recently received approvals for emerging markets and Asian equity funds, adding to our already recognized range of funds which of course have and include newly classified responsible investment fund options too. RAM itself is also looking to widen distribution to wealth managers and leverage its capability in the segregated mandate market. We're also launching our first charity authorized investment fund in October, which is a much more scalable offering tailored to an ever-changing charity market too. It will very much complement what we have at Greenbank, and that's a leading sustainable investment expertise that is much treasured in the organization.
We continue to work, of course, very closely with Investec Bank to ensure that our services are delivered very much alongside theirs by a Rathbones team dedicated to building contacts and servicing their relationships. Jonathan and I have already spent a good amount of time together and talked a lot about how to characterize the next six months of this year. We've characterized it as a period of optimization. Client-facing teams have managed through a pretty intensive period of change recently, so more business as usual in the second half will very much be welcome. In the 18 months prior to any migration, let alone one of the size that we have just completed, it's inevitable there will be less focus on efficiency and process improvement.
As Iain touched on, we'll be very much remedying this over the coming months, taking advantage of what is a unique opportunity to build more momentum in these areas and, of course, embed best practices from both organizations. We're forming a dedicated data and analytics function, and that will explore how we can best leverage what is now a considerable amount of data we hold, which will build on the deployment of Microsoft AI and robotic processing tools that are already improving efficiency and enabling us to enhance client service delivery. As I mentioned earlier, we'll also continue to develop MyRathbones, having received some excellent and very constructive feedback from advisors and clients during the migration. Iain has talked about our synergy progress, so let me not forget that and double down on that.
It's really important to us that we achieve what we promised, and we will be supporting all of the operational activities that support the delivery of those synergies very strongly in the second half. Also, there's a culture in the organization that is always brought in. When we welcome the new skills and expertise that both Jonathan, our new COO, and Camilla, our new CEO of Wealth, will bring into the organization, we very much look forward to leveraging the skills that they will both bring to the organization. To summarize, having completed a client migration, we very much turn to business as usual. Optimization is the message both for our capital, as you've heard from Iain, and our newly integrated business.
As we look forward to a second half where we can make a material difference to both, there are some exciting propositions that I hope will demonstrate that the last year or so is not just about bringing two businesses together, but also having a keen eye on the future direction of the business. We're continuing to invest in marketing and distribution and can now evolve our technology infrastructure further to fully adopt the best solutions from both firms to better support our people and clients. My focus over the near term is to ensure that the transition of my responsibilities is smooth and efficient. I very much look forward to doing that with both Jon and Camilla as they get their feet underneath the table. Clive, that's all for now, as they say. I'll hand back to you.
Thank you very much indeed. Before I hand over to Jon for his first impressions, I'd like to take a few moments to formally introduce him. Jon joined us on the 1st of July, and in the short time that he's been with us, it is clear already that he brings the right blend of experience, drive, and thoughtfulness for the next phase of Rathbones' evolution. He has a strong background with a career that has spanned roles at Goldman Sachs, Man Group plc, and Capstone Investment Advisors. Sparing your blushes, he is ambitious, possesses high integrity, core to the DNA of Rathbones, and is deeply focused on growth and clients, qualities that the board believe make him exceptionally well placed to lead Rathbones in its next chapter. Jon, over to you.
Thank you, Clive. Good morning, everyone. It's been a real pleasure, actually, over the last few weeks, starting at Rathbones, to get to know so many colleagues around the firm and also the opportunity to meet clients as well. I've actually been really struck. We've got some brilliant people around this business in terms of the quality of the people we have facing clients, the technical expertise that we have in the business. I come from a couple of firms that really pride themselves on caring for clients. I think if there's one thing that struck me here, it is this is a whole new level of care and attention that people show towards clients and also, for that matter, towards one another in the business. I want to thank Iain in particular for helping me to get up to speed so quickly.
