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Facing
the future
responsibly
Rathbone Brothers Plc
Report and accounts 2020
About Rathbones
Rathbones provides individual investment and wealth management services for private clients, charities,
trustees and professional partners. We have been trusted for generations to manage and preserve our clients’
wealth. Our tradition of investing and acting responsibly has been with us from the beginning and continues to
drive us forward. Our ambition is to be recognised as the UK’s most responsible wealth manager.
2020 financial highlights
Profit before tax
£43.8m
(2019: £39.7m)
Underlying profit before tax* 1
Basic earnings per share
Underlying earnings per share* 1
£92.5m
(2019: £88.7m)
49.6p
(2019: 50.3p)
133.3p
(2019: 132.8p)
Dividends paid and
proposed per share
72.0p
(2019: 70.0p)
Return on
capital employed (ROCE)
Underlying return on
capital employed (ROCE)*2
5.3%
(2019: 5.7%)
13.6%
(2019: 14.2%)
For a full five-year record, please see page 223
* This measure is considered an alternative performance measure (APM). Please refer to pages 35-36 for more detail on APMs
1. A reconciliation between underlying profit before tax and profit before tax is shown on page 35
2. Underlying profit after tax as a percentage of underlying quarterly average equity at each quarter end
Contents
Strategic report
Governance
Financial statements
Business overview
Our purpose
Chairman’s statement
Rathbones at a glance
Our business model
Stakeholder engagement (s172)
Chief executive’s review
Our investment case
Our market and opportunities
Our strategy
Our strategy in action
Key performance indicators (KPIs)
Financial performance
Segmental review
Financial position
Liquidity and cash flow
Risk management and control
Responsible business report
1
2
4
6
8
10
14
17
18
20
22
30
33
37
42
45
46
52
Corporate governance report
Group risk committee report
Audit committee report
Nomination committee report
Remuneration committee report
Directors’ report
Statement of directors’
responsibilities in respect
of the report and accounts
76
92
95
100
103
127
130
Independent auditor’s report to the
members of Rathbone Brothers Plc
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the company
financial statements
Further information
Five-year record
Corporate information
Our offices
132
142
146
203
206
223
223
224
A responsible business
At Rathbones, we have a clear understanding of who we are as a business, supported by a strong ambition for
our future. Our purpose represents our commitment as a business to all of our stakeholders and wider society,
while our ambition provides our long-term goal for the future. Underpinning both of these is our strategy.
Our purpose is
to think, act and
invest responsibly
We deliver on our purpose through
our corporate values:
Responsible and entrepreneurial
in creating value
Collaborative and empathetic
in dealing with people
Courageous and resilient
in leading change
Professional and high-performing
in all our actions
Our ambition is
to be recognised
as the UK’s most
responsible
wealth manager
We are committed to growing and
preserving wealth for our clients.
Read more on page 17
Our purpose
and ambition are
achieved through
a clear strategy
Read more about our strategy
on pages 22-29
Institutional-quality
investments
whole of market
Relationship-led
tailored and flexible
Multi-generational
for clients of today and tomorrow
Partnership
working together to deliver
the best client outcomes
Enriching the client and adviser
proposition and experience
Supporting and delivering growth
Inspiring our people
Operating more efficiently
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1
Our purpose
We are
committed
to investing
for everyone’s
tomorrow.
Our commitment to lead in responsible wealth management stems
from our purpose in society, founded on the values passed down from
generation to generation. Thinking, acting and investing responsibly
guides our actions and drives us to pursue our strategy with consistency
and resilience, year after year. It also keeps us on course as we adapt and
respond to the unprecedented crisis that the world is facing.
We have a fiduciary responsibility to our clients: investing for their long-
term goals. This focus on the long-term enables us to create value for our
clients whilst also making a positive contribution to society. And today, it
is more than ever at the heart of our commitment to invest for everyone’s
tomorrow. We believe that our actions add up to what we stand for. As an
example of our commitment to the future, we have built a responsible
business framework, which will enable us to deliver on our initiatives,
including responsible investment agenda, diversity and inclusion,
community investment and reducing our environmental impact.
2
Rathbone Brothers Plc Report and accounts 2020
Strategic report| In 2020, we have taken a
number of steps to ensure that,
as a business, we are ready to
face the future responsibly:
p.22
In year two of our strategy, we
have continued to enhance our
client proposition with significant
advancement of our digital proposition.
p.52
We have developed a new responsible
business framework, which will
provide the blueprint for driving
long-term, sustainable value for
our broader stakeholders.
p.70
We have undertaken a robust review of
our approach to climate-related financial
risks and are proactively reporting against
the Task Force on Climate-related
Financial Disclosures (TCFD) framework.
p.59
We have continued to focus on
addressing our gender and ethnicity
balance and embedding diversity
and inclusion into our day-to-day
working practices.
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3
Chairman’s statement
Chairman’s statement
A review of 2020
2020 was an extraordinary year. Initial optimism in financial
markets was curtailed by the rapid advance of the COVID-19
pandemic and resulting lockdowns, which had a devastating
impact on societies and economies worldwide. Financial markets
crashed initially but then rallied following massive interventions
by central banks and governments resulting in US markets
hitting new highs with technology stocks driving the advance.
The response from Rathbones was speedy and effective. We
established a crisis committee in early March which oversaw a
seamless transition to remote working for the vast majority of
our people and we provided ongoing support to them through
high levels of engagement and a number of wellbeing initiatives.
We also increased communication with our clients to ensure an
enhanced service, including both support and advice. We were
able to take advantage of our first-class strategic asset allocation
and research capabilities to provide our investment managers
with the best strategies and ideas for a hugely volatile market.
As a result, our investment performance was strong across
the group, which serves to reinforce the benefits of active
investment management in turbulent times.
Our strong investment performance helped ensure that,
notwithstanding the significant market volatility during the year,
our funds under management and administration grew by 8.5%
to £54.7 billion.
Profit before tax totalled £43.8 million (2019: £39.7 million)
reflecting anticipated costs associated with the acquisition of
Speirs & Jeffrey. Basic earnings per share decreased to 49.6p from
50.3p in 2019.
Underlying profit before tax totalled £92.5 million (2019: £88.7m),
resulting in an underlying operating margin of 25.3% (2019: 25.5%).
Underlying earnings per share in the period totalled 133.3p
(2019: 132.8p).
In line with our generally progressive dividend policy and
reflecting confidence in the outlook for the business and its
strong capital position, the board is pleased to recommend a final
dividend of 47p per share. This brings the total dividend for the
year to 72p per share, 2.9% ahead of 2019.
Our purpose and culture
As I mentioned in my statement last year, we completed
a firm-wide exercise in 2019 to encapsulate the purpose of
Rathbones. We concluded that our purpose is to think, act and
invest responsibly. This has been embraced by our employees.
Rathbones has a distinctive client-centric, collaborative and
entrepreneurial culture which represents a key strength. A strong
culture is fundamental to our success over the long term and our
board reporting includes increasingly sophisticated management
information on this.
Environmental, social and governance (ESG)
ESG continued to grow in importance as the global effects of
the pandemic and climate change have become obvious, with a
consequent impact on social inequalities. The pandemic has also
accelerated interest among our clients in responsible investing.
We have long been at the forefront in this area through Rathbone
Greenbank Investments, which has been creating bespoke ethical,
Mark Nicholls
Chairman
It has been a huge pleasure and
privilege to work with such high-calibre
colleagues at Rathbones over the last
10 years, and I am tremendously proud
of what the business has achieved during
that time. There is strong momentum
building in the business and I have the
utmost confidence that we are well
placed to go from strength to strength.
4
Rathbone Brothers Plc Report and accounts 2020
Strategic report| sustainable and impact portfolios for clients for over 20 years.
We are now making good progress towards fully integrating ESG
into our investment process across the group and are developing
market-leading propositions through the specialist funds offered
by Rathbone Unit Trust Management. Our ambition is to be
recognised as the UK’s most responsible wealth manager.
We believe it is in our clients’ best interests to ensure that the
companies in which we invest on their behalf adopt best practice
in promoting a constructive ESG agenda. Our highly regarded
stewardship team proactively engages with companies to
discuss ESG issues.
Finally, the board is strongly committed to corporate governance
and firmly believes that a robust governance framework is vital
to the long-term success of the firm and the achievement of its
strategy. We recognise that strong corporate governance is not
just about complying with the UK Corporate Governance code
– it is also about our firm’s culture, our behaviours and how we
service our clients. Our corporate governance report can be
found on pages 76-91.
Strategy
As we invest to grow the business organically by deepening
our investment expertise, improving our client service and
proposition, driving productivity and efficiency, and inspiring our
people, we are doing so responsibly by ensuring that all strategic
decisions are taken in the best interests of all our stakeholders.
Our section 172 statement can be found on page 10.
The pandemic has not altered our strategy, rather it has helped
to accelerate our plans in many areas. During the year we
made good progress on digital infrastructure initiatives and
the automation of client administration processes. In addition,
we strengthened our specialist capabilities by growing our
charities team and completing the acquisition of the Barclays
Wealth Court of Protection business. Progressing our digital
transformation agenda will be a key strategic focus in 2021.
Engaging with our people and shareholders
Rathbones is fundamentally a people business. Our key priority
during 2020 was to support the mental health and wellbeing of
our people to ensure that they remained engaged. Our annual
employee engagement survey had an overall engagement
score of 91%, compared to 86% in 2019.
Last year, as our response to the workforce engagement initiative,
Sarah Gentleman and Colin Clark were nominated to be responsible
for gathering feedback from employees and they have continued
their efforts this year with enthusiasm, meeting with a broad
spectrum of employees and reporting back to the board on all
aspects of their discussions.
Rathbones is an equal opportunities employer and it is our policy
to ensure that all job applicants and employees are treated fairly
and on merit. We continue to focus on addressing our gender
and ethnicity balance, improving our insight and awareness
in relation to diversity and inclusion, and reflecting this in
our working practices.
Maintaining a transparent and constructive dialogue with our
shareholders is a very important mechanism for providing useful
feedback to the board. This year I have enjoyed discussions with
shareholders on our strategy, dividend policy and governance
rathbones.com
initiatives. The chair of our remuneration committee also
undertook an extensive shareholder engagement programme
to discuss the proposals for our new executive remuneration
scheme which will be brought to shareholders for approval at
our 2021 Annual General Meeting (AGM).
The board and succession
As I mentioned in my statement last year, I have served as
a non-executive director for over 10 years and as chairman
since May 2011. My tenure therefore exceeds the requirements
outlined in the UK Corporate Governance Code. The board
initiated a process during 2020 for the appointment of my
successor. The search was successful, and Clive Bannister will
succeed me as chairman at the conclusion of the 2021 AGM on
6 May, subject to shareholder and regulatory approval. Clive has
had an extensive career in financial services and will bring a wealth
of strategic, commercial and financial experience to the board.
Jim Pettigrew has also indicated that he will step down at
the 2021 AGM. Jim has made a huge contribution to the board,
both as non-executive director and senior independent director,
and I am particularly grateful for his wise advice. As part of the
board’s succession plans, I am pleased that Colin Clark has been
appointed to succeed Jim as senior independent director, subject
to regulatory approval.
In addition, as part of our review of board effectiveness and
succession planning, we constantly monitor the breadth and
depth of knowledge, industry experience and diversity within
the board and assess what new skills are necessary to continue
constructive challenge and guidance to the executive team.
As a result, we have initiated a process to appoint an additional
non-executive director in 2021.
Looking back
Rathbones has enjoyed a remarkably successful year, delivering
a resilient financial performance and making good strategic
progress in what has been a highly uncertain environment.
On behalf of the board I would like to thank the management
team and staff for their dedication and support during the year.
I would also like to thank our clients and shareholders for their
ongoing commitment to Rathbones.
It has been a pleasure and privilege to work with such high-
calibre colleagues at Rathbones over the last 10 years, and I am
tremendously proud of what the business has achieved during
that time.
Looking ahead
The outlook for 2021 is uncertain and we can expect continuing
volatility. Although the ebbs and flows in the struggle to contain
the pandemic are likely to be the dominant factor throughout
the year, the global geopolitical landscape remains as uncertain
as ever and the real implications of Brexit have yet to emerge.
That said, Rathbones is well-positioned with a strong balance
sheet and the right strategy in place. There is strong momentum
building in the business and I have the utmost confidence that
we are well-placed to go from strength to strength.
Mark Nicholls
Chairman
3 March 2021
5
At a glance
Rathbones at a glance
Where we operate
Key highlights
15
UK locations1 and Jersey
1,588
employees
£54.7bn
managed by us for our clients
FTSE 250
company listed on the London Stock Exchange
Size of
Investment
Management
relationship
value
Investment
Management
client account
type by value
Total Funds
£9,820m
0-£250k
£250k-£500k
£500k-£750k
£750k-£1.5m
£1.5m-£5.0m
£5.0m-£10.0m
£10m+
Private clients
ISA
Charities
Pensions
Trusts
Other
6.7%
11.1%
9.5%
17.8%
25.6%
9.7%
19.6%
34.3%
19.1%
13.9%
11.9%
10.4%
10.4%
Rathbone Global
£3,202m
Opportunities Fund
Rathbone Ethical Bond Fund £2,088m
£1,714m
Rathbone Multi-asset Portfolios
£811m
Rathbone Income Fund
£578m
Offshore funds2
Rathbone High Quality Bond Fund £283m
Rathbone Active Income and
Growth Fund
Rathbone Strategic Bond Fund
Rathbone Core Investment Fund
£129m
for Charities
Rathbone Global Sustainability Fund £44m
Rathbone UK Opportunities Fund £49m
£492m
Other funds
£227m
£204m
Includes Vision Independent Financial Planning
1.
2. Our Luxembourg-based feeder funds were converted to directly invested funds in preparation for the potential loss of Undertakings for the Collective Investment in Transferable
Securities (UCITS) status post Brexit
6
Rathbone Brothers Plc Report and accounts 2020
Strategic report| What we do
Our purpose, which is to think, act and invest responsibly,
is delivered through our corporate values – responsible and
entrepreneurial in creating value, collaborative and empathetic
in dealing with people, courageous and resilient in leading
change, professional and high-performing in all our actions.
Investment management
Through Rathbone Investment Management, we provide
investment management solutions to a range of private clients,
charities, trustees and professional partners. Clients of this
service can expect a tailored investment strategy that meets
individual objectives backed by an investment process that
aims to provide risk-adjusted returns to meet clients’ needs
today and in the future.
Within Investment Management, we have several
specialist capabilities including:
Charities and not-for-profit organisations
We manage £6.5 billion of non-profit funds and are the fourth-
largest charity investment manager in the UK. The team is
diverse, in both its expertise and experience, and aims to deliver
suitably tailored investment portfolios to meet the specific needs
of clients and trustees.
Rathbone Greenbank Investments
As one of the pioneers in the field of ethically focused
investments, we manage over £1.9 billion in ethical and socially
responsible investment portfolios. The team is highly proactive,
engaging directly with companies and government to improve
business practices.
Personal injury and court of protection
Our specialist team works closely with deputies, trustees and
families, seeking to provide a consistent and rigorous investment
process sympathetic to individual circumstances.
Rathbone Investment Management International
Based in Jersey, we cater for the investment needs of individuals
and families, charities and professional advisers who are looking
for offshore investment management.
Funds
Rathbone Unit Trust Management is a UK active fund manager
with £9.8 billion under management, providing a range of
specialist and multi-asset funds that are designed to meet core
investment needs in the retail client market. These funds are
distributed primarily through financial advisers in the UK.
Our funds can also be accessed by international clients through our
Rathbone Luxembourg Funds SICAV (Société d’Investissement à
Capital Variable) which allows access to a similar range of actively
managed funds.
