Rathbones Navigates Regulatory Storm and Margin Reset
A Skilled Person Review and a fee-cash change pressure near-term targets, but flows and strategy provide offsetting optimism.
RAT.L · Earnings Call · 2026-07-29
Regulatory Program Takes Center Stage
Rathbones' first half of 2026 is defined less by its financial results and more by the regulatory program announced in June. The company is undertaking a regulatory program under FCA supervision, working with KPMG as the skilled person on a targeted client review and a broader review of clients requiring enhanced due diligence. Jon Sorrell, CEO, is keen to emphasize progress: “We're approaching this work with rigor, urgency, and transparency, and we've made really good progress over the last six weeks.” — Jon Sorrell, Chief Executive Officer · 2026-07-29 Yet the workload is considerable. The company has identified approximately 4,700 EDD clients subject to restrictions, and the total incremental cost is estimated at GBP 60 million. That cost is being recognized in the first half, with non-underlying items rising accordingly. Importantly, the company confirms the cost of redress is insured, but with caveats. Sorrell adds: “We are keen to be as transparent as possible. You know everything that we know, That's the nature of the exercise.” — Jon Sorrell, Chief Executive Officer · 2026-07-29
We are keen to be as transparent as possible. You know everything that we know, That's the nature of the exercise.
Margin Target Cut: A Cost of the New Approach
The most direct financial consequence is a revision of the fourth-quarter operating margin target from 30% to 28.7%. The cause is the decision to cease charging fees on cash within discretionary portfolios, a move announced in June. CFO Iain Hooley explains: “we've revised our Q4 margin target from 30% to 28.7%.” — Iain Hooley, Chief Financial Officer · 2026-07-29 The cessation will reduce the fee margin by around 1.5 basis points in H2, and the company acknowledges it cannot fully mitigate the impact this year. This is a deliberate trade-off: simpler, more transparent client charging at the expense of near-term margin. The fee margin pressure is a new narrative for the company.
Flows: Wealth Recovers, Asset Management Still Struggles
Underlying the financials, there is a clear divergence in flow trends. Group net outflows of GBP 0.9 billion in H1 2026 improved from GBP 1.0 billion in the prior year, but the trajectory within the half was meaningful. Q1 saw net outflows of GBP 845 million, driven by a tax-driven spike after the October 2024 budget. Q2 rebounded to near-neutral, with Wealth Management posting net inflows of GBP 450 million. Hooley noted: “Whilst we reported net outflows of GBP 845 million for the group overall for the first quarter, net inflows improved significantly in the second quarter...” — Iain Hooley, Chief Financial Officer · 2026-07-29 The net flows improvement is supported by stronger gross inflows for three consecutive quarters, driven by pent-up activity and larger client wins. However, the Asset management business continues to bleed assets, particularly in single strategy funds. Jon Sorrell defends the active approach: “The only card is patience in this business. We will continue to be patient according to their style...” — Jon Sorrell, Chief Executive Officer · 2026-07-29 That patience is central to the patience narrative, but investors may be losing theirs as the business has been a drag for years.
Strategy: Brand, AI, and Financial Planning as the Offensive
Amid the regulatory and margin turmoil, the company continues to execute its four-priority strategy. The brand push is showing early results: share of voice in wealth media more than doubled to 23%, and the company claims to be the most cited wealth manager in LLM prompts. AI adoption is accelerating, with Copilot usage up over 150% to 56,000 hours per month. The Salesforce implementation remains on track for Q3, which should simplify operations and release advisor time. Financial planning continues to be a standout growth area, with net inflows recorded every month across all regions. However, the number of financial planners has been flat, as hiring is difficult, prompting the company to invest in the Rathbones Institute to grow its own talent.
The combination of a regulatory overhang, a margin reset, and a continuing drag from asset management creates a cautious tone. Yet the underlying business is healthy: FUMA is up 10.7% to GBP 120.7bn, underlying PBT is up 14.4%, and the dividend is progressing. The market will watch the execution of the regulatory program and the extent to which the margin target can be recovered in 2027. The company is making a strategic bet that transparency and simplicity will pay off in client trust and long-term flows.