I think he's been impressively patient, actually, as I've asked him endless questions. A bit like a toddler. Why, why, why? Impressively patient because he's had today to prepare for as well. Thank you to Iain. Camilla in the front row is new to the business as well. Rather depressingly, actually, you wouldn't really know it, so I feel like a newbie. Camilla is actually, she's been here for the last 35 years, but we've gelled really well together as a team and I'm really looking forward to working with Camilla and Iain and the rest of the team in the months and years ahead. As I said, the one thing that struck me coming from really client-centric organizations is how much care there is for clients across the firm.
You can feel this in the way that people talk about their client relationships, the decisions that they take, the pride that they take in getting things right. Notwithstanding, as Paul said, some of the work that we have to do, I think that's a really strong foundation to build on the opportunities that we have and do what we want to do here. I personally joined Rathbones because I see a big opportunity. That opportunity is to build the best wealth manager in the U.K.. That's the belief that brought me here. For what it's worth, since taking this opportunity, that level of conviction that I have in the opportunity has grown really exponentially as I meet people within the business. That's convinced me that we're only at the foothills of realizing the potential that we have here.
I see that we have a really amazing set of cards to play. We have the scale now following the merger with Investec, the resources to invest properly in our profit proposition to clients. We have a strong and trusted brand and, as I mentioned, a team that are super experienced, care deeply about their clients, and there's a huge amount of technical competence around the business. Those attributes, together with some of the macro trends that Paul alluded to, whether that's demographic, regulatory, or societal, give us a really good tailwind and strengthen the case. I'm very excited by the relationship we have with Investec. It's a privilege to do a job like this when you have a stable, long-term shareholder. I am particularly excited in Camilla as well by the opportunity to collaborate more with Investec on the client side.
I think there's a decent amount of upside there. I'm very excited. I, back in the day, worked with Investec a long time ago, always enjoyed it and enjoying it again. Becoming the best wealth manager in the U.K. for me essentially means four interconnected things. First of all, being the first choice for clients, secondly, being the first choice for advisors, thirdly, being the most effective operator in the market, and fourth, having the most trusted name. Those are the cornerstones of what we're going to try and do here. Our immediate focus is on optimizing the business, as Paul said, and creating the conditions for growth. The IW&I integration and all of the work that's taken place on consumer duty have been both essential and transformative to the business. They also required a huge amount of effort, focus, care, and attention. Let's not pretend that hasn't been challenging.
It's been an awful lot of work. The team now has done the hard yards and I'd like to just take a moment to thank colleagues around the business who may be listening to this call and recognize the efforts that they've had to put into that integration work alongside everything else that they've had to do. It's worth, I think, recognizing that accomplishment because it's a big one. Now we have a real opportunity and we can look forward and upwards and I think it's a really exciting opportunity to build, as I say, the best wealth manager in the U.K. That does mean getting sharper and more ambitious in the way that we evolve the business. It means being honest about where we are today.
As Paul said, there are opportunities to optimize what we're doing, to simplify, to streamline, and to generally raise our game operationally and commit to a process of continual improvement. That work, I can assure you, has already begun with real intent. I'm going to say more about our plans and ambitions at full year results. I am actually a newbie. I've only been here for four weeks, although I will say Clive did put me to work during my gardening leave. For now, I'd really just like to thank Paul in particular. I could not have asked for more during this transition in terms of collaboration, the gracious way that Paul has welcomed me to the firm.
I've already learned a huge amount in the last several weeks, and Paul's impact on the business, both as CFO and CEO, over obviously a very long period of time, I think has been immense. I'm conscious I have rather large shoes to fill, literally and figuratively.
Thank you, Jon. Before we begin the Q and A, I have to remind you that Jon, as he's already said, has only been in post for about four weeks. I'd ask you that the questions go in this direction. Easy questions for Paul, difficult questions the way these things are organized because they are responsible for the delivery of first half 2025 results. We're going to start on the floor with questions for anybody in the room, and then, Shelly, we will go online. Paul, I'm now handing over to you. I think your first one is on the right.