1. All complementary services are reported as part of our Investment Management segment
Complementary services1
Rathbone Financial Planning
Our in-house financial planning team provides whole-of-market
advice to clients. The planners work closely with investment
managers to help clients create a bespoke financial plan. We have
long-standing experience and can act on a one-off basis or as part
of an ongoing service.
Unitised Portfolio Service
Using Rathbone Multi-Asset Portfolio funds, we offer clients
with investible assets of £25,000 or more our model-based
discretionary investment management service. This is designed
for clients who do not require a fully bespoke investment
solution, but still want access to an investment manager to
ensure investment needs are selected and monitored to suit
their individual circumstances.
Managed Portfolio Service
A simple and straightforward execution-only investment service
which gives clients with £15,000 or more the ability to access
high-quality investments. The service is delivered via an adviser
at a price that reflects the competitive nature of our sector, but
to a standard that clients have come to expect from Rathbones.
Rathbone Select Portfolio
An attractive and cost-effective investment solution for clients
with £15,000 or more to invest for at least three years. Providing
access to the Rathbone Multi-Asset Portfolio funds on a self-
select basis, this service is designed for clients who are
comfortable choosing an investment strategy to meet
their investment objectives and risk profile.
Banking and loan services
We offer loans to our existing clients secured against their
investment portfolios and, in some cases, other assets. As a
licensed deposit taker, we are also able to offer our clients a
range of banking services including currency and payment
services, and fixed interest term deposits.
We also provide services through these entities:
Rathbone Trust Company
Provides UK trust and specialist legal, estate and tax advice to
larger clients.
Vision Independent Financial Planning
An independent IFA network providing financial advisory
solutions to UK private clients. Acquired in 2015, it has
grown from £845 million of assets on its discretionary
fund management panel and 81 advisers to £2.2 billion
and 131 independent financial advisers.
rathbones.com
7
Our business model
Our business model
What we do…
How we do it…
We are a leading provider of individual
investment and wealth management
services for private clients, charities,
trustees and professional partners.
Our ambition is to be recognised as the
UK’s most responsible wealth manager.
We have two main areas of operation as well as several
complementary services:
Rathbone Investment Management
— offers personal discretionary investment management solutions
Rathbone Unit Trust Management
— provides single-strategy and multi-asset fund products
Complementary services including:
— Financial planning
— Unitised Portfolio Service
— Managed Portfolio Service
— Rathbone Select Portfolio
— Banking and loan services
— UK trust, legal, estate and tax advice
— Vision Independent Financial Plannings
What makes us different…
A sound investment case
— Relevant investment solutions
— Deep expertise
— Owned infrastructure
— Trusted relationships
Scale and expertise
— An established and trusted brand with local presence
— Individual relationships with clients and advisers
— Our client digital portal, MyRathbones, and our mobile app
will complement our face-to-face service
Independent ownership
— Listed on the London Stock Exchange and a constituent
of the FTSE 250
— High standards of corporate governance
Working flexibly
with clients
and advisers
Link to relevant
investment
solutions
An informed
investment
process
Link to deep
expertise
Supported by
in-house
operations
Link to owned
infrastructure
Individual
relationships
with clients
and advisers
Link to trusted
relationships
Read more about our
investment case on page 17
8
Rathbone Brothers Plc Report and accounts 2020
Strategic report| — Clients have the option to join Rathbones either directly
or through their own financial intermediary
— Our dedicated intermediary sales team provide Rathbone
Group services and products to UK and International
financial advisers, including from full bespoke discretionary
services to fund based solutions
— Direct client and adviser referrals remain the most
important source of organic growth
— Our Vision Independent Financial Planning business
operates independently but maintains a close relationship
with Rathbone Investment Management
— Rathbone Financial Planning provides whole-of-market
advice to clients, working closely with investment managers
to create bespoke financial plans
— We have a bespoke approach to portfolio construction
supported by a central research team
— Our firm-wide processes allow us to pool intellectual
capital and provide strategic asset allocation methodologies
— We operate a range of specialist mandates, including
specialist investment teams who provide services to
charities, ethical investors and Court of Protection clients
— Our internal quality assurance and performance
measurement capabilities provide a sound
control framework
— We have dedicated in-house custody and
settlement services
— Our operations team is highly experienced
— We outsource selected services, where this is cost-effective,
to reliable and carefully chosen partners
— Our service is delivered directly through investment
managers who make portfolio decisions
— Our aim is to build lasting and trusted relationships
— We access investments across the whole market, with
no bias towards in-house funds, but have a suite of
fund solutions through Rathbone Unit Trust
Management for clients who do not require a fully
bespoke investment service
— Our Jersey office can cater for offshore
investment needs
— Our upgraded client digital portal, MyRathbones,
will complement our face-to-face service
To create long-term value…
For investors
— Leading operating margin compared
to industry peers
— Successful acquisition capability of
people and firms that fit our culture
Dividends per share in 2020
72p
For clients
— Active management of portfolios
through changing market conditions
— A valued and quality service that
builds trust
— Specialist mandate capabilities
— High-quality adviser services
Number of clients
61,000
For employees
— Empowered to make individual
investment decisions
— Performance-based remuneration
— Investment in training, support
and development
— Share ownership
— Low staff turnover
Employee survey engagement score
91%
rathbones.com
9
Stakeholder engagement
Stakeholder engagement
Section 172 statement
Our board promotes the
success of the firm for the
benefit of our members
as well as a broad range
of stakeholders that we
recognise are material to
the long-term future of
our business.
In doing so our board has regard
(amongst other matters) to the:
— likely consequences of any
decisions in the long term
— interests of our people
— need to foster the company’s
business relationships with
suppliers, customers and
other key stakeholders
— impact of the company’s
operations on communities
and the environment
— desirability of the company
maintaining a reputation
for high standards of
business conduct
— need to act fairly as between
members of the company.
We have detailed in the adjacent
table how the board have ensured
effective engagement with our
key stakeholders during the year.
Clients
Link to enriching the client and adviser proposition and experience strategic priority
Why they are important to our business
Clients are the central focus of our business. The firm’s ongoing success is built upon an
ability to understand clients’ needs and respond with bespoke solutions. This allows us
to anticipate how these needs will evolve and to provide portfolios and services that
meet their financial goals and build their future prosperity.
How the firm engaged
We engaged with our clients through a variety of channels including:
— regular meetings were held with investment managers and financial planners
— implemented video technology to enable virtual engagement with clients
— virtual conferences held for private clients, intermediaries and IFAs
— external client surveys
— regular CEO letter issued to clients to update them on the firm and the impact
of COVID-19.
How the firm responded
— Implemented even tighter monitoring of portfolio investment performance and
processes to ensure it is executed within client risk appetites
— financial awareness courses for all generations held in person and virtually
— development of new products and services to meet current and future client needs
— assessed how the firm can improve client-service-based on net promoter scores from
client surveys.
Measuring our engagement
Client Experience (CX) survey 2020:
Overall
satisfaction
Team
satisfaction
Client
centricity
Overall satisfaction with
firm (0-10)
Overall satisfaction with
wider team (0-10)
Belief that firm operates in
the client’s best interests
Rathbones
Benchmark*
8.9
8.4
Rathbones
Benchmark*
8.8
8.2
Rathbones
Benchmark*
99%
96%
* Aon UK CX Syndicated Benchmark 2020
10
Rathbone Brothers Plc Report and accounts 2020
Strategic report| People
Link to inspiring our people strategic priority
Why they are important to our business
The board recognises that the firm’s culture and corporate
values underpin the effective delivery of its strategy. Our
people are central to the ongoing success of the firm and we
are proud of our reputation as an employer of choice. Our
people strategy aims to develop an agile workforce as we
continue to attract, retain, develop and motivate the right
people for our current and future business needs.
How the firm engaged
We engaged with our people through the following activities:
— annual employee opinion survey (further information can
be found on page 90)
— regular check-in surveys to assess wellbeing of our people
— webcast, internal magazine and management blogs
— virtual presentations by the executive team to discuss
performance and the firm’s progress on the strategic plan
— workforce engagement sessions held with the NEDs.
How the firm responded
— equipped our people to work from home during COVID-19,
including the introduction of technology enabling
employees to communicate virtually
— commitment to improve employee diversity
— development of hybrid working approach
— supporting employee wellbeing
— formalised Rathbones mentoring programme
— provided training and guidance to line managers on how to
during COVID-19
manage remote teams
— ongoing and regular virtual management briefings
— invested in virtual training and developing our employees.
Measuring our engagement
2020 employee engagement survey:
Employee response rate
Overall engagement
Communications between different locations and teams are effective
There are right opportunities to learn and grow at work
Pulse survey: how our people are feeling during the pandemic
2019
77%
86%
36%
67%
2020
82%
91%
60%
73%
I am able to work effectively
during this period
I feel well communicated
with by Rathbones’ (Exec)
leadership during this period
I am satisfied with the effort my
manager makes to keep in touch
with me during this period
April
June
November
90%
93%
N/A*
April
June
November
98%
98%
97%
April
June
November
95%
93%
92%
* Not collated in November following
the successful roll-out of IT kit.
rathbones.com
11
Stakeholder engagement continued
Shareholders
Link to supporting and delivering growth strategic priority
Why they are important to our business
We rely on the support and engagement of our
shareholders to deliver our strategic objectives and grow
the business. Our shareholder base supports the long-term
approach we take in the management of our business.
How the firm engaged
We engaged with our shareholders through the
following activities:
— executives held regular meetings with our investors
throughout the year
— chairman undertook an annual engagement with
investors on governance issues and dividend policy
— chairman of the remuneration committee engaged
with investors on the review of the remuneration policy
— in light of COVID-19, the firm had its first hybrid
model AGM via a webinar and ensured effective
shareholder engagement
— we commissioned an independent investor perception
study and the results were presented to the board.
How the firm responded
— provided regular updates on company performance
during COVID-19
— dividends were maintained and paid for the year
— an update on the firm’s strategic plan was provided
during the year
— took on-board investor feedback for the firm’s
Remuneration Policy.
Society and communities
Link to enriching the client and adviser proposition and
experience, and inspiring our people strategic priorities
Why they are important to our business
We recognise the responsibility we have to wider society
and other key stakeholders. We believe that demanding
high levels of corporate responsibility is the right thing
to do.
How the firm engaged
We engaged with society and the communities in which
we operate through the following activities:
— we encouraged high standards of governance as an
investment manager. We frequently engaged with
companies on environmental, societal, and corporate
governance concerns and have been a signatory to
the Principles for Responsible Investment (PRI) for
over 10 years
— we are proud to support the communities in which we
operate and have a long history of contributing through
the Rathbone Brothers Foundation, corporate donations
and employee volunteering. In 2020 we gave over
£467,000 (2019: £360,000)
— we have reduced our total carbon emissions over the last
three years, which has been recognised by our improved
CDP (formerly Carbon Disclosure Project) rating.
How the firm responded
— approved an updated responsible investment policy
— reviewed employee volunteering days to allow
colleagues to support their local communities, especially
during COVID-19
— approved the firm’s donation to Mental Health UK and
the Trussell Trust
— agreed to publish our first disclosure in line
with the Task Force on Climate-related Financial
Disclosures recommendations.
Measuring our engagement
Measuring our engagement
Number of investor meetings
held in 2020:
Number of new investors
in 2020*:
82
2019: 90
87
2019: 67
* Number of new investors includes both retail shareholders and
institutional investors
CDP score
B
2019: B-
Direct engagement with
investee companies
226
2019: 70
Total amount donated
£467,000
2019: £360,000
12
Rathbone Brothers Plc Report and accounts 2020
Strategic report| Our partners and regulators
Link to operating more efficiently strategic priority
Why they are important to our business
We seek to build positive relationships with our regulators.
Regulators provide key oversight of how we run our
business. Our clients’ best interests are served by our
working constructively with regulators.
We recognise the importance of our various partners
in delivering services to clients and ensure we have
shared values.
How the firm engaged
We engaged with regulators and our partners through the
following activities:
— we held regular meetings with our regulators during the
year and continue to have a proactive and transparent
relationship with them
— we ensured our payment terms with all suppliers were
fair and in compliance with payment practices
— we assessed our key supplier for conformance to the
Modern Slavery Act and conducted a risk assessment
of our supply chain. Our modern slavery statement is
reviewed and updated by the board annually
— we maintained ongoing relations with our key suppliers
and partners during the year with regular board updates.
How the firm responded
— worked in close collaboration with the firm’s regulators
and respond on a timely basis
— had a constructive relationship with HMRC to help ensure
alignment with the relevant regulatory frameworks
— initiated engagement with our supply chain on
modern slavery
— we regularly interacted with the industry bodies and
associations we are affiliated with to ensure we were
engaged with issues impacting our industry.
Measuring our engagement
Suppliers paid
within 30 days
90%
2019: 92%
% of payments to suppliers
made in agreed timeframe
63%
2019: 65%
Response to regulators
All responses to regulators have been made in line with
the agreed deadline
Further links to:
Clients:
Our business model
Rathbones at a glance
Chief executive’s review
Our investment case
Our market and opportunities
Our strategy
KPIs
Risk management and control
People:
Our business model
Our strategy
Inspiring our people
Responsible business report
Culture
Workforce engagement
Shareholders:
Our business model
Chairman’s statement
Chief executive’s review
Our investment case
Supporting and delivering growth
KPIs
Our market and opportunities
Our strategy
Financial performance
Society and communities:
Our business model
Operating more efficiently
Responsible business report
Our environmental impact
Climate-related disclosures
Our partners and regulators:
Operating more efficiently
Risk management and control
Responsible business report
Climate-related disclosures
8-9
6
14-16
17
18-19
20-23
30-32
46-51
8-9
20-21
26-27
59-63
88-89
90-91
8-9
4-5
14-16
17
24-25
30-32
18-19
20-21
33-45
8-9
28-29
64-66
67-69
70-74
28-29
46-51
64
70-74
rathbones.com
13
Chief executive’s review
Chief executive’s review
Introduction
External events are always part of what defines the success of
any wealth management business, and 2020 saw more than its
fair share. In responding to the combined impacts of market
volatility, COVID-19 and Brexit, alongside some significant
economic and political change, our focus throughout has been on
delivering a high-quality client service, keeping our employees
safe, and actively managing our operating margin. We have also
taken many positive strides in delivering strategic change and
further detail can be found on pages 20 to 29.
Continued growth in funds under management and
administration (FUMA)
Market volatility was reflected in most indices in 2020. The FTSE
100 Index ended the year at 6461, down 14.3% from the start
of the year, while the MSCI PIMFA Private Investor Balanced
Index was flat year-on-year. Our continuing growth and strong
investment performance more than offset lower market levels,
resulting in total FUMA of £54.7 billion at the end of the year (2019:
£50.4 billion). Total net inflows across the group were £2.1 billion
(2019: £0.6 billion), representing a growth rate of 4.2% (2019: 1.3%).
Investment Management FUMA grew by 4.4% to £44.9 billion
(2019: £43.0 billion). Gross organic inflows in Investment
Management were £3.3 billion, consistent with the prior year,
and a steady performance considering the prominence of
face-to-face sales in our business model.
Outflows in Investment Management totalled £3.3 billion in 2020
(2019: £3.9 billion), reflecting better retention, but somewhat
offset by continuing client demand for liquidity and the impact of
planned repricing. Outflows from closed accounts as a percentage
of opening FUMA reduced from 4.7% in 2019 to 3.0% in 2020.
Approximately 18% of outflows during 2020 related to lower-
margin or short-term cash mandate business compared to 15%
in 2019.
Our funds business had a very successful year with funds under
management (FUM) reaching £9.8 billion at 31 December 2020
(2019: £7.4 billion). Net inflows totalled £1,498 million (2019:
£943 million), representing 20.1% of opening FUM (2019: 16.7%).