Thank you, Clive. Mr. McCann, good day to you. We'll get to you, don't worry. Anybody think, David, you've done this before.
Likewise, Paul, congratulations on your retirement.
Thank you very much
for your efforts over the years. The customary three from me, please, if that's okay. Just firstly on the buyback, you talked in the footnotes of the slide about keeping Investec below the thresholds at the time of when they came on. Obviously, the buyback in theory means retiring about 2.5% of the shares. How is that going to work in practice? I appreciate they've come down a little bit since then with the share issuance, but square that circle for us. Also, just thinking about the timing of the GBP 50 million and the liquidity of your shares, how long do you think it will actually take to get that money out into the market? Second question, probably more for Iain on the synergies.
You said that you're obviously running ahead of schedule, you hope to have them in place by the end of this year. I'm just wondering why it takes to Q4 next year to actually see the real uplift in the operating margin. Surely we should be seeing that throughout the whole year of next year, shouldn't we, if you've achieved the synergies by the end of this year? Finally, just more conceptually, you probably noticed that Jupiter reported CCLA, a business that obviously directly competes with your charity authorized investment fund business in various ways. What do you think that impact might have on that sector of the market, either potential opportunities to win mandates if there's any loose clients in that business, and indeed risks of potentially a better resourced competitor? Thanks.
David. I'm going to take the latter one, after Iain's taken the first two.
Thank you, Paul.
Iain, are you alright with that?
Absolutely, yep. Just on the buyback, our normal approach with our approved share schemes in terms of those that form part of our remuneration structure: for certain of those schemes, our approach is to issue new shares. For the other schemes, we fund those by buying shares in the market. For those, we anticipate issuing new shares in relation to fund those approved share schemes during the course of the buyback period. Taking those into account, we can complete the buyback of GBP 50 million without the Investec voting rights exceeding the 29.9%. That's how we'll do that. Just on the timing, you're right, the liquidity in the market will determine the approach.
In determining the right size of the buyback, we have taken into account the length of time we think it will take, and it will probably take us beyond the announcement of the full year results, probably circa eight months, eight, nine months, something like that, or maybe a little bit longer. It just depends how things go. That's been a determining feature for us as to how far into the future it's appropriate to connect.
Of course, David, we won't start that until we get regulatory approval. That's when the clock starts.
Yes, so I said September. That's an estimate of how long regulatory approval will take. We need to have that in place, of course, because before we actually begin just on the synergies, we'll be continuing to deliver synergies during the course of this year. We will have the full year benefit from 2026, as you say. There is also built into the margin target other elements of cost discipline, but also the revenue growth that we talked about, the 2% that's dependent on growth in funds under management or growth in advice revenues. It's the build of that part that will take us into the final quarter of 2026.
We should be thinking about 28% from the start of next year, building to 30% by the end. Is that right? Just to be clear on that.
That's a reasonable assumption. There is, like I say, elements of cost discipline that don't necessarily fall to be treated as synergies, but form part of our overall approach in driving efficiency in the business. There will be some of that building in, in the first part of 2026 as well. I would just temper that assumption with that caveat.
David, the usual caveat of it's been here a wee bit of time now and of course we will always be subject to market movements that impact margins. We're only trying to give you a guide, in the event that markets broadly stay in a similar channel. Yeah, excellent. The last question was on CCLA. I think it's interesting to note, as we will well know and attest to, any inorganic transaction like that will have an impact in terms of client perceptions and we will, of course, have opportunities to come in and pitch. The important thing is that over the years we've been trying to do a lot in the charity space, but we've been doing a lot with a tailored bespoke approach to charities.
What you'll have seen in this announcement and in recent statements we've made is we're actually moving a little bit more into that competition space for the charity authorized investment funds, which is, interestingly, what CCLA have been doing over the last few years. There will be an opportunity for us to compete and we think we've got a very strong product in that place coming down the pike. We will therefore be able to offer some strong bespoke solutions for charities, but also a CAIF solution for charities, which provides a lot more consistent investment performance. Lastly, combining that with a much stronger green bank responsible investment overlay. We think we've got the proposition at the right time to respond to a transaction like that. Obviously, we are also beholden to the cycles of trustee reviews, which typically drives the opportunities in the charity space.
Are they every three years? Are they every five years? We will be competing very strongly in all of those. Very much look forward to this. A bit of a rebuild and a refresh of our charity proposition to offset that.
Thank you very much.
May I just overlay just one other point, David? In terms of the run rate of the margin from the start of 2026, we also have the FSCS levy that is fully expensed in the first half of the year. Our normal pattern of the margin is that there's a better second half than the first half for that reason. That's another point just to factor in.
David. Thank you, Ben. Good morning to you, Stuart. Oh, sorry, Stuart, I do apologize. If Shelly's chosen Stuart, then we'll have to go. Ben, I do apologize to you. My peripheral vision, I think.
Just following David, I've got three questions as well, if it's okay.
Sure.
First of all, on the new MPS proposition, I'd just be interested in how you think that can compete in what is a very crowded sector, actually w hat t he margins would be in that as well. Secondly, on the asset management side, you touched about the sort of new teams you were launching. Just interested more generally how you think w e scale some of the tail of smaller funds in that business. Lastly, on the new capital allocation policy, one of the points about organic growth you touched on was the sort of investments that we required. Just in general, what you're thinking about t here and how significant that could be.
Yeah, okay, absolutely, Stuart, thank you. Right, so effectively two things on the MPS proposition. I'm often asked the question about why we have an asset manager in the group and alongside a wealth manager. The opportunity that that presents alongside the combination which already had an MPS in the marketplace has given us an opportunity to effectively turbo boost that. From a margin perspective, overall there'll be no DFM fee. With that, fees will be capped at 0.5% for the MPS proposition itself. The opportunity from our margin perspective is to include our in-house funds capability. There's a manufacturer's benefit in that which has enabled us to price that pretty keenly and also leverage off the relationship that we already have in the marketplace that David Coombs has built up over a number of years.
We think the MPS is a true refresh that's combined an already existing MPS proposition in IW&I. I added the quote unquote power of Rathbones to that and we think it'll be a very competitive product. Your second question I think is in terms of small funds. I think inevitably over the years you'll know this, Stuart, the level that we've been able to offer any bespoke product to smaller portfolios, it's been rising all of the time, which again is one of the reasons why it dovetails in with Rathbone Asset Management and it dovetails in our ability to deliver fund-based propositions. Forcing that pace, we've found, we've always been reticent to do that, but encouraging that to get the right solution for the client. Let's not forget the rules we live by in terms of consumer duty and outcomes.
It gives us great opportunity to bring together the best of Rathbone Asset Management and the best of Rathbones across the organization. There's a lot of exciting things we can do there now that we are the size we are and the tools we've got in the shed. Your last question. I don't remember it, Stuart, but I knew it was for Iain.
New capital. Investment for organic growth.
Yeah.
Investment for organic growth, in terms of those elements of the capital allocation that we need to maintain capacity and flexibility to be able to invest in the opportunities that we see, there's never a right answer to how much capital you should actually attribute to that. What we've tried to do is to ensure that we maintain the second amount of flexibility whilst maintaining an overall efficient position, taking into account the rate at which we're able to return capital overall. We'll continue to, this will be part of our ongoing discipline, and we'll continue to review and adapt to that as opportunities and strategies emerge.
Thank you.
It was always drawn as a parallel to me, Stuart, that actually nobody really gets property footprint right, right, either. It's very hard to get whatever the inorganic opportunity in terms of your capital is. As Iain says, there's obviously a degree of judgment in this. For the moment, it's important to remember that when we talked about the combination of Investec Wealth , that was, quote unquote, the big one, and rather than doing a series of acquisitions inorganically, we've done a large one, and as we've been talking about, we're now the other side of it. I think we're trying to trim the capital base with that type of philosophy behind it to obviously maximize returns. Ben, I apologize.