Rathbones was ranked in ninth position for overall net retail unit
trust sales in the UK in both 2020 and 2019 (source: Pridham
Report), maintaining its top 10 position for seven consecutive
quarters. Our funds business comprises core single-strategy
funds and multi-asset funds that provide a comprehensive suite
of wealth solutions for financial advisers and their clients. Our
multi-asset funds also underpin our offering for clients with
smaller values to invest. Single-strategy funds grew 28.6% to
£8.1 billion in 2020 (2019: £6.3 billion) while our multi-asset
funds grew by 54.5% to £1.7 billion (2019: £1.1 billion).
Rathbone funds received several accolades during the year.
These included being named best investment fund provider at
the Investment Life & Pensions Moneyfacts awards; our Ethical
Bond Fund was awarded Best Sustainable & ESG Bond Fund in
the Investment Week Sustainable and ESG Investment Awards;
our Strategic Growth Fund received the City of London Wealth
Management award for Best Fund 2020, and our Global
Sustainability Fund won the Best ESG Investment Fund
– Wealth Manager at the ESG Investing Awards 2021.
Paul Stockton
Chief Executive
Rathbones has had a successful year,
despite the many challenges, which is
testament to our brand strength, the
quality of our client relationships, our
people and the robustness and agility
of our business model.
14
Rathbone Brothers Plc Report and accounts 2020
Strategic report| A resilient financial performance
Operating income across the group totalled £366.1 million in
2020, 5.2% ahead of the prior year (2019: £348.1 million). Fee
income growth reflected market movements as well as planned
post acquisition repricing of ex Speirs & Jeffrey clients. Strong
commission income was driven by market volatility, particularly
during the first half of the year. This was partly offset by a
reduction in net interest income as a result of Bank of England
base rate reductions made in March 2020. Fees from advisory
and other services were £21.1 million in 2020, up 3.4% on the
prior year (2019: £20.4 million) despite lower market levels.
Underlying profit before tax of £92.5 million at 31 December 2020
was 4.3% ahead of the £88.7 million reported a year ago despite
Financial Services Compensation Scheme (FSCS) levies
increasing to £6.3 million (2019: £4.5 million). The full year
cost for 2021 is currently expected to be in line with 2020.
We continue to lobby alongside industry groups to find a
more equitable way of managing this cost, which now represents
6.8% of underlying profit before tax (2019: 5.1%). Cost synergies
relating to Speirs & Jeffrey amounted to £5.0 million in 2020,
ahead of our target of £4.5 million. Our underlying operating
margin was consistent with the prior year at 25.3% (2019: 25.5%).
Underlying profit after tax was £71.6 million (2019: £71.1 million),
which results in an underlying earnings per share of 133.3p
(2019: 132.8p).
Profit before tax of £43.8 million (2019: £39.7 million) reflects a
number of expected items, primarily in relation to the acquisition
of Speirs & Jeffrey (S&J). S&J acquisition costs totalled £34.3 million
(2019: £30.8 million) comprising of £32.3 million in relation to the
first tranche of deferred consideration payments to the former
shareholders of the business (treated as remuneration, given
their continuing employment), and integration costs of £2.0
million. Basic earnings per share totalled 49.6p (2019: 50.3p).
Enhancing our investment proposition and services
One of the positives of remote working has been that it has
provided more opportunity for digital client engagement.
This has not only been through more screen-based contact
with clients, but also by us taking advantage of the chance to
distribute market commentaries and other marketing materials
to a much wider client and adviser audience. Consistent
historical investment in our research capability has translated
into improved quality of output and enhanced coverage of
overseas stocks. Investment performance was strong in the
year with the Global Investment Performance Standards (GIPS)
accredited performance as an average return of all risk levels
combined, outperforming both the PIMFA and ARC indices over
one, three and five years. Performance in our funds business
across both single-strategy and multi-asset funds was also strong.
The quality of our core discretionary service continues to be
recognised by our clients. In a recent Aon UK client experience
survey, Rathbones was ranked number one for overall client
satisfaction, including a number one ranking in 10 of the 14
survey KPIs, and achieved a net promoter score of 60% compared
to a benchmark score of 38%. Rathbones was also named Private
Client Asset Manager of the Year at the 2020 Citywealth Magic
Circle Awards. Our scores as measured by Defaqto in the 2020
discretionary fund management (DFM) satisfaction study (based
on feedback from adviser firms) showed strong improvements,
but also recognised the need to improve our digital client
lifecycle capability.
To that end, we launched our new web portal, known as
‘MyRathbones’ in December to a small number of clients. The
portal provides clients with more holistic communication and
online access options and will be rolled out fully towards the end
of the first quarter of 2021, adding a version for advisers and a
mobile app. ‘MyRathbones’ is the digital doorway into Rathbones,
complementing the investment manager – client relationship
and providing clients with a straightforward, flexible and safe
experience for everyday tasks. We are adopting an agile approach
for future enhancements with many planned for the remainder
of 2021.
Rathbone Select Portfolio (RSP) was launched in the fourth
quarter of 2020. RSP is a cost-effective execution-only
investment management solution in circumstances where a
bespoke discretionary service may not be appropriate. Clients
can choose an appropriate risk-rated investment strategy, with
each strategy delivered through a single Rathbone Multi-Asset
Portfolio fund. RSP adds to our range of solutions for smaller
value portfolios and will improve investment manager capacity
as it is rolled out more widely in 2021.
During June 2020, we added two new funds to our Rathbone
Multi-Asset Portfolio range, the Rathbone Multi-Asset Defensive
Growth Portfolio and the Rathbone Multi-Asset Dynamic Growth
Portfolio, providing advisers with cost-effective access to target
return profiles across the risk spectrum.
Investing for growth and productivity
Our strategy includes a multi-pronged approach to delivering
growth by adding investment manager capacity, investing in
business development and specialist markets, driving sales to
the adviser market and growing our financial planning capability.
In 2020 we welcomed 23 new investment professionals
to Rathbones from a number of competitor firms (2019: 18),
and all have settled in well. We are targeting a similar level of
recruitment during 2021 to support growth, alongside an ongoing
graduate recruitment and training programme. In 2020 we
realigned remuneration for investment teams to have a much
clearer line of sight to organic growth, recognising that other
elements of awards encourage high service standards and client
retention. We have also restructured how our Investment
Management business is organised at a senior level with the
creation of two dedicated managing director roles focussing
firstly on growth and client service delivery, and secondly
the development of our investment process and responsible
business agenda.
Our intermediated distribution team, which oversees the
provision of a new, integrated ‘adviser as adviser’ proposition
to IFA firms, has been successful in building new relationships,
onboarding a total of 58 new adviser firms during the year and
bringing the total to 82 since launch in July 2019. At 31 December
2020 the amount of FUMA linked to an adviser was £9.9 billion
(31 December 2019: £9.2 billion).
Another part of our growth strategy is serving specialised
markets. We successfully completed the acquisition of a
specialist team and £440 million of client assets in the Court
rathbones.com
15
Chief executive’s review continued
of Protection sector from Barclays Wealth, increasing our
assets to around £1.0 billion and making Rathbones the leading
discretionary investment management firm in this area. Charity
FUMA at 31 December 2020 reached £6.5 billion (2019: £6.1 billion)
including the addition of several substantial mandates in the
first half of 2020. Rathbones was named as Charity Investment
Manager of the Year at the Citywealth Magic Circle Awards
(Gold award) in November.
Our specialist ethical, sustainable and impact research team
Rathbone Greenbank Investments (Greenbank) had £1.9 billion
of funds under management at 31 December 2020 (2019: £1.6
billion) while our award-winning Ethical Bond Fund continues to
deliver strong investment performance, growing by 40% to reach
£2.1 billion at 31 December 2020 (2019: £1.5 billion). We have
begun to leverage the expertise and experience of Greenbank
more widely into our overall investment process, setting
investment selection criteria, demonstrating active
stewardship and building training and awareness.
Rathbone Funds plans to launch Rathbone Greenbank Multi-
Asset Portfolios (RGMAPs) towards the end of the first quarter of
2021. The RGMAPS funds will be a range of four new risk-rated,
risk-targeted, sustainable investment funds managed by
Rathbones’ acclaimed multi-asset team and supported by
Greenbank. This proposition will underpin Rathbones’ continued
leadership in the fast-growing private client responsible
investment market and presents an opportunity to add
wider choice to our Rathbone Select Portfolio proposition.
Building our advice offering
Financial advice is an increasingly important part of our wealth
proposition and we access the advice market in three ways:
firstly, by providing discretionary fund management services
to approximately 12,000 IFAs and their clients; secondly, an
independent IFA network, Vision Independent Financial
Planning (Vision) and; thirdly, via our in-house planning
capability, Rathbone Financial Planning (RFP), that works
alongside our investment teams. Through the combination of
Vision and RFP we provide clients with access to 167 financial
planners and paraplanners (2019: 165) working with investment
teams across the country and advising on £3.6 billion of client
funds (2019: £3.2 billion).
Speirs & Jeffrey
The acquisition of Speirs & Jeffrey has added considerable skills
and capabilities to Rathbones as well as creating a leading market
presence in Scotland. Clients have welcomed access to the full
array of our services and deeper research capability. The majority
of clients were transferred to our discretionary fee-only tariff on
1 October 2020 which substantially completed the alignment
with the wider Rathbones group.
Deferred consideration to the vendors of Speirs & Jeffrey, as well
as related incentivisation awards to other staff, is dependent on
operational and financial targets being met by 31 December 2020
and 31 December 2021. The amount of qualifying funds under
management for the year ended 31 December 2020 was £5.1
billion, exceeding the earn-out threshold of £4.5 billion. Under
the terms of the sale and purchase agreement, this will result in
the crystallisation of the first tranche of deferred consideration,
payable in March 2021. This amount will be satisfied through
the issuance of 881,737 new shares and using 421,722 existing
owned shares.
Based on our current estimate, we expect that the P&L charge
for the second tranche of deferred consideration and related
incentivisation awards for the year ending 31 December 2021 will
amount to £9 million. This will continue to depend on market
conditions during 2021 as well as the further client conversion
to qualifying funds under management.
At the time of the acquisition in 2018, we outlined the following
financial targets for 2021: expected underlying EPS accretion
from the acquisition of at least 8%, and an underlying return
on investment of approximately 13%. Despite more challenging
markets, as at 31 December 2020 we are on track to exceed
both targets.
Inspiring our people
Our priority during the year was to ensure the safety and
wellbeing of our people. During 2020 we have focused on
employee engagement, offering multiple forums for our
staff to interact together and share any concerns they have.
Worldwide events during 2020 highlighted the critical
importance of addressing social imbalances. Our policy is
to ensure that all employees and prospective employees are
provided with equal opportunities. In 2020 we changed HR
practices and offered some welcomed events and forums where
diversity and inclusion issues could be explored. Further detail
on our people-related initiatives can be found in our responsible
business report on pages 52-74.
Risk management
The COVID-19 pandemic increased our risk exposure in several
areas, most notably our staff, our operations and the ability to
service our clients. We have been agile in the management and
mitigation of these risks.
We continued to focus on the management of potential cyber
threats, cognisant of the increased frequency of cyber-attacks
on our industry. We continue to invest in this area.
While a degree of uncertainty remains around a deal on financial
services between the UK and the EU, there has not been a
significant impact on our business model to date. More detail
can be found in our risk management report on pages 46-51.
Outlook
Rathbones has had a successful year, despite the many challenges,
which is testament to our brand strength, the quality of our client
relationships, our people and the robustness and agility of our
business model. Whilst we expect investment markets to remain
volatile, our balance sheet is robust with a strong capital position.
Our near-term focus is to continue executing our growth strategy
to build our market share, through ongoing investment in the
business with strict cost discipline, to emerge stronger after the
challenges of the pandemic begin to subside.
Paul Stockton
Chief Executive
3 March 2021
16
Rathbone Brothers Plc Report and accounts 2020
Strategic report| Our investment case
d
Truste
relation s h i p s
i
n
f
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r
a
w
s
t
r
n
e
d
u
cture
Relevant i
solu
n
v
t
i
o
e
s
t
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s
m
e
n
t
D eep
p ertise
x
e
Relevant investment solutions
Range of investment, financial planning and
advisory solutions
Suitable for private clients, charities, trustees and
professional partners
Strong ESG capability
Supported by an experienced team, proactive on
ethical and sustainability issues
Growing funds business
Providing a wide range of funds catering to differing
investment needs
Deep expertise
Quality people
Providing a diverse range of experience and skills
Deep investment skills
Supported by a highly experienced in-house
research team
Owned infrastructure
Leading brand
Established over decades of providing quality service
Acquisition experience
Proven by several successful integrations of full
entities and individual teams
Trusted relationships
An extensive client network
Creating connections lasting generations
These allow us to deliver
consistent returns to shareholders
— A generally progressive dividend policy
— An underlying return on capital employed of 13.6%
(2019: 14.2%)
— A commitment to high standards of corporate governance,
stewardship and transparency
Dividend per share
0
7
2
7
6
6
1
6
7
5
rathbones.com
2016 2017
2018 2019
2020
72p
17
Our market and opportunities
Our market and opportunities
The UK wealth management industry continues to evolve and grow, with sector assets reaching an
estimated £1.6 trillion by the end of 2019. The case for independent wealth managers providing advice and
reassurance through a range of independent solutions continues to be compelling. Capitalising on the
market opportunity to work flexibly with clients and advisers requires continuous investment in technology,
product proposition and professional talent. Scale and efficiencies will be important in this environment and
Rathbones is well positioned.
Rathbones’ target market is large and continues to grow
Industry trends
Client needs
and expectations
are changing
Technology is
advancing rapidly
Inter-generational
wealth transfer is
set to accelerate
Industry
consolidation is
set to continue
Total size of UK
wealth management
c. £1.6tn
Financial advisers and networks
Independent wealth managers
Private banks and global wealth managers
Direct-to-consumer and robo advice
High-street banks
35%
23%
25%
15%
2%
Rathbones accounts for approximately:
3.2%
13.7%
of the UK wealth
management market
of the independent wealth
management market
Sources: FCA, Platforum, PIMFA, PAM Directory, Oliver Wyman estimates
18
Rathbone Brothers Plc Report and accounts 2020
Strategic report| What this means for the industry
How Rathbones will respond
Clients will remain focused on value for money,
demanding transparency and digital service
propositions. Social and environmental issues
will be more important than ever before. An
ageing UK population with increased life
expectancy, and a greater responsibility to
manage their own pension assets following the
‘pension freedoms’ legislation and declining state
support, increases the need to save for retirement
and finance lifestyles over a longer period of time.
Clients are becoming more and more accustomed
to using technology to communicate and manage
their financial affairs, particularly following the
COVID-19 pandemic.
Keeping pace with this change is fundamental to
remaining competitive and sustaining a quality service.
It is estimated that in the UK more than £300 billion
will be transferred from baby boomers to younger
generations over the next 10 years, and inheritors
may have different investment and service
expectations than donors.
The market is highly fragmented with several
different business models. Many businesses that
lack scale are unable to keep up with the pace and
cost of regulatory and technological change. This will
continue to drive consolidation within the industry.
— Ensure a quality service and strong client
outcomes with competitive and clear
fee-based pricing
— Provide a suite of managed propositions to
the adviser market
— Growing the financial planning capability
— Provide a wide range of services that caters to
differing investment requirements, including
broadening our existing ESG proposition
— Enhance the digital client experience and
provide seamless multi-channel communication
to clients
— Upgrade client relationship management tools
and risk management processes
— Invest in systems that will reduce time spent on
administrative tasks
— Enhance the use of data to reduce costs, improve
productivity and enable continual reinvestment
— Engage with clients on inter-generational wealth
planning to ensure that wealth passes to the
next generation in a tax-efficient manner
— Build relationships with the next generation of
clients using relevant technology to facilitate
future retention of investment portfolios
— Ensure that our service and product proposition,
particularly our ESG proposition, remains
relevant for the clients of tomorrow
— Support business development activity to
improve organic growth with direct clients,
intermediaries and advisers
— Continue to look for inorganic growth
opportunities that fit our culture but maintain
strict acquisition criteria
— Continue to selectively recruit individuals and
teams to the business
rathbones.com
19
Our strategy
Our strategy
We launched our medium-term
strategy for the business in
October 2019, to support our
purpose of thinking, acting
and investing responsibly.
Our strategy, as well as our
strategic priorities and the impact
that COVID-19 has had on our
progress, is set out here. The
pandemic has neither altered
our strategy nor had a materially
negative impact on it. In many
cases, it has accelerated our plans.
We believe we are emerging
stronger from the pandemic.
Our strategic priorities
How we plan to achieve these
Enhancing valued services
Enhancing the experience for private
clients and providing a dedicated service
for financial advisers.
Deepening investment skills
Fostering our investment expertise,
broadening capability and coverage,
and investing responsibly.
Penetrating specialist markets
Focusing on specialisms, building on
existing capabilities and leveraging
Rathbone Greenbank Investments.
Driving organic growth
Managing client-facing capacity,
structuring distribution, driving growth
through financial planning and building
our funds business.
Our culture and corporate values
Becoming a more diverse and inclusive
organisation, continuing to listen to our
people and improving our commitments
to them.
Driving productivity
Providing a quality client experience
and making us easy to do business with.
Enriching the
client and adviser
proposition and
experience
Read more on page 22
Supporting and
delivering growth
Read more on page 25
Inspiring
our people
Read more on page 26
Operating more
efficiently
Read more on page 29
20
Rathbone Brothers Plc Report and accounts 2020
Strategic report| COVID-19 impact
Link to KPIs and risks
We are developing content and tailoring
the delivery of our services for both the
direct-to-client and direct-to-financial-
adviser markets to ensure we serve
all client segments appropriately. We
continue to develop our investment
culture and are investing to broaden our
capability and coverage to drive positive
client outcomes. Our investment process
is supported by our focus on environmental,
social and governance issues.
— Increased communication and support
KPI
— Number of investment
to clients to provide reassurance
through COVID-related market volatility
— Initial delay in virtual recruitment and
onboarding of investment managers
— An enhanced focus on our ESG
proposition with heightened
public awareness of social and
environmental issues
managers and Investment
Management clients
— Staff turnover
Risk
— Suitability and advice
— Business model
— Regulatory
— People
We are investing to improve our organic
growth rate. To do this, we are building up
skills and resources to access specialist
markets including charities, Rathbone
Greenbank Investments and Court of
Protection. We are also freeing up capacity
in our investment teams, adding structure
to our business development activity and
supporting the ongoing growth of our
Rathbone Funds and Rathbone Financial
Planning businesses.
— Limited impact on growing in specialist
KPI
— Total funds under management
markets as our charities business
continued to grow and the Barclays
Wealth Court of Protection assets were
successfully migrated
— Business development and RFP teams
continue to support the growth of the
wider business
— Funds business continues to
grow exponentially
and administration
— Investment Management net
organic growth rates
— Underlying operating margin
— Underlying earnings per share
— Return on capital employed
Risk
— Suitability and advice
— Business model
— Regulatory
— Change
We are a people business so it is
imperative that our strategy sets a culture
that drives performance and builds long,
rewarding careers for our colleagues.
Against a common set of corporate
values and a commitment to diversity
and inclusion, we plan to leverage the
talent in our business as we develop more
career paths, build leadership skills and
manage succession.
Leveraging the use of technology
to streamline processes and manage
change is a significant opportunity,
and embedding a productivity culture is
an important part of our future success.
Productivity will support growth, boost
employee morale and create the time
and resources to invest in future growth
initiatives. We will also embrace digital
to work alongside our face-to-face service,
offering a broader set of communication
options for clients and advisers.
— Prioritising the safety and wellbeing
KPI
— Percentage of shares held by
of our people working remotely
— Flexible working to become a
permanent feature of our future
employee proposition
— Renewed focus on building a more
diverse and inclusive organisation
— Virtual training and
development initiatives
current employees
— Staff turnover
— Variable staff costs as a % of
underlying profit before tax
and before variable staff costs
Risk
— People
— Change
— Virtual engagement with clients and
advisers will continue alongside
face-to-face interaction, providing
a boost in productivity
— Adapting IT infrastructure for
remote working
— Acceleration in the streamlining of
client onboarding and administration
KPI
— Underlying operating margin
— Return on capital employed
— Common Equity Tier 1 ratio
— Headcount
Risk
— Information security and cyber
— People
— Change
Read more on our KPIs and risks on pages 30-32 and 46-51
rathbones.com
21
Our strategy in action
Enriching the client
and adviser proposition
and experience
Our strategy is to enrich our client and adviser proposition and experience,
harnessing greater use of technology to sit alongside our face-to-face
contact. The COVID-19 pandemic not only vindicated the merits of this
approach, but it also accelerated our plans, providing a strong foundation
for further use of digital tools and process improvement.
Client communication and digital
Engagement and communication through digital channels increased significantly
during the year and both clients and advisers have adapted well to this approach. We
increased the frequency of market updates, investment thought leadership articles and
other educational materials, often accompanied by relevant digital materials. We also
made use of virtual marketing and networking events to help raise our profile amongst
potential new clients. This approach has been successful and particularly well received
by both clients and advisers. Feedback from clients on our level of engagement
and quality of service during the year has been positive. In a recent Aon UK client
experience survey, Rathbones was ranked number 1 for overall client satisfaction.
Investment skills
A core part of our strategy to deepen our investment skills involves recruiting additional
investment managers to support our growth ambitions. Despite some initial delays in
our plans as a result of the pandemic, we have made good progress in the recruitment of
investment professionals during the year, with 23 individuals joining us in 2020. We are
targeting a similar level of recruitment during 2021.
ESG proposition
We already have long-established ESG credentials, and we continue to invest in this
area to support the growing demand for ESG investment propositions; for example,
we are working to embed a common approach to ESG investing that complements
the specialist offerings delivered by Rathbone Greenbank Investments and our funds
business. The launch of the Rathbone Greenbank Multi-Asset Portfolio funds in 2021 will
give us a strong position in the responsible investment market, which has significant
growth potential.
Rathbones Select Portfolio service
During the third quarter of 2020 we piloted a new investment proposition for existing
clients known as Rathbones Select Portfolio (RSP). RSP is an execution-only solution for
clients where a bespoke discretionary service may not be appropriate. RSP allows clients
to self-select from six investment strategies, with each strategy delivered through a
single Rathbone Multi-Asset Portfolio fund. We initiated a soft launch of our RSP
solution to prospective clients during the fourth quarter and will begin actively
marketing the solution during 2021.
22
Strategic report| MyRathbones
In 2020 we focused on projects that
improve the client experience and client
reporting, enhance and automate our
investment risk monitoring and improve
our digital capability, including the
quality and integration of data across
different systems.
The upgrade to our client and adviser
web portal, known as MyRathbones, is
progressing well. This is the first stage
of a programme of digital enhancements
to our client proposition and is designed
to augment our existing services.
MyRathbones will provide clients with
multi-channel communication options
and online access to their investment
portfolios, from a range of devices, and
will be protected by industry-standard
online security. MyRathbones was
piloted with a select group of clients and
staff during December, with a full roll-out
planned for the first quarter of 2021,
including a version for advisers as well
as a mobile app. We will continue to
develop the platform during 2021 by
adding additional features and enhancing
its capabilities, based on client and
adviser feedback.
23
Our strategy in action continued
Strong growth momentum
in Rathbone Funds and
Rathbone Greenbank
Investments
Rathbone Funds delivered an outstanding
performance in 2020, with substantial new business
growth and strong investment performance helping
funds under management reach a record high of
£9.8 billion at 31 December 2020. Rathbone Funds
has an attractive and market-leading proposition,
providing a comprehensive suite of solutions for
financial advisers and their clients with access to
both single-strategy and multi-asset funds. During
June 2020, we added two new funds to our
Rathbone Multi-Asset Portfolio (RMAP) range: the
Rathbone Multi-Asset Defensive Growth Portfolio
and the Rathbone Multi-Asset Dynamic Growth
Portfolio, which complement the existing range
of multi-asset portfolio funds.
Rathbone Greenbank Investments (Greenbank)
was an early adopter of ESG investing and has been
creating bespoke ethical, sustainable and impact
portfolios for clients for over 20 years. Fundamental
to Greenbank’s approach is the belief that those
companies providing positive solutions for a
changing world, while also demonstrating strong
social and environmental management and good
corporate governance, are likely to be sound
long-term investments.
Rathbone Funds has announced its intention
to launch the Rathbone Greenbank Multi-Asset
Portfolios (RGMAPs). These will be a range of
four new risk-rated, risk-targeted, sustainable
investment funds which will be managed by
Rathbones’ acclaimed multi-asset team and
supported by Greenbank.
24
Strategic report| Supporting and
delivering growth
This year, we have built up skills and resources to grow in our specialist markets such as
charities, court of protection and specialist ethical, sustainable and impact investing. We
also continue to invest in our business development capability that creates and supports
new business opportunities across the wider business. Our in-house financial planning
capability, known as Rathbone Financial Planning, alongside our independent financial
planning network, Vision, are important to our growth ambitions and we will continue
to broaden our advice capabilities.
Embedding a growth culture
Our dedicated business development team plays an important role in supporting new business growth
initiatives across the organisation, fostering closer collaboration in delivering service to clients and promoting
a strong growth culture. During the year the team rolled out a growth initiative known as ‘Blueprint for growth’
which trained investment managers to set achievable growth targets and build trusted relationships by
offering the benefits of the totality of our services for clients. Nearly 300 investment professionals completed
the training during the year. A follow-up to the ‘Blueprint for growth’ initiative was ‘Roadshow for growth’,
which involved a number of virtual sessions held across the business to discuss growth techniques and ideas.
In addition, during 2020 we have realigned the way in which our investment teams are remunerated with a
much clearer link to organic growth.
Growing our advice capability
Our strategy continues to place considerable importance on the financial advice market, as the demand and
need for advice in the UK continues to increase. Rathbone Financial Planning (RFP) continues to support
existing relationships between investment managers and their clients and to forge new client relationships
via external partners, delivering advice on a one-off or ongoing basis to clients with more complex needs.
RFP advisers complement and support our discretionary investment services to meet client needs where
appropriate. We also operate an independent IFA network known as Vision Independent Financial Planning.
The combination of Vision and RFP represents a strong advice proposition for clients, providing them with
access to 167 financial planners and paraplanners advising on over £3.6 billion of client funds.
Specialist markets
Rathbones is the fourth largest charity manager in the UK and we have ambitions to improve our ranking
further. We formed a new charities team in Scotland during the year who were successful in securing large
mandate wins under difficult circumstances. In April, following the acquisition of the Barclays Wealth Court
of Protection and Personal Injury business, we successfully migrated all related client assets and welcomed 10
new colleagues to the firm. Following the acquisition, Rathbones is now the leading discretionary investment
management firm in the Court of Protection and Personal Injury sector with total assets under management of
approximately £1 billion. This sector has significant growth potential.
Integrated approach to IFA relationships
We have developed an integrated proposition for building IFA relationships that distinguishes between
an ‘adviser as adviser’ and ‘adviser as introducer’ relationship. ‘Adviser as introducer’ is a more traditional
model with the Rathbones investment manager determining an appropriate investment strategy for a client
introduced by an adviser. With the ‘adviser as adviser’ approach the adviser determines the investment
mandate best suited to meet the client’s objectives while our role is to understand the mandate and select the
most suitable assets to achieve this. This new integrated approach has proven to be very successful with a total
of 58 new adviser firms onboarded during the year, with 82 firms onboarded since the launch in July 2019.
25
Our strategy in action continued
Inspiring
our people
Rathbones is a people business and our talented workforce is critical
to delivering our strategy and ensuring that we are successful over the
longer term. Many people have faced a tremendously challenging year
in 2020. Our key priority was to ensure the safety and wellbeing of our
employees, as well as supporting their ability to work remotely so that
they remained engaged, productive and able to continue delivering
excellent service to clients.
Wellbeing of our people
Addressing the mental and physical wellbeing of our people has been a key priority
throughout the year, recognising that many employees were faced with numerous
challenges and additional pressures while working from home. Our existing wellbeing
programmes were reviewed, and additional features and flexibility were added to help
address these new challenges. A number of mental health webinars have also taken
place during the year. We prioritised investment in IT solutions and infrastructure, such
as desks, chairs and screens, to facilitate home working. In the absence of face-to-face
social events, regular virtual events for all employees were also held to boost social
wellbeing. Virtual exercise classes also took place regularly to help improve
physical wellbeing.
Engaging and supporting our people
Throughout 2020 the level of engagement with our people increased significantly as
they took on the challenge of rapidly adapting to a new way of working. Regular pulse
surveys, employee townhalls and a continuation of the board’s workforce engagement
programme provided a forum for employees to share any concerns, and allowed the
business to address those concerns and provide appropriate support. In addition, the
board and executive management team shared frequent video updates on the progress
of our strategy to help maintain morale.
Investing in our people
Rathbones is committed to developing a pipeline of high-calibre talent to ensure an
appropriate balance of skills within the organisation and to aid succession planning.
During the year we continued to actively prioritise the development of our people,
first by understanding what skills were needed throughout the business, and then by
building and delivering high-quality learning and development programmes, many
of which were online. For senior employees, a suite of management and leadership
courses remained available. Our mentoring and apprenticeship programme
continued to run successfully, and 2020 was the third year of our graduate
development programme.
26
Strategic report| Diversity
and inclusion
Rathbones is an equal opportunities
employer and it is our policy to ensure
that all job applicants and employees
are treated fairly and on merit, and that
we provide opportunities to build a
successful career, regardless of age,
ethnicity, gender, religion, disability or
sexual orientation. Events across the
globe during 2020 have highlighted the
importance of addressing imbalances.
To date we have performed equal pay
audits, improved our parental leave
policies, held employee focus groups
and made external commitments, for
example, we are signatories to the
Women in Finance Charter, committing
to achieve 25% female senior
management representation by 2023.
During the year we launched the
Rathbones diversity and inclusion (D&I)
taskforce, while the Rathbones Included
network continues to consider the
challenges we face and suggest ways
in which to address these challenges.
During the year we focused on the
following areas:
— addressing our gender and race &
ethnicity imbalance
— improving our D&I insight
— building D&I into our working practices
— improving D&I awareness.
Further details of our people and
D&I initiatives can be found in our
responsible business report on
pages 59-63.
27
Strategic report
|
Our strategy in action continued
Efficiency gains from
remote working
Examples include:
— client onboarding documents
converted to editable PDFs with
a new email encryption system
— compliant client attestation replacing
wet signatures and electronic identity
verification for AML procedures
— enhanced client data security
— local printing hubs established for
client mailings ensuring quality and
data security
— an exceptions approval home
printing process for data security
— deployment of c. 1,400 laptops,
wireless keyboards/mouse and
headsets and c. 900 chairs and desks
— deployment of MS Teams, Office 365
and a new paperless expense
management system
— virtual training to line managers on
how to manage remote teams
— an enhanced IT helpdesk solution.
28
Operating
more efficiently
The acceleration in the use of technology by clients and staff alike during
the year has been considerable and we will continue to leverage this
opportunity to enable remote-working colleagues to remain connected
with each other and with clients. This will complement our traditional
face-to-face client model, providing a greater range of communication
options for clients. The pandemic has also presented opportunities to
accelerate our plans to streamline client administration and other internal
processes, providing a future boost to productivity and morale and
creating the time and resources to invest in growth initiatives.