Thanks, Paul. It's Ben Bathurst from RBC. First of all, I'd like to wish you all the best of luck for y our future endeavors before moving on to m y questions are in a couple of areas. Starting with some information you gave at the full year around establishing a presence in Dublin, I'm just interested to hear what the progress has been there and what the thinking is around what that's going to offer the group. Possibly a related question around that, there's no shortage of press articles at the moment about a wealth exodus from the U.K. Is that something that you're seeing? Can perhaps offer some color around in terms of its potential future flow dynamic f or us to be aware of. Finally, just really tracking headcount. I haven't seen an update in the materials today around financial planners and investment managers.
Just wondered if you could give an u pdate around developments there in the first half and what we should be thinking about for the rest of the year in those areas.
Thanks. Yeah, absolutely. On the Dublin question, we announced that as something that we would be progressing during 2025. We also said that we would be engaging in discussions with the regulator at that moment in time, and we want to make sure that that's done in a very constructive and timely fashion. We're working our way through that. When there's news on Dublin, we'll let you know. It was an opportunity, of course, to secure a way into the European market. We said at the time Rathbones did not have, unlike a number of our peers, a footprint in the EU. Obviously, we've been focusing on our core business in the U.K. in the first six months, as you might expect, and working on Dublin in the background. Whenever that gets to maturity, we'll let you know.
In terms of the wealth exodus, all I can do is offer a little, maybe anecdotal experience. Certainly from a Rathbones perspective, we are certainly hearing a number of engagements of clients moving. It's very helpful that we've got an SEC license, so if clients do want to move to the U.S., we can continue to service them and we're confident that we can continue to service them in the EU and where they go as well. Very much a focus on maintenance from that perspective. Yes, lots of anecdote we hear about, particularly in the higher end of wealth. Unquestionably, the numbers don't lie. There's a number of very high, ultra high net worth individuals who are moving to sunnier climes, maybe from a physical as well as an economic perspective.
The other point is, if we're on anecdote, we are watching carefully in the event that we do see a flow of people actually from the U.S., or indeed people who have come from the U.S. and are in the U.K. and want to stay. We are hearing quite a bit anecdotally about that as well. One to watch, but nothing that would be a trend either way that I would point you to that would materially impact our results in terms of headcount, as you might imagine. Whilst we're going through a lot of change in the organization, I think it's important that we do that and give you a good indication of what it's going to be in the future.
We'll be giving more information on that when we go out in the full year, but basically assume for the moment that it's a steady accretion of quality, high quality planning and investment management individuals that we will be talking to. We are very busy in terms of individuals that now want to join what is a stable and very well positioned organization. We're very much looking forward to doing that but won't change our standards in terms of quality.
Thank you.
Thanks, Ben.
Hi, this is [Christiana Holstein] from Bank of America. I also just want to say congratulations to Paul and welcome to Jonathan as well. I have three questions. On the operating margin of 30% which has been reiterated, it seems as though you're quite confident in achieving the 28% through the synergies. What gives you confidence in the remaining 2% given the recent headwinds around the macro environment and cost headwinds as well, and what's consensus missing given that they have 28% at the moment in their numbers? Secondly, on synergies, you've achieved those quite quickly and ahead of target. Do you think there's any upside to the initial GBP 60 million target number there? Thirdly, on surplus capital, there's still quite a bit of surplus capital on the table.
Where do you see the greatest opportunity for M&A and what do you think in terms of timing given IW & I is still being processed? Thank you.