Technology-driven efficiencies in client administration
Our continued investment in technology, and the acceleration of this investment
following the outbreak of the pandemic, has enabled efficiencies and enhancements to
client on-boarding and lifestyle processes that have improved the client experience and
supported greater productivity. Examples of processes that have become paperless
and which have been embedded across the business include account opening and
amendments, anti-money-laundering verifications, asset and cash transfers and
payments and a new wet signature policy. These enhancements were done whilst
carefully managing operational risk.
Employee productivity
Rathbone employees have a very strong client-centric culture, and this continues to be
a key competitive advantage. Enabling efficiencies for employees not only improves
morale but also provides a boost to productivity, which is an enabler of future growth.
Employees have been provided with additional IT equipment and support as well as
office furniture to support an ergonomic home-working environment, which will help
to enable flexible working going forward. During the year we upgraded elements of our
client relationship management system, rolled out Microsoft Teams across the business
and adopted a cloud-first approach. Training for line managers to help manage their
remote teams effectively, including measures to help boost productivity, was
also provided.
Investing in our technology infrastructure
Good progress has been made in implementing the future design of the technology
function, creating a streamlined structure, reducing layers, improving decision making
and supporting service excellence. This has seen an increase in overall technology
resources, a clearer delineation between ‘run’ and ‘change’ and a new centralised data
management capability, enabling delivery of the technology strategy. In support of a
cloud-first infrastructure approach, further improvements have been seen in our core
technology infrastructure ensuring greater stability, enabling remote-working and the
strategic change agenda. This has included a strategic partnership with Amazon Web
Services (AWS) for cloud capability and several process improvements, helping reduce
overall technology incidents.
29
Key performance indicators
Key performance indicators
The group considers the following financial and non-financial
measures as key performance indicators (KPIs) of its overall
performance. Following a review of the KPIs, this year we have
made some changes to ensure they remain relevant. ‘Capital
expenditure excluding property’ has been removed as it is no
longer relevant for the business following our office move in
2017. ‘Average full-time-equivalent employees’ has also been
removed as it is no longer deemed a relevant indicator of
performance. ‘Number of participants with SIP partnership
shares’ has been replaced with ‘Percentage of shares held
by current employees’ as this is felt to be a more relevant
measure. Finally, ‘Common Equity Tier 1 ratio’ has been
added as an indicator of financial resilience.
Each KPI is linked to at least one of our four strategic pillars
and is used to measure both the progress and success of our
strategy implementation.
Investment Management
net organic growth rates
4
.
3
0.1%
1
.
0
)
5
.
1
(
Total funds under management
and administration
7
.
4
5
4
.
0
5
1
.
4
4
£54.7bn
2018 2019 2020
Definition
Total funds under management and
administration at the end of the year.
Relevance
The amount of funds that we manage directly
impacts the level of income we receive.
Number of Investment
Management clients
0
0
0
,
0
6
0
0
0
,
0
6
0
0
0
,
1
6
61,000
2018 2019 2020
2018 2019 2020
Definition
The value of annual net inflows from
Investment Management as a percentage
of opening funds under management
and administration.
Relevance
Measures the ability of the firm to grow
business in the absence of acquisitions.
Definition
The number of clients who use our services.
Relevance
In an industry where scale is important,
the size of our client base helps to determine
market share.
Link to our strategy:
Enhancing the client and adviser proposition and experience
30
Rathbone Brothers Plc Report and accounts 2020
Strategic report| Underlying operating margin1
Underlying earnings per share1
4
.
9
2
5
.
5
2
3
.
5
2
5
.
2
4
1
8
.
2
3
1
3
.
3
3
1
25.3%
133.3p
2018 2019 2020
2018 2019 2020
Definition
Underlying profit before tax as a percentage
of underlying operating income.
Relevance
This measure enables the group’s operational
and segmental performance to be understood,
accurately reflecting key drivers of long-
term profitability.
Definition
Underlying profit after tax divided by the
weighted average number of ordinary shares.
Relevance
An important measure of performance as it
shows profitability, reflecting the effects of
any new share issuance.
Performance-related variable staff costs as a
% of underlying profit before tax and before
performance-related variable staff costs1
3
.
2
4
7
.
3
4
8
.
6
3
Underlying return on capital employed1
9
.
6
1
2
.
4
1
6
.
3
1
43.7%
13.6%
2018 2019 2020
2018 2019 2020
Definition
Performance-related variable staff costs divided
by underlying profit before tax and before
performance-related variable staff costs.
Relevance
Shows the extent to which profits are shared
between employees and shareholders.
1. This measure is considered an APM. Please refer to pages 35-36
for more detail on APMs
Definition
Underlying profit after tax as a percentage
of the underlying quarterly average total
of equity.
Relevance
A useful measure of financial efficiency as it
indicates profitability after factoring in the
amount of capital employed by the business.
Supporting and delivering growth
Inspiring our people
Operating more efficiently
rathbones.com
31
Key performance indicators continued
Dividend per share
0
7
2
7
6
6
Staff turnover
1
.
7
0
.
6
1
.
5
72.0p
5.1%
2018 2019 2020
2018 2019 2020
Definition
Total annual dividend per share
(interim and final).
Relevance
Dividends represent an important part
of the returns to shareholders.
Definition
Number of permanent employees
who have left during the year, excluding
retirements and redundancies, as a percentage
of opening headcount.
Relevance
A measure of staff retention, which can be
a reflection of the work environment and
commitment to the organisation.
Percentage of shares held
by current employees1
1
.
0
1
3
.
8
8
.
7
Common Equity Tier 1 ratio
5
.
3
2
0
.
2
2
6
.
0
2
10.1%
23.5%
2018 2019 2020
2018 2019 2020
Definition
The percentage of outstanding shares
held by current employees of the firm.
Relevance
A direct link for employees to the
future financial success of the company
as shareholders.
1.
Includes some unvested employee share plans
Definition
Common Equity Tier 1 capital as a proportion
of total risk exposure amount.
Relevance
As a bank, we must maintain certain levels
of capital. A higher ratio is an indicator of
financial resilience.
Refer to page 42 for further detail
32
Rathbone Brothers Plc Report and accounts 2020
Strategic report| Financial performance
Overview of financial performance
The group’s financial performance for the year to 31 December 2020
remained strong during a turbulent year for financial markets.
Underlying profit before tax was £92.5 million (2019: £88.7 million)
reflecting growth in total revenue, despite market conditions, and
the continuation of investment in the strategic plans announced in
October 2019. The underlying operating margin, which is calculated
as the ratio of underlying profit before tax to underlying operating
income, was 25.3% (2019: 25.5%).
Statutory profit before tax of £43.8 million in 2020 increased 10%
from £39.7 million in 2019. This included planned costs of £32.3
million relating to the acquisition of Speirs & Jeffrey; which was
higher than previous guidance following a very successful exercise
to bring clients on our standard discretionary terms of business.
The board primarily considers underlying measures of income,
expenditure and earnings when assessing the performance of
the group. These are considered to be a better reflection of true
business performance than reviewing results on a statutory basis
only. These measures are also widely used by research analysts
covering the group. A full reconciliation between underlying
results and the closest IFRS equivalent is provided on page 35.
Table 1. Group’s overall performance
Operating income (and underlying
operating income1)
Underlying operating expenses1
Underlying profit before tax1
Underlying operating margin1
Profit before tax
Effective tax rate
Taxation
Profit after tax
Underlying earnings per share1
Earnings per share
Dividend per share2
Return on capital employed (ROCE)
Underlying return on capital employed1
2020
£m
(unless stated)
2019
£m
(unless stated)
366.1
(273.6)
92.5
25.3%
43.8
39.0%
(17.1)
26.7
133.3p
49.6p
72.0p
5.3%
13.6%
348.1
(259.4)
88.7
25.5%
39.7
32.2%
(12.8)
26.9
132.8p
50.3p
70.0p
5.7%
14.2%
1. A reconciliation between the underlying measure and its closest IFRS equivalent is
shown in table 2
2. The total interim and final dividend proposed for the financial year
Jennifer Mathias
Group Finance Director
The group’s performance for the year was
resilient, with growth and investment delivered,
despite challenging market conditions for all.
rathbones.com
rathbones.com
33
33
Financial performance continued
COVID-19 pandemic
The uncertainty caused by the emergence of the COVID-19
pandemic during the early part of the year had a profound
impact on financial markets and broader business conditions.
The rapid falls in the value of Western financial markets from
mid-February through to late March reduced the value of funds
under management and administration (FUMA) and investment
management fees. Following a small recovery at the end of March,
markets then remained at these lower valuations for much of
the year until the announcement of successful vaccine trials in
November, at which point they recovered further, with the FTSE
100 Index ending the year c. 14% down on the start of the year.
Early in the pandemic, central banks cut interest rates further to
provide additional support to the economy. The Bank of England
reduced its base rate to 0.1%, which put further downward pressure
on banking margins.
Like many financial services businesses, the group successfully
transitioned almost its entire workforce to remote working
arrangements during March and early April. This was enabled by
leveraging our existing technology but was supported through the
year by the group-wide roll out of portable IT solutions for all staff.
Surplus existing technology is being reconditioned and donated
to charities supporting disadvantaged children where possible.
The rapid adoption of technology-based solutions for communication
and remote working across much of the developed world drove
a significant rotation in the value of companies, in favour of
technology-based companies and online retailers at the expense
of hospitality, travel and traditional consumer-led businesses. This
followed the impacts of the mandated restrictions on mobility and
consequent falls in consumer income. This significant change in the
relative value of entire sectors of investments drove significant
transactional activity as investor portfolios were rebalanced.
The group did not need to make use of any of the Government
schemes available to support businesses and their employees
through the pandemic. Plans for investment were slowed
temporarily at the peak of the downturn whilst the business
assessed the financial outlook. Consequently, hiring activity has
been slower, but not halted, than originally planned during the year.
The impacts of the pandemic on the credit quality of the group’s
loan and treasury books was very limited, reflecting the low
appetite for credit risk in our investment and lending decisions.
Client loans remain well covered by assets held in client portfolios.
Treasury exposures are spread across highly rated counterparties,
with the largest exposure (£1.8 billion at 31 December 2020) being
to the Bank of England.
Underlying operating income
No adjustments have been made to operating income as reported
under IFRS to calculate underlying operating income for 2020
or 2019.
Operating income increased 5.2% in 2020 to £366.1 million. This
reflects a change in the mix of income as a result of the impacts of
COVID-19 and, in the fourth quarter, adoption of standard tariffs for
our discretionary and advisory services for clients who joined from
Speirs & Jeffrey.
Fee income of £274.2 million in 2020 increased 5.4% compared
to £260.2 million in 2019. Fees represented 74.9% of underlying
operating income in 2020, which was in line with 2019. The
resilience of fee income during the year reflects the impact of
positive investment performance on the value of FUMA and
strong growth in the Funds business.
Net commission income increased 21.9% to £62.3 million in 2020
(2019: £51.1 million). Commission income was high throughout
the year as investment managers monitored and responded to
changes in the outlook for companies and sectors as the effect of
the pandemic developed throughout 2020. The transition of clients
to fee-only tariffs in the fourth quarter reduced this impact slightly.
Net interest income decreased 48.8% to £8.4 million, reflecting the
cut to the Bank of England’s base rate in March.
Underlying operating expenses
Operating expenses increased from £308.4 million to £322.3 million
during the year. Operating expenses are adjusted to exclude
expenditure falling into the three categories explained on page 35.
Underlying operating expenses increased by 5.5% to £273.6 million.
This includes cost savings of some £5 million on travel, subsistence,
events and entertainment related expenses as a result of the
pandemic restrictions, partially offset by £0.8 million of expenses
enabling remote working.
Regulation continued to drive cost growth with additional Financial
Services Compensation Scheme levies adding £1.8 million to costs
in 2020. Spend on our systems and infrastructure increased by
£3.7 million in the year as we advanced our strategic plans to
invest in our digital capability.
Planned additions to headcount in 2019 and 2020 and market-led
salary increases increased fixed staff costs by 6.0% to £117.5 million.
Of this, £1.0 million related to strategic investment in front office
hires. This increase also includes synergies of £3.3 million realised
following the integration of Speirs & Jeffrey. In total, average
headcount increased by 1.7% to 1,535 in 2020 (see note 10). Fixed
staff costs also include an additional accrual of £1.2 million
for unused staff holiday entitlement as a result of the
pandemic restrictions.
Total variable staff costs increased by 16.4% to £77.7 million. Growth
in performance-based awards of £6.8 million reflects the high level
of sales and profit in the Funds business, as well as the strong
performance of our investment management client portfolios.
The £4.1 million increase in the cost of other variable staff costs
is driven by a number of specific charges in 2020 for share-based
employment and other awards.
34
34
Rathbone Brothers Plc Report and accounts 2020
Rathbone Brothers Plc Report and accounts 2020
Strategic report|
COVID-19 pandemic
The uncertainty caused by the emergence of the COVID-19
pandemic during the early part of the year had a profound
impact on financial markets and broader business conditions.
The rapid falls in the value of Western financial markets from
mid-February through to late March reduced the value of funds
under management and administration (FUMA) and investment
management fees. Following a small recovery at the end of March,
markets then remained at these lower valuations for much of
the year until the announcement of successful vaccine trials in
November, at which point they recovered further, with the FTSE
100 Index ending the year c. 14% down on the start of the year.
Early in the pandemic, central banks cut interest rates further to
provide additional support to the economy. The Bank of England
reduced its base rate to 0.1%, which put further downward pressure
on banking margins.
Like many financial services businesses, the group successfully
transitioned almost its entire workforce to remote working
arrangements during March and early April. This was enabled by
leveraging our existing technology but was supported through the
year by the group-wide roll out of portable IT solutions for all staff.
Surplus existing technology is being reconditioned and donated
to charities supporting disadvantaged children where possible.
The rapid adoption of technology-based solutions for communication
and remote working across much of the developed world drove
a significant rotation in the value of companies, in favour of
technology-based companies and online retailers at the expense
of hospitality, travel and traditional consumer-led businesses. This
followed the impacts of the mandated restrictions on mobility and
consequent falls in consumer income. This significant change in the
relative value of entire sectors of investments drove significant
transactional activity as investor portfolios were rebalanced.
The group did not need to make use of any of the Government
schemes available to support businesses and their employees
through the pandemic. Plans for investment were slowed
temporarily at the peak of the downturn whilst the business
assessed the financial outlook. Consequently, hiring activity has
been slower, but not halted, than originally planned during the year.
The impacts of the pandemic on the credit quality of the group’s
loan and treasury books was very limited, reflecting the low
appetite for credit risk in our investment and lending decisions.
Client loans remain well covered by assets held in client portfolios.
Treasury exposures are spread across highly rated counterparties,
with the largest exposure (£1.8 billion at 31 December 2020) being
to the Bank of England.
Underlying operating income
No adjustments have been made to operating income as reported
under IFRS to calculate underlying operating income for 2020
or 2019.
Operating income increased 5.2% in 2020 to £366.1 million. This
reflects a change in the mix of income as a result of the impacts of
COVID-19 and, in the fourth quarter, adoption of standard tariffs for
our discretionary and advisory services for clients who joined from
Speirs & Jeffrey.
Fee income of £274.2 million in 2020 increased 5.4% compared
to £260.2 million in 2019. Fees represented 74.9% of underlying
operating income in 2020, which was in line with 2019. The
resilience of fee income during the year reflects the impact of
positive investment performance on the value of FUMA and
strong growth in the Funds business.
Net commission income increased 21.9% to £62.3 million in 2020
(2019: £51.1 million). Commission income was high throughout
the year as investment managers monitored and responded to
changes in the outlook for companies and sectors as the effect of
the pandemic developed throughout 2020. The transition of clients
to fee-only tariffs in the fourth quarter reduced this impact slightly.
Net interest income decreased 48.8% to £8.4 million, reflecting the
cut to the Bank of England’s base rate in March.
Underlying operating expenses
Operating expenses increased from £308.4 million to £322.3 million
during the year. Operating expenses are adjusted to exclude
expenditure falling into the three categories explained on page 35.
Underlying operating expenses increased by 5.5% to £273.6 million.
This includes cost savings of some £5 million on travel, subsistence,
events and entertainment related expenses as a result of the
pandemic restrictions, partially offset by £0.8 million of expenses
enabling remote working.
Regulation continued to drive cost growth with additional Financial
Services Compensation Scheme levies adding £1.8 million to costs
in 2020. Spend on our systems and infrastructure increased by
£3.7 million in the year as we advanced our strategic plans to
invest in our digital capability.
Planned additions to headcount in 2019 and 2020 and market-led
salary increases increased fixed staff costs by 6.0% to £117.5 million.
Of this, £1.0 million related to strategic investment in front office
hires. This increase also includes synergies of £3.3 million realised
following the integration of Speirs & Jeffrey. In total, average
headcount increased by 1.7% to 1,535 in 2020 (see note 10). Fixed
staff costs also include an additional accrual of £1.2 million
for unused staff holiday entitlement as a result of the
pandemic restrictions.
Total variable staff costs increased by 16.4% to £77.7 million. Growth
in performance-based awards of £6.8 million reflects the high level
of sales and profit in the Funds business, as well as the strong
performance of our investment management client portfolios.
The £4.1 million increase in the cost of other variable staff costs
is driven by a number of specific charges in 2020 for share-based
employment and other awards.
Alternative performance measures
Table 2. Reconciliation of underlying performance measures to
closest equivalent IFRS measures
2020
£m
(unless stated)
2019
£m
(unless stated)
Operating income (and underlying
operating income)
Operating expenses
Charges in relation to client
relationships and goodwill
Acquisition-related costs
Underlying operating expenses
Profit before tax
Underlying profit before tax1
Operating margin
Underlying operating margin2
Taxation
Tax on non-underlying expenses
Underlying taxation
Profit after tax
Underlying profit after tax3
Weighted average number of shares
in issue
Earnings per share
Underlying earnings per share4
Underlying quarterly average
total equity
ROCE
Underlying ROCE5
366.1
(322.3)
14.3
34.4
(273.6)
43.8
92.5
12.0%
25.3%
(17.1)
(3.8)
(20.9)
26.7
71.6
53.7m
49.6
133.3
520.5
5.3%
13.6%
348.1
(308.4)
15.9
33.1
(259.4)
39.7
88.7
11.4%
25.5%
(12.8)
(4.8)
(17.6)
26.9
71.1
53.6m
50.3p
132.8p
498.9
5.7%
14.2%
1. Underlying operating income less underlying operating expenses
2. Underlying profit before tax as a percentage of underlying operating income
3. Underlying profit before tax less underlying taxation
4. Underlying profit after tax divided by the weighted average number of shares in issue
5. Underlying profit after tax as a percentage of underlying quarterly average total equity
Charges in relation to client relationships
and goodwill (note 22)
As explained in notes 1.14 and 2.1, client relationship intangible
assets are recognised when we acquire a business or hire a team
of investment managers. The charges associated with these assets
represent the proportion of the cost of securing client contracts
that is charged to profit or loss as amortisation each year over
the estimated duration of the client relationships. The quantum
of the accounting charge will vary depending on the terms of each
individual acquisition or team hire and represents a significant non-
cash profit and loss item. They have, therefore, been excluded from
underlying profit, which represents largely cash-based earnings and
more directly relates to the financial reporting period. Research
analysts commonly exclude these costs when comparing the
performance of firms in the wealth management industry.
Acquisition-related costs (note 9)
Acquisition-related costs are significant costs which arise from
strategic investments to grow the business rather than its operating
performance and are therefore excluded from underlying results.
They primarily represent deferred acquisition consideration and the
costs of integrating acquired businesses into the group.
Deferred acquisition costs are generally significant payments
that are capital in nature reflecting the transfer of ownership of
the business. However, in accordance with IFRS 3, any deferred
consideration payments to former shareholders of the acquired
business who are required to remain in employment with the
group must be treated as remuneration. This distorts the view of
operational performance given by the statutory measure of profit.
During 2020, £32.3 million of deferred consideration payments
for Speirs & Jeffrey (2019: £26.0 million) were charged to the
income statement and are considered separately for executive
remuneration purposes (see page 103). A further £2.0 million of
integration costs were also incurred in 2020.
Acquisition costs of £0.2 million were incurred in relation to the
acquisition of the Personal Injury and Court of Protection business
of Barclays Wealth (2019: £0.2 million).
The final payment in respect of the acquisition of Vision
Independent Financial Planning and Castle Investment Solutions,
which were completed on 31 December 2015, were made to the
vendors at the end of 2019. These amounts represent the cost
of payments to vendors of the business who remained in
employment with the group.
Taxation
The corporation tax charge for 2020 was £17.1 million (2019: £12.8
million) (see note 11). The effective tax rate of 39.0% (2019: 32.1%)
reflects the disallowable costs of deferred consideration payments
for the acquisition of Speirs & Jeffrey. The effective tax rate in 2021
is expected to begin to trend back towards the statutory rate of tax,
as the level of the disallowable cost for deferred consideration in
2021 is expected to be much lower (see note 2.3). Thereafter, the
group expects it to return to 1-2 percentage points above the
statutory rate.
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35
35
Financial performance continued
The previously planned reduction of corporation tax to 17% from
19% was reversed by the Government during 2020. Deferred tax
balances have therefore been calculated at a rate of 19% (2019: 17%)
where timing differences are forecast to unwind in future years.
The budget on 3 March 2021 signalled an increase in the rate of
corporation tax to 25% in 2023. We will reflect this rate in the
deferred tax calculations when the change receives Royal Assent.
Basic earnings per share
Basic earnings per share for the year ended 31 December 2020 were
49.6p compared to 50.3p in 2019. This reflects the full impact of
non-underlying charges in relation to the acquisition of Speirs &
Jeffrey. On an underlying basis, earnings per share were 133.3p in
2020, compared to 132.8p in 2019 (see note 13).
Dividends
We operate a generally progressive dividend policy, as set out in the
directors’ report on page 127.
In determining the level of any proposed dividend, the board has
regard to current and forecast financial performance. Any proposal
to pay a dividend is subject to compliance with:
– the Companies Act, which requires that the company must have
sufficient distributable reserves to pay the dividend; and
– regulatory capital requirements, which require the group to
maintain at least a minimum level of own funds (for further
detail, see page 42).
The company’s distributable reserves are primarily dependent on:
– the level of profits earned by the company, including
distributions received from trading subsidiaries (some of
which are subject to minimum regulatory capital requirements
themselves); and
– actuarial changes in the value of the pension schemes that are
recognised in the company’s other comprehensive income, net
of deferred tax.
At 31 December 2020 the company’s distributable reserves were
£93.7 million (2019: £72.0 million). See Note 44 for a reconciliation of
net assets to distributable reserves.
In setting the proposed dividend for 2020, the board has considered
the group’s performance in 2020 and the strong balance sheet
position, balanced with the need to continue our investment
programme and the ongoing uncertainty in the economic outlook.
As a result, the board is proposing a final dividend for 2020 of 47p;
resulting in a full year dividend of 72p (an increase of 2p on 2019).
The proposed full year dividend is covered 0.7 times by basic
earnings and 1.9 times by underlying earnings.
Capital expenditure
Overall, capital expenditure of £11.7 million in 2020 was consistent
with levels spent in 2019. Spend on regulatory driven projects and
property improvements reduced by a total of £1.3m, whilst the same
amount was re-invested in technology solutions to enable remote
working for our employees.
Underlying return on capital employed
The board monitors the underlying return on capital employed
(ROCE) as a key performance measure, which forms part of the
assessment of management’s performance for remuneration
purposes as described in the remuneration report on page 106. For
monitoring purposes, underlying ROCE is defined as underlying
profit after tax expressed as a percentage of quarterly average
total equity across the year.
Assessment of underlying return on capital is a key consideration
for all investment decisions, particularly in relation to
acquired growth.
In 2020, underlying ROCE was 13.6% (2019: 14.2%). Quarterly
average total equity increased by £25.6 million in 2020 compared
to 2019, reflecting growth in retained earnings.
Outlook
The group’s profitability remains closely linked with the
performance of global investment markets and UK interest rates.
We continue to work to deliver on our medium-term strategy. As
we enter year two of our investment plan, momentum will increase
in the investment in our people and digital solutions. These
investments will enrich the client experience and support process
efficiency; which, over the medium term, will drive the next phase
of growth. Consequently, during the next two to three years, we
will continue to maintain a mid 20s underlying operating margin.
Acquisition synergies will continue to yield a full year revenue
impact in 2021 following the adoption of standard tariffs for clients
from Speirs & Jeffery from the last quarter of 2020, along with
further cost synergies of approximately £0.4m, adding to the
£5m delivered in 2020.
Staff costs in 2021 will reflect salary inflation, including promotions,
of approximately 1.5%, in addition to the full impact of hiring
activity in 2020 and further joiners planned in 2021 in support
of the strategic initiatives.
Announcements from the Financial Services Compensation
Scheme in January 2021 signal the group’s share of levies are not
expected to reduce and could even increase again in 2021. We await
further information.
We will continue to maintain our cost discipline, investing as
market conditions allow to support our growth strategy and
ensure that our infrastructure supports the business and
manages operational risks appropriately.
Other financial impacts
Final deferred consideration payments to former shareholders of
Speirs & Jeffrey will be calculated at the end of 2021. The amounts
payable are conditional on performance against certain operational
targets. We currently expect to recognise a non-underlying
charge of approximately £9 million in 2021 in relation to
these deferred payments.
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The previously planned reduction of corporation tax to 17% from
19% was reversed by the Government during 2020. Deferred tax
balances have therefore been calculated at a rate of 19% (2019: 17%)
where timing differences are forecast to unwind in future years.
The budget on 3 March 2021 signalled an increase in the rate of
corporation tax to 25% in 2023. We will reflect this rate in the
deferred tax calculations when the change receives Royal Assent.
Basic earnings per share
Basic earnings per share for the year ended 31 December 2020 were
49.6p compared to 50.3p in 2019. This reflects the full impact of
non-underlying charges in relation to the acquisition of Speirs &
Jeffrey. On an underlying basis, earnings per share were 133.3p in
2020, compared to 132.8p in 2019 (see note 13).
Dividends
We operate a generally progressive dividend policy, as set out in the
Outlook
directors’ report on page 127.
In determining the level of any proposed dividend, the board has
regard to current and forecast financial performance. Any proposal
to pay a dividend is subject to compliance with:
– the Companies Act, which requires that the company must have
sufficient distributable reserves to pay the dividend; and
– regulatory capital requirements, which require the group to
maintain at least a minimum level of own funds (for further
detail, see page 42).
The company’s distributable reserves are primarily dependent on:
– the level of profits earned by the company, including
distributions received from trading subsidiaries (some of
– actuarial changes in the value of the pension schemes that are
recognised in the company’s other comprehensive income, net
themselves); and
of deferred tax.
At 31 December 2020 the company’s distributable reserves were
£93.7 million (2019: £72.0 million). See Note 44 for a reconciliation of
net assets to distributable reserves.
the group’s performance in 2020 and the strong balance sheet
position, balanced with the need to continue our investment
programme and the ongoing uncertainty in the economic outlook.
As a result, the board is proposing a final dividend for 2020 of 47p;
resulting in a full year dividend of 72p (an increase of 2p on 2019).
The proposed full year dividend is covered 0.7 times by basic
earnings and 1.9 times by underlying earnings.
Capital expenditure
Overall, capital expenditure of £11.7 million in 2020 was consistent
with levels spent in 2019. Spend on regulatory driven projects and
property improvements reduced by a total of £1.3m, whilst the same
amount was re-invested in technology solutions to enable remote
working for our employees.
The board monitors the underlying return on capital employed
(ROCE) as a key performance measure, which forms part of the
assessment of management’s performance for remuneration
purposes as described in the remuneration report on page 106. For
monitoring purposes, underlying ROCE is defined as underlying
profit after tax expressed as a percentage of quarterly average
total equity across the year.
Assessment of underlying return on capital is a key consideration
for all investment decisions, particularly in relation to
acquired growth.
In 2020, underlying ROCE was 13.6% (2019: 14.2%). Quarterly
average total equity increased by £25.6 million in 2020 compared
to 2019, reflecting growth in retained earnings.
The group’s profitability remains closely linked with the
performance of global investment markets and UK interest rates.
We continue to work to deliver on our medium-term strategy. As
we enter year two of our investment plan, momentum will increase
in the investment in our people and digital solutions. These
investments will enrich the client experience and support process
efficiency; which, over the medium term, will drive the next phase
of growth. Consequently, during the next two to three years, we
will continue to maintain a mid 20s underlying operating margin.
Acquisition synergies will continue to yield a full year revenue
impact in 2021 following the adoption of standard tariffs for clients
from Speirs & Jeffery from the last quarter of 2020, along with
further cost synergies of approximately £0.4m, adding to the
Staff costs in 2021 will reflect salary inflation, including promotions,
of approximately 1.5%, in addition to the full impact of hiring
activity in 2020 and further joiners planned in 2021 in support
of the strategic initiatives.
Announcements from the Financial Services Compensation
Scheme in January 2021 signal the group’s share of levies are not
expected to reduce and could even increase again in 2021. We await
We will continue to maintain our cost discipline, investing as
market conditions allow to support our growth strategy and
ensure that our infrastructure supports the business and
manages operational risks appropriately.
Other financial impacts
Final deferred consideration payments to former shareholders of
Speirs & Jeffrey will be calculated at the end of 2021. The amounts
payable are conditional on performance against certain operational
targets. We currently expect to recognise a non-underlying
charge of approximately £9 million in 2021 in relation to
these deferred payments.
which are subject to minimum regulatory capital requirements
£5m delivered in 2020.
In setting the proposed dividend for 2020, the board has considered
further information.
Segmental review
Underlying return on capital employed
The group is managed through two key operating segments, Investment Management and Funds.
Investment Management
The activities of the group are described in detail on pages 7 to 9.
The Investment Management segment comprises those activities
described under the headings ‘Investment Management’ and
‘Complementary services’ on page 7. The results of the Investment
Management segment described below include the trading
results of Rathbone Trust Company and Vision Independent
Financial Planning.
Investment Management income is largely driven by revenue
margins earned from funds under management and administration.
Revenue margins are expressed as a basis point return, which
depends on a mix of tiered fee rates, commissions charged for
transactions undertaken on behalf of clients and the interest
margin earned on cash in client portfolios and client loans.
Year-on-year changes in the key performance indicators for
Investment Management are shown in table 3.
Table 3. Investment Management – key performance indicators
Funds under management and
administration at 31 December1
Underlying rate of net organic growth
in Investment Management funds
under management and
administration1
Underlying rate of total net growth in
Investment Management funds
under management and
administration1
Average net operating basis
2020
2019
£44.9bn
£43.0bn
0.1%
-1.5%
1.4%
-0.9%
point return2
72.7 bps
68.2 bps
Number of Investment Management
clients (‘000)
Number of investment managers
1. See table 4 (percentages calculated on unrounded figures)
2. See table 8
61
304
60
297
Funds under management and administration
Investment Management funds under management
and administration increased by 4.4% to £44.9 billion at
31 December 2020, with growth and investment performance
offsetting lower market levels at the end of the year.
Despite the impacts of the pandemic, Investment Management
has continued to attract new clients both organically and through
acquisitions. The level of client losses in 2020 reduced as the impact
of investment manager departures in recent years subsided.