Christiana. Thank you. Let me take the first point. I think it's inevitable that we're in any 30% margin aspiration. We have to put in something for growth and I think Iain outlined one of the first major pillars of that, which is that we have had a lot of internal facing people over the last six months. There is an opportunity, very much so as we go into the next sort of 18 months, for those individuals to get back to business as usual. That's a big driver. We do have a material amount of financial planners, 120, 130 financial planners. We do have 700, 750+ of investment professionals out there. That's the first point, that we get back to normal organic growth. We will always be subject to market sentiment and inevitably I think that's been impacted by a couple of factors.
The first is whilst cash is delivering a reasonable return, that tends to have a bit of a drag in terms of reticence to reallocate funds into equities in the shorter term. It is a little bit interest rate dependent. Iain talks a little bit about where interest rates are going to go. You'll know how many price reductions are already priced in in the market, 2%- 3%. To the extent that interest rates start to say if there's unused cash, then that doesn't encourage investment in equity markets. Secondly, we often find our biggest competitor from an asset allocation perspective to be real estate and it's the bank of mum and dad dynamic. It's the can I buy property for the kids or will that be an appropriate alternative asset class. We do watch that as well. I think the markets are favorable for investing.
I think government orientation on growth, regulatory increasingly turning around to try and promote growth, advice, guidance, boundary review is interesting as a statement in itself. Discussions on cash ISAs are interesting. Investing is starting to come back into the headlines as people realize that they need to save for the longer term. All of those things I think are helpful. We've got some external factors, we've got some internal factors. We're doing a lot, as you're giving a bit of a flavor of, in terms of marketing and distribution, adding a lot of skills to the organization as we reorient and take to the future. We have a very large IFA network that now needs our full attention and they will be getting that full attention.
To Stuart's point earlier on MPS, yes, those products are lower margin, but they're also a way in to have more meaningful commercial relationships with IFA groups. All of those things have been working in the background over the last six months or so as we've been integrating and migrating. I'm very much looking forward to those landing, and of course the last thing is the brilliant new leadership that will be part of the group. No pressure, that will have lots of focus to achieve growth as well. I do that with a smile on my face. Somebody did that to me, I think when I joined, just getting my own bank, Cristiano. I hope that helps to answer your.
Question and just on the potential for synergy upside, we're very pleased we've been able to deliver or expect to deliver the GBP 60 million target ahead of the original schedule as we will maintain our focus on trying to maximize the opportunity. We're very focused on that. I think we need to work through the optimization phase to see what other opportunities, potential opportunities there may be. At the moment we wouldn't commit to going beyond GBP 60 million, but we'll strive to deliver the maximum we possibly can in terms of surplus capital. There are M&A opportunities still out there. We're still in the consolidated marketplace. As Paul said, we've done the scale opportunity. There may be opportunities out there for smaller opportunities that deliver sort of benefit to us.
I think in terms of what we would do with that surplus, the capital allocation framework we've got now is we will continue to weigh up those opportunities against our ability to return capital going forward. That will remain our discipline for now.
Thank you.
Thank you. Any other questions in the room? We do. Thank you .
Hi, good morning, it's Vivek Raja.
Hi, Vivek, nice to see you.
Hello. Three things I wanted to ask you about, please. The first one is outflows. You referenced changing factors which are affecting it. I just wondered if you could talk to the outflows in Q2, the makeup of it, and what we should expect potentially in the near term and medium term for outflows. The next thing I wanted to ask. You were asking about advice outlook. You've referenced positive comments there, which plays to the macro and obviously plays to the capabilities you've got there. I just wondered if you could say a bit more about that, what you're seeing in terms of the pipeline. What sort of revenue growth can we expect? The final thing is the net interest margin.
Iain, you talked about, I think, if I understood you correctly, downside potentially to the margin below 4% base rate. Could you just talk to the sensitivities there, please? Thanks.
Thank you. We'll do that. Iain, if you would be kind enough to just talk a little bit about the outflows and if you wanted to do the base rate while you're at it, then I'll come back on the advice point, Vivek, if that's okay.
Yeah.
Like much of the industry, we've seen a period of outflows being elevated. Those have been for two principal reasons, really, the macro side of higher interest rates and higher inflation resulting in existing clients taking a portion of assets out of the portfolio. We've also had our own specific factors that have driven outflows a little bit higher for reasons we've talked about in the past. I think at some point the tide will turn on those macro factors as interest rates start to decline and expectations on returns begin to change and people feel more inclined to put new monies into the portfolios or have less reason to take money out. Our specific factors have continued to have receded over time as we talked about at the year end. For those reasons, there's a reason to feel more optimistic that that period of elevated outflows is perhaps receding.
However, I would just caution this is one quarter and we need to be careful about reading too much into one specific quarter, but nevertheless pleasing to see things going in that direction. In terms of the net interest margin sensitivities, first of all, our treasury strategy, which includes having a certain amount with the Bank of England and a certain amount in their certificates of deposit and things like that, shelters us a little bit in the first instance from any immediate impact of a reduction in interest rates. I think the way the interest rate reductions are playing out is the reverse of how they played out on the way up. Above that 4% level, the majority of any increases were passed on through interest payable and the reverse is happening on the way down.
There comes a point where 4% is probably the level where we start to reduce our margin in order that there's a sharing of that reduction between the interest rate we earn and the interest rate we pay to clients. If you, as we get below 4%, then maybe half of that margin reduction would begin to be passed on through our, or be taken by us or absorbed by us in the reduction in the interest rate margin, if that gives you a feel. That probably takes us down to, once we get closer to 3%, that might change again.
Yeah. Just to make the point that we're obviously not competing in the retail deposit market, that's not what we do, but we do regularly benchmark to make sure that the rate that we are obviously offering clients is more than competitive. That's the other angle to this, very important that we have the consumer duty principles that overlie that policy that Iain was just talking about. Talking a little bit about advice, this seems to be a bit of an event to introduce a bit of nostalgia. Maybe I'll do that in answering your question, Vivek. Certainly, Rathbones five, six, seven years ago was very investment focused. The proposition was led by investment. Since the acquisition of Saunderson House and indeed now the combination with Investec Wealth , the business is much more balanced in terms of its ability to offer financial advice solutions.
There are two things that effectively are fueling my optimism in terms of where that advice is, notwithstanding the well chronicled need for financial advice in the U.K.. Those factors are, firstly, we've put three financial planning businesses together effectively: Rathbones Financial Planning, what was in IW&I, Investec Wealth & Investment, and Saunderson House. That is largely all done now. We are operating on one platform together with one proposition. We also have a mix of approaches from those businesses. Firstly, in terms of how financial planners work with investment teams to bring the propositions together and actually deliver a service that is of a range of outcomes for both. In other words, we now have the capability to offer an investment solution that is funds based and quite keen from an economic pricing perspective with a great deal of advice, full fat, if you like, advice.
We can offer full fat investment, tailored bespoke investment with full fat advice. We can also offer full fat tailored investment solutions with what I'm calling point in time advice, which is a little bit closer to the advice guidance boundary type of targeted support. It's more than targeted support, it's more in that simplified advice bucket. It's an opportunity to tailor the investment and the advice solution across the piece to client preferences, which is really, really important. What that does is it enables us to look much more actively at the under planned opportunity within Rathbones, let alone the appetite externally for financial advice. What Saunderson House brought us was a capability to market advice for advice's sake in sectoral markets, particularly in terms of lawyers, accountants, et cetera.
Upcoming emerging wealth combines very nicely with a lot of the things Rathbones was doing in entrepreneurs in the space and a lot of things Investec Wealth was doing in the higher net worth space. One of the reasons that we're talking about optimization, looking at the past, is that we can combine a lot of those financial advice capabilities with investment capabilities and also pick up on what is an emerging trend of training people right from the start to become dual hatted in terms of being able to help us tailor our advice and investment proposition mix and be able to deliver that in a much more cost effective way. This has been a jigsaw that we've been putting together now for three or four or five years and is a super opportunity for us to take forward. Vivek, does that help?