During 2020, the total number of investment managers increased
to 304 at the end of the year, from 297 at the end of 2019. The total
number of clients (or groups of closely related clients) at the end of
the year was approximately 61,000 (2019: 60,000).
Chart 1. Investment Management –
number of clients and investment managers
5
9
2
0
6
7
9
2
0
6
4
0
3
1
6
2018
2019
2020
Number of investment managers
Number of Investment Management clients (’000)
Table 4. Investment Management – funds under management
and administration
As at 1 January
Inflows
– organic1
– acquired2
Outflows1
Market adjustment3
As at 31 December
Net organic new business4
Underlying rate of net organic growth5
Underlying rate of total net growth6
2020
£bn
43.0
3.9
3.3
0.6
(3.3)
1.3
44.9
0.0
0.1%
1.4%
2019
£bn
38.5
3.5
3.3
0.2
(3.9)
4.9
43.0
(0.6)
-1.5%
-0.9%
1. Value at the date of transfer in/(out)
2. Value at date of acquisition
3. Represents the impact of market movements and investment performance
4. Organic inflows less outflows
5. Net organic new business as a percentage of opening funds under management
and administration
6. Net organic new business and acquired inflows as a percentage of opening funds under
management and administration
Gross organic inflows of £3.3 billion remained resilient at 7.7% of
opening funds under management and administration. 54% of total
gross organic inflows related to existing client relationships. This
represents a good performance considering the prominence of
face-to-face sales in our business model.
Acquired inflows of £0.6 billion in 2020 reflected the successful
acquisition of the Personal Injury and Court of Protection assets
from Barclays Wealth and funds introduced by teams who recently
joined the group on an earn-out arrangement.
Outflows of funds under management and administration were
7.7% of the opening balance (2019: 10.1%). Of this, approximately
40% related to accounts that were closed with the remainder
being drawings from capital to supplement income or for inter-
generational transfers. The decrease on 2019 reflects a much-
reduced impact of recent investment manager departures on
closed accounts.
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37
Segmental review continued
As a result, total Investment Management new business was £0.6
billion during 2020, representing an increase by 1.4% of opening
funds under management and administration (2019: net total
reduction of 0.9%).
2020 was another volatile year for equity and bond markets,
with the impacts of the emerging pandemic, the US election and
the announcement of a Brexit trade deal providing a range of
conflicting stimuli to investment markets. Sentiment improved
markedly in the fourth quarter, with the announcement of effective
vaccines providing some hope for a faster return to stability.
Reflecting these factors, the MSCI PIMFA Balanced Index
finished the year largely unchanged from its opening level.
The average investment return across all Investment Management
client portfolios, after all fees, was +3.4%, which outperformed the
PIMFA index by 3.5%. The outperformance was largely driven by US
and Worldwide Equities, as the release of positive economic data
combined with elevated excess cash levels propelled global indices
higher, which attracted significant momentum over time. This
meant our conviction in highly cyclical growth names performed
particularly strongly with Technology, Sustainability and Smaller
Cap holdings leading the way. Overall company performance was
also slightly ahead of the Private Client Indices published by ARC.
Chart 2. Investment Management – funds under
management and administration five year growth (£bn)
9
.
4
4
0
.
3
4
5
.
8
3
8
.
3
3
2
.
0
3
2016 2017
2018
2019
2020
FTSE 100*
MSCI PIMFA Balanced*
£44.9bn
Table 5. Investment Management – service level breakdown
Direct
Financial adviser linked
Total discretionary
Non-discretionary investment
management
Execution only
Gross Investment Management FUMA
Discretionary wrapped funds1
Total Investment Management FUMA
2020
£bn
33.7
9.3
43.0
1.4
2.7
47.1
(2.2)
44.9
2019
£bn
31.0
8.7
39.7
2.6
2.4
44.7
(1.7)
43.0
1. Holdings of the group’s mutual funds in Investment Management client portfolios and
mutual funds for which the management of the assets is undertaken by Investment
Management teams; the corresponding funds under management and administration
is reported within Funds
During 2020, clients who joined as part of the acquisition of Speirs &
Jeffrey converted some £1.0 billion of funds under administration
from non-discretionary to discretionary mandates.
Financial performance
Table 6. Investment Management – financial performance
Net investment management fee
income1
Net commission income
Net interest income
Fees from advisory services2 and other
income
Underlying operating income
Underlying operating expenses3
Underlying profit before tax
Underlying operating margin4
2020
£m
2019
£m
230.3
62.3
8.4
19.6
320.6
(241.2)
79.4
24.8%
224.1
51.1
16.4
19.3
310.9
(232.5)
78.4
25.2%
1. Net investment management fee income is stated after deducting fees and commission
expenses paid to introducers
2. Fees from advisory services includes income from trust, tax and financial planning
services (including Vision)
3. See table 9
4. Underlying profit before tax as a percentage of underlying operating income
*
*
Index figures show how funds under management and administration would have changed
Index figures show how funds under management and administration would have changed
between 2014 and 2018 if they had tracked each index
between 2016 and 2020 if they had tracked each index
The effect of the pandemic on investment markets and the wider
economy resulted in a change in the mix of revenues in 2020.
2020 was a strong year for our specialist teams. Charity funds under
management and administration continued to grow strongly and
reached £6.5 billion at 31 December 2020, up 6.6% from £6.1 billion
at the start of the year. The Personal Injury and Court of Protection
business ended 2020 with £1.0 billion of funds under management
and administration. Rathbone Greenbank Investments grew funds
under management and administration nearly 19% to £1.9 billion at
31 December 2020.
As at 31 December 2020, Vision Independent Financial Planning
advised on client assets of £2.2 billion, up 1.5% from 2019.
Lower average funds under management and administration levels
on our principal charging dates during 2020 (see table 7) weighed
on net investment management fee income for the first three
quarters. Strong investment performance and the repricing of
mandates to a fee-only rate card for clients who joined from Speirs
& Jeffrey in the fourth quarter offset this; and net investment
management fee income increased by 2.8% to £230.3 million
in 2020.
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As a result, total Investment Management new business was £0.6
Table 5. Investment Management – service level breakdown
billion during 2020, representing an increase by 1.4% of opening
funds under management and administration (2019: net total
reduction of 0.9%).
2020 was another volatile year for equity and bond markets,
with the impacts of the emerging pandemic, the US election and
the announcement of a Brexit trade deal providing a range of
conflicting stimuli to investment markets. Sentiment improved
markedly in the fourth quarter, with the announcement of effective
vaccines providing some hope for a faster return to stability.
Reflecting these factors, the MSCI PIMFA Balanced Index
finished the year largely unchanged from its opening level.
The average investment return across all Investment Management
client portfolios, after all fees, was +3.4%, which outperformed the
PIMFA index by 3.5%. The outperformance was largely driven by US
Direct
Financial adviser linked
Total discretionary
Non-discretionary investment
management
Execution only
Gross Investment Management FUMA
Discretionary wrapped funds1
Total Investment Management FUMA
2020
£bn
33.7
9.3
43.0
1.4
2.7
47.1
(2.2)
44.9
2019
£bn
31.0
8.7
39.7
2.6
2.4
44.7
(1.7)
43.0
1. Holdings of the group’s mutual funds in Investment Management client portfolios and
mutual funds for which the management of the assets is undertaken by Investment
Management teams; the corresponding funds under management and administration
is reported within Funds
and Worldwide Equities, as the release of positive economic data
During 2020, clients who joined as part of the acquisition of Speirs &
combined with elevated excess cash levels propelled global indices
Jeffrey converted some £1.0 billion of funds under administration
higher, which attracted significant momentum over time. This
from non-discretionary to discretionary mandates.
meant our conviction in highly cyclical growth names performed
particularly strongly with Technology, Sustainability and Smaller
Cap holdings leading the way. Overall company performance was
also slightly ahead of the Private Client Indices published by ARC.
Financial performance
Table 6. Investment Management – financial performance
Net investment management fee
income1
Net commission income
Net interest income
Fees from advisory services2 and other
income
Underlying operating income
Underlying operating expenses3
Underlying profit before tax
Underlying operating margin4
2020
£m
2019
£m
230.3
62.3
8.4
19.6
320.6
(241.2)
79.4
24.8%
224.1
51.1
16.4
19.3
310.9
(232.5)
78.4
25.2%
1. Net investment management fee income is stated after deducting fees and commission
2. Fees from advisory services includes income from trust, tax and financial planning
expenses paid to introducers
services (including Vision)
3. See table 9
4. Underlying profit before tax as a percentage of underlying operating income
*
Index figures show how funds under management and administration would have changed
between 2016 and 2020 if they had tracked each index
The effect of the pandemic on investment markets and the wider
economy resulted in a change in the mix of revenues in 2020.
2020 was a strong year for our specialist teams. Charity funds under
management and administration continued to grow strongly and
reached £6.5 billion at 31 December 2020, up 6.6% from £6.1 billion
at the start of the year. The Personal Injury and Court of Protection
business ended 2020 with £1.0 billion of funds under management
and administration. Rathbone Greenbank Investments grew funds
under management and administration nearly 19% to £1.9 billion at
31 December 2020.
As at 31 December 2020, Vision Independent Financial Planning
advised on client assets of £2.2 billion, up 1.5% from 2019.
Lower average funds under management and administration levels
on our principal charging dates during 2020 (see table 7) weighed
on net investment management fee income for the first three
quarters. Strong investment performance and the repricing of
mandates to a fee-only rate card for clients who joined from Speirs
& Jeffrey in the fourth quarter offset this; and net investment
management fee income increased by 2.8% to £230.3 million
in 2020.
Table 7. Investment Management – average funds under
management and administration
Valuation dates for billing
– 5 April
– 30 June
– 30 September
– 31 December
Average
Average FTSE 100 level1
2020
£bn
2019
£bn
35.9
41.3
41.8
44.9
41.0
5,978
41.4
42.5
42.2
43.0
42.3
7,456
1. Based on the corresponding valuation dates for billing
Net commission income increased 21.9% to £62.3 million in 2020,
as the impact of the pandemic on economic prospects in various
sectors led to a substantial rotation from value stocks to growth
stocks. This drove increased transactional activity as investment
managers rebalanced client portfolios to reflect the change
in outlook.
The cut in the Bank of England base rate to 0.1% in March 2020
reduced the margin available on our treasury book and net interest
income consequently decreased 48.7% to £8.4 million in 2020.
The investment management loan book increased to £158 million
at the end of 2020 (2019: £132 million) and contributed £3.4 million
to net interest income (2019: £4.0 million). Also included in net
interest income is £1.3 million (2019: £1.3 million) of interest payable
on the group’s Tier 2 notes, which are callable annually in August,
and a charge of £3.4 million in relation to the group’s premises
leases (2019: £3.6 million).
Table 8. Investment Management – revenue margin
Basis point return1 from:
– fee income
– commission
– interest
Basis point return on funds under
2020
bps
56.2
15.2
1.3
2019
bps
52.9
12.1
3.2
management and administration
72.7
68.2
1. Underlying operating income (see table 6), excluding interest on own reserves, interest
payable on Tier 2 notes issued, interest payable on lease assets, fees from advisory
services and other income, divided by the average funds under management and
administration on the quarterly billing dates (see table 7). Speirs & Jeffrey funds under
management and administration have been included pro rata for the period of ownership
in 2018.
As a result of the factors described above, the average net operating
basis point return on funds under management and administration
has increased by 4.5 bps to 72.7 bps in 2020.
Fees from advisory services and other income increased marginally
to £19.6 million, reflecting the impacts of the pandemic on growth
in our complementary services.
Underlying operating expenses in Investment Management for
2020 were £241.2 million, an increase of 3.7% compared to 2019.
This is highlighted in table 9.
Table 9. Investment Management – underlying
operating expenses
Staff costs1
– fixed
– variable
Total staff costs
Other operating expenses
Underlying operating expenses
Underlying cost/income ratio2
2020
£m
2019
£m
83.7
56.4
140.1
101.1
241.2
75.2%
78.6
49.7
128.3
104.2
232.5
74.8%
1. Represents the costs of investment managers and teams directly involved in
client-facing activities
2. Underlying operating expenses as a percentage of underlying operating income
(see table 5)
Fixed staff costs of £83.7 million increased by 6.5% year-on-year.
Synergies of £3.3 million following the integration of Speirs & Jeffrey
were offset by an 8% growth in headcount and market-driven salary
inflation. Incremental accruals of £1.0 million were also recognised
for unused holiday entitlement as a result of the pandemic.
Variable staff costs totalled £56.4 million in 2020, an increase of £6.7
million on 2019. This principally reflects a higher charge for growth-
based awards following strong investment performance in 2020 as
well as the cost of staff withdrawing from the Save As You Earn
scheme and awards for new investment management teams.
Other operating expenses of £101.1 million include property,
depreciation, settlement, IT, finance and other central support
services costs.
Savings in the year of approximately £5 million arose from
the impact of the pandemic on entertaining, travel, events and
subsistence spend, as well as reduced use of the group’s office
space. The total cost for 2020 also includes the impact of £1.7 million
of synergies from the Speirs & Jeffrey integration.
The savings were partially offset by additional levies for the
Financial Services Compensation Scheme, which increased by
£1.6 million in 2020.
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39
Segmental review continued
Funds
Table 10. Funds – Fund range
Rathbone Global Opportunities Fund
Rathbone Ethical Bond Fund
Rathbone Multi-Asset Portfolios
Rathbone Income Fund
Offshore funds
Rathbone High Quality Bond Fund
Rathbone Active Income Fund
for Charities
Rathbone Strategic Bond Fund
Rathbone Core Investment Fund
for Charities
Rathbone UK Opportunities Fund
Rathbone Global Sustainability Fund
Other funds
2020
£m
3,202
2,088
1,714
811
578
283
227
204
129
49
44
491
9,820
2019
£m
1,858
1,495
1,134
1,078
517
210
207
203
121
47
11
557
7,438
Funds’ financial performance is principally driven by the value and
growth of funds under management. Year-on-year changes in the
key performance indicators for Funds are shown in table 11.
Table 11. Funds – key performance indicators
Funds under management
at 31 December1
Underlying rate of net growth in Funds
under management1
Underlying profit before tax2
1. See table 12
2. See table 14
2020
2019
£9.8bn
£7.4bn
20.1%
£13.1m
16.7%
£10.3m
Funds under management
Net retail sales in the asset management industry totalled
approximately £30.8 billion in 2020, as reported by the Investment
Association (IA), up around £24.3 billion on 2019. Industry-wide
funds under management increased 8.5% to £1.4 trillion at the
end of the year.
Globally, equities was the top seller in 2020 at £10.4 billion – a very
significant increase on the £2.9 billion outflow from equities in 2019;
although UK equities were a notable exception to this, with net
outflows in the year. Two-thirds of the total industry inflows came
in November and December, showing the significant response
to the news of a vaccine and the resulting boost to stock market
returns. The IA Global sector (containing Rathbone Global
Opportunities Fund and Rathbone Global Sustainability Fund) was
the highest selling equity sector with annual flows of £8.2 billion.
The positive momentum in sales accelerated in 2020, with
gross sales up 56.5% in the year to £3.6 billion. Redemptions also
increased in the year, particularly in March when investors initially
retreated from investment markets, totalling £2.1 billion for the full
year. As a result, net inflows of £1.5 billion for the year were up
67% on £0.9 billion in 2019. Rathbone Funds Management
consistently ranked in the top 10 for net UK sales throughout
the year according to the quarterly Pridham Sales Reports.
Net inflows continued to be spread across the range of funds. The
Multi-Asset Portfolios, Global Opportunities Fund and Ethical Bond
Fund continued to attract particularly strong net flows in the year.
Funds under management closed the year up 32.4% at £9.8 billion
(see table 12).
Table 12. Funds – funds under management
As at 1 January
Net inflows
– inflows1
– outflows1
Market adjustments2
As at 31 December
Underlying rate of net growth3
2020
£bn
7.4
1.5
3.6
(2.1)
0.9
9.8
20.1%
2019
£bn
5.6
0.9
2.3
(1.4)
0.9
7.4
16.7%
1. Valued at the date of transfer in/(out)
2. Impact of market movements and relative performance
3. Net inflows as a percentage of opening funds under management
Chart 3. Funds – annual net flows (£m)
8
9
4
,
1
3
8
8
3
4
9
4
5
5
3
4
5
2016 2017
2018
2019
2020
£1,498m
The Ethical Bond and Global Opportunities funds maintained
their excellent long-term track records and both finished in the
first quartile for performance, measured over three and five years.
The UK Opportunities Fund ended the year with top decile
performance for 2020 and an improved long-term track record.
The multi-asset funds similarly beat their benchmarks and did
well against their peers.
UK Income funds were hit by the large cuts in dividends by UK
stocks as a result of the pandemic, and the Income Fund cut its
dividend in the year by 20% (compared to c.40% cut for the
FTSE All Share).
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Funds
Table 10. Funds – Fund range
Rathbone Global Opportunities Fund
Rathbone Ethical Bond Fund
Rathbone Multi-Asset Portfolios
Rathbone Income Fund
Offshore funds
Rathbone High Quality Bond Fund
Rathbone Active Income Fund
for Charities
Rathbone Strategic Bond Fund
Rathbone Core Investment Fund
for Charities
Rathbone UK Opportunities Fund
Rathbone Global Sustainability Fund
Other funds
The positive momentum in sales accelerated in 2020, with
gross sales up 56.5% in the year to £3.6 billion. Redemptions also
increased in the year, particularly in March when investors initially
retreated from investment markets, totalling £2.1 billion for the full
year. As a result, net inflows of £1.5 billion for the year were up
67% on £0.9 billion in 2019. Rathbone Funds Management
consistently ranked in the top 10 for net UK sales throughout
the year according to the quarterly Pridham Sales Reports.
Net inflows continued to be spread across the range of funds. The
Multi-Asset Portfolios, Global Opportunities Fund and Ethical Bond
Fund continued to attract particularly strong net flows in the year.
Funds under management closed the year up 32.4% at £9.8 billion
Table 12. Funds – funds under management
(see table 12).
As at 1 January
Net inflows
– inflows1
– outflows1
2020
£bn
7.4
1.5
3.6
(2.1)
0.9
9.8
2019
£bn
5.6
0.9
2.3
(1.4)
0.9
7.4
20.1%
16.7%
2020
£m
3,202
2,088
1,714
811
578
283
227
204
129
49
44
491
2019
£m
1,858
1,495
1,134
1,078
517
210
207
203
121
47
11
557
9,820
7,438
2020
2019
£9.8bn
£7.4bn
20.1%
£13.1m
16.7%
£10.3m
Funds’ financial performance is principally driven by the value and
growth of funds under management. Year-on-year changes in the
key performance indicators for Funds are shown in table 11.
Table 11. Funds – key performance indicators
Market adjustments2
As at 31 December
Underlying rate of net growth3
1. Valued at the date of transfer in/(out)
2. Impact of market movements and relative performance
3. Net inflows as a percentage of opening funds under management
Funds under management
at 31 December1
Underlying rate of net growth in Funds
under management1
Underlying profit before tax2
1. See table 12
2. See table 14
Funds under management
Net retail sales in the asset management industry totalled
approximately £30.8 billion in 2020, as reported by the Investment
Association (IA), up around £24.3 billion on 2019. Industry-wide
funds under management increased 8.5% to £1.4 trillion at the
end of the year.
Globally, equities was the top seller in 2020 at £10.4 billion – a very
significant increase on the £2.9 billion outflow from equities in 2019;
although UK equities were a notable exception to this, with net
outflows in the year. Two-thirds of the total industry inflows came
The Ethical Bond and Global Opportunities funds maintained
in November and December, showing the significant response
their excellent long-term track records and both finished in the
to the news of a vaccine and the resulting boost to stock market
first quartile for performance, measured over three and five years.
returns. The IA Global sector (containing Rathbone Global
The UK Opportunities Fund ended the year with top decile
Opportunities Fund and Rathbone Global Sustainability Fund) was
performance for 2020 and an improved long-term track record.
the highest selling equity sector with annual flows of £8.2 billion.
The multi-asset funds similarly beat their benchmarks and did
well against their peers.
UK Income funds were hit by the large cuts in dividends by UK
stocks as a result of the pandemic, and the Income Fund cut its
dividend in the year by 20% (compared to c.40% cut for the
FTSE All Share).
Net annual management charges increased 21.6% to £43.9 million
in 2020, driven principally by the rise in average funds under
management. Net annual management charges as a percentage
of average funds under management fell to 54 bps (2019: 56 bps)
reflecting the increased proportion of holdings in institutional units
and the continued growth in the fixed income mandate funds.
Underlying operating income as a percentage of average funds
under management and administration fell to 55 bps in 2020 from
56 bps in 2019 for the same reasons.
Table 15. Funds – underlying operating expenses
2020
£m
Staff costs
– Fixed
– Variable
Total staff costs
Other operating expenses
Underlying operating expenses
Underlying cost/income ratio1
4.1
12.0
16.1
16.2
32.3
71.1%
2019
£m
3.8
8.7
12.5
14.4
26.9
72.3%
1. Underlying operating expenses as a percentage of underlying operating income
(see table 14)
Fixed staff costs of £4.1 million for the year ended 31 December
2020 were 7.9% higher than 2019. This reflects salary inflation and
growth in headcount in response to regulatory changes and growth
in the business.
Variable staff costs of £12.0 million were 37.9% higher than 2019 as a
result of growth in profit and the higher value of gross sales, which
drove increases in sales commissions.
Other operating expenses have increased by 12.5% to £16.2 million
in 2020. Growth in administration costs of £0.6 million, driven by
higher levels of funds under management and sales, was contained
by negotiation of more competitive rates with third-party service
providers early in the year. Regulatory costs also grew by £0.3
million, reflecting the growth in levies for the Financial Services
Compensation Scheme.
The High Quality Bond Fund posted good returns over the year,
performing well against its cash-plus based benchmark.
The more defensively positioned Strategic Bond Fund recovered
much of the poorer short-term performance measured over the
prior year.
Long term performance for our retail funds remains strong and the
funds are performing in line with expectations and their benchmarks.
Table 13. Funds – performance1, 2
2020/(2019) Quartile ranking3 over
Rathbone Ethical Bond Fund
Rathbone Global Opportunities Fund
Rathbone Global Sustainability Fund4
Rathbone Income Fund
Rathbone Strategic Bond Fund
Rathbone UK Opportunities Fund
1 year
2 (1)
1 (1)
1 (–)
2 (3)
2 (4)
1 (2)
3 years
1 (1)
1 (1)
– (–)
2 (3)
2 (2)
2 (3)
5 years
1 (1)
1 (1)
– (–)
3 (2)
2 (2)
2 (2)
1. Quartile ranking data is sourced from FE Trustnet
2. Excludes multi-asset funds (for which quartile rankings are prohibited by the Investment
Association (IA)), High Quality Bond Fund, which has no relevant peer group against which
to measure quartile performance, non-publicly marketed funds and segregated mandates
3. Ranking of institutional share classes at 31 December 2020 and 2019 against other
funds in the same IA sector, based on total return performance, net of fees (consistent
with investment performance information reported in the funds’ monthly factsheets)
4. Rathbone Global Sustainability Fund was launched on 19 July 2018, therefore
performance figures for periods beyond one year are not available. Over the period
since launch, the fund is ranked in the 1st quartile.
5. Funds included in the above table account for 65% of the total FUM of the
Funds business
As at 31 December 2020, 97% of holdings in Funds’ retail funds were
in institutional units (31 December 2019: 95%).
During the year, the total number of investment professionals in
Funds increased to 18 at 31 December 2020 from 15 at the end
of 2019.
Financial performance
Funds’ income is primarily derived from annual management
charges, which are calculated on the daily value of funds under
management, net of rebates payable to intermediaries.
Table 14. Funds – financial performance
Net annual management charges
Net dealing profits
Interest and other income
Underlying operating income
Underlying operating expenses1
Underlying profit before tax
Operating % margin2
2020
£m
43.9
0.0
1.5
45.4
(32.3)
13.1
28.9%
2019
£m
36.1
0.2
0.9
37.2
(26.9)
10.3
27.7%
1. See table 15
2. Underlying profit before tax divided by underlying operating income
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41
Financial position
Financial position
Table 16. Group’s financial position
Own funds:
– Common Equity Tier 1 ratio1
– Total Own Funds ratio2
– Total equity
– Tier 2 subordinated loan notes3
– Total risk exposure amount
– Leverage ratio4
Other resources:
– Total assets
– Treasury assets5
– Investment management loan book6
– Intangible assets from
acquired growth7
– Tangible assets and software8
Liabilities:
– Due to customers9
– Net defined benefit pension liability
2020
£m
(unless stated)
2019
£m
(unless stated)
23.5%
24.3%
513.8
19.8
1,247.8
9.2%
3,370.6
2,721.1
158.0
218.0
28.0
22.0%
23.3%
485.4
19.9
1,209.0
8.3%
3,398.7
2,817.1
132.0
214.9
28.4
2,561.8
9.8
2,668.6
8.0
1.
Common Equity Tier 1 capital as a proportion of total risk exposure amount
2. Total own funds (see table 17) as a proportion of total risk exposure amount
3. Represents the carrying value of the Tier 2 loan notes (see note 28)
4. Common Equity Tier 1 capital as a percentage of total assets, excluding intangible assets,
plus certain off balance sheet exposures
5. Balances with central banks, loans and advances to banks and investment securities
6. See note 16 to the financial statements
7. Net book value of acquired client relationships and goodwill (note 22)
8. Net book value of property, plant and equipment and computer software (notes 19
and 22)
9. Total amounts of cash in client portfolios held by Rathbone Investment Management as a
bank (note 24)
Own funds
Rathbones is classified as a banking group for regulatory capital
purposes and is therefore required to operate within the restrictions
on capital resources and banking exposures prescribed by the
Capital Requirements Regulation, as applied in the UK by the
Prudential Regulation Authority (PRA).
At 31 December 2020, the group’s regulatory own funds (including
verified profits for the year) were £304 million (2019: £282 million).
The CET1 ratio was 23.5%, an increase on the 22.0% reported at the
previous year end. Our consolidated CET1 ratio remains higher than
the banking industry norm, reflecting the low-risk nature of our
banking activity.
The leverage ratio was 9.2% at 31 December 2020, compared to 8.3%
at 31 December 2019. The leverage ratio represents our CET1 capital
as a percentage of our total assets, excluding intangible assets, plus
certain off balance sheet exposures. The ratio has increased during
the year in line with the increase in CET1 capital.
The business is primarily funded by equity, but also supported by
£20 million of 10 year Tier 2 subordinated loan notes. The notes
introduce a small amount of gearing into our balance sheet as a way
of financing future growth in a cost-effective and capital-efficient
manner. They are repayable in August 2025, with a call option for
the issuer annually each August. Interest is payable at a fixed
margin of 4.375% over six-month LIBOR (note 30). As they are
now within 5 years of their maturity date, they are amortised
on a straight-line basis for capital eligibility purposes over these
last 5 years.
The consolidated balance sheet total equity was £514 million at
31 December 2020, up 5.9% from £485 million at the end of 2019,
primarily reflecting the retained profits for the year.
Own funds and liquidity requirements
As required under PRA rules, we perform an Internal
Capital Adequacy Assessment Process (ICAAP) and Internal
Liquidity Adequacy Assessment Process (ILAAP) annually,
which include performing a range of stress tests to determine the
appropriate level of regulatory capital and liquidity that we need to
hold. In addition, we monitor a wide range of capital and liquidity
statistics on a daily, monthly or less frequent basis as required.
Surplus capital levels are forecast on a monthly basis, taking
account of proposed dividends and investment requirements,
to ensure that appropriate buffers are maintained. Investment
of proprietary funds is controlled by our treasury department.
We are required to hold capital to cover a range of own
funds requirements.
Table 18. Group’s own funds requirements1
Table 17. Regulatory own funds
Share capital and share premium
Reserves
Less:
Own shares
Intangible assets1
Common Equity Tier 1 own funds
Tier 2 own funds
Total own funds
2020
£m
218.0
342.6
(46.7)
(220.7)
293.2
10.7
303.9
2019
£m
213.8
313.6
(42.0)
(218.9)
266.5
15.7
282.2
Credit risk requirement
Market risk requirement
Operational risk requirement
Pillar 1 own funds requirement
Pillar 2A own funds requirement
Total Capital Requirement (‘TCR’)
Combined buffer:
– capital conservation buffer (CCB)
– countercyclical capital buffer (CCyB)
Total Capital Requirement (‘TCR’) and
2020
£m
46.9
0.6
52.4
99.9
40.0
139.9
31.1
0.1
2019
£m
46.5
0.4
49.8
96.7
39.8
136.5
30.2
11.3
1.
Net book value of goodwill, client relationship intangibles and software is deducted
directly from own funds, less any related deferred tax
Common Equity Tier 1 (CET1) own funds increased by £26.5 million
during 2020, due to the inclusion of verified retained profits for the
2020 financial year.
Combined buffer
171.1
178.0
1. Own funds requirements stated above include the impact of trading results and changes
to requirements and buffers that were known as at 31 December and which became
effective prior to the publication of the preliminary results
42
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Financial position
Table 16. Group’s financial position
Own funds:
– Common Equity Tier 1 ratio1
– Total Own Funds ratio2
– Total equity
– Tier 2 subordinated loan notes3
– Total risk exposure amount
– Leverage ratio4
Other resources:
– Total assets
– Treasury assets5
– Investment management loan book6
– Intangible assets from
acquired growth7
– Tangible assets and software8
Liabilities:
– Due to customers9
2020
£m
2019
£m
(unless stated)
(unless stated)
23.5%
24.3%
513.8
19.8
22.0%
23.3%
485.4
19.9
1,247.8
1,209.0
9.2%
8.3%
3,370.6
2,721.1
158.0
218.0
28.0
3,398.7
2,817.1
132.0
214.9
28.4
The CET1 ratio was 23.5%, an increase on the 22.0% reported at the
previous year end. Our consolidated CET1 ratio remains higher than
the banking industry norm, reflecting the low-risk nature of our
banking activity.
The leverage ratio was 9.2% at 31 December 2020, compared to 8.3%
at 31 December 2019. The leverage ratio represents our CET1 capital
as a percentage of our total assets, excluding intangible assets, plus
certain off balance sheet exposures. The ratio has increased during
the year in line with the increase in CET1 capital.
The business is primarily funded by equity, but also supported by
£20 million of 10 year Tier 2 subordinated loan notes. The notes
introduce a small amount of gearing into our balance sheet as a way
of financing future growth in a cost-effective and capital-efficient
manner. They are repayable in August 2025, with a call option for
the issuer annually each August. Interest is payable at a fixed
margin of 4.375% over six-month LIBOR (note 30). As they are
now within 5 years of their maturity date, they are amortised
on a straight-line basis for capital eligibility purposes over these
2,561.8
2,668.6
last 5 years.
– Net defined benefit pension liability
9.8
8.0
1.
Common Equity Tier 1 capital as a proportion of total risk exposure amount
2. Total own funds (see table 17) as a proportion of total risk exposure amount
3. Represents the carrying value of the Tier 2 loan notes (see note 28)
The consolidated balance sheet total equity was £514 million at
31 December 2020, up 5.9% from £