It does. Thank you very much, Iain, thanks for y our answers and Paul, wish you well. Thank you.
Thank you, Vivek, appreciate it. Any more questions from the audience this morning? Shelly, do we have one more question.
In the interest of time, because we are running over, I will just ask one question from the web and we can get back to people individually. The question is, do you believe the full potential benefit from the relationship with the broader Investec group can be achieved while they remain in effect a minority shareholder?
I think that's a loaded question, but let me take it. I think in short, yes, as Jon mentioned, it is a pretty unique opportunity to have a shareholder that has a material and stable interest in this group as we've been talking about over the, you know, particularly the last couple of years. That relationship is deeper than just the relationship with Investec Bank. There's an offer, there's an opportunity to work with their wealth business. We have worked with them to solve some of our technology solutions as well. This is a relationship that we can treasure and thrive and actually to have an organization structure of a shareholder that's not only looking long term and very supportive, but also has an opportunity to help us with distribution and help us with cost efficiency. I don't see anyone in the U.K. market with that unique opportunity.
We will be, you know, working very hard to amplify that and get the best out of it.
Thank you very much. I might just ask one more from the line. Iain, this one's for you. The GBP 178 million of surplus capital, can you clarify whether it includes the dividend to be paid and the GBP 50 million buyback pro forma?
It is before both of those things.
I might just now ask if there's any questions from the conference line. There is an operator, I think, who might just.
We currently have no questions. [Reliance].
I'll hand back to you, Clive.
Thank you very much, Shelly. Before we close, I'd like to take a moment to acknowledge Paul's contribution. On behalf of the entire board, I want to thank him for the passion, energy, and commitment that he's shown over nearly 17 years, six of which he's been the CEO of this fine business. In this time, he's overseen the growth of the business from something which had about GBP 10 billion up to something that has about GBP 110 billion. That is a 10x growth delivery. Paul has successfully steered the group through shifting markets, regulatory change, and wider geopolitical challenges. Always with clarity, integrity, and a sense of purpose, he leaves Rathbones in a position of real strength. This isn't quite goodbye.
I've written here, Paul still has two more months of hard work ahead, but I wanted to take this bittersweet opportunity to say thank you for everything that he's done. Paul, I think you want to say a few final comments.
Thank you, Clive, for those kind words. Thank you, Jon, for those kind words. I thought, you know, why the hell to last one. It is 17 years almost to the day when I joined Rathbones. I think the scary thing is that there are one or two faces in here that were there at the time. I don't know whether that's scary for me or scary for them. It's interesting, but I really have had the privilege to work with some amazing people. They've all worked tirelessly to take the business forward and really do the level best for clients and that's been really refreshing for me. It's been fuel in the tank. I'd like to thank Clive and the Rathbones board for a huge amount of support over the years as well. I've loved the interaction with U.K. capital markets.
There's been some sort of event every year that has presented either a challenge to me or an opportunity. My interactions with analysts and investors have been, believe it or not, truly uplifting for somebody as sad as me. Allowing an exchange of feedback that has been lots of sharing and lots of debating and lots of challenge, but also lots of inspiration as well. Pretty much exactly as it should be. I wanted to celebrate that and I know that the industry is very different. I joined before this thing called Brexit, before this thing called MiFID II, so things have changed quite a bit in capital markets since then. If the market continues to promote risk taking, the facilitation of investment opportunity, which at the end of the day lands in our laps as an opportunity to participate in it, will always remain close to our hearts.
Rathbones now has a very solid place in the world and I very much look forward to keeping up with its progress in the many years ahead. Thank you all for attending today on the phone and elsewhere in the ether. We didn't have that 17 years ago, so thanks again and have a nice day, everyone.
I want to say thank you again. Can we stand and thank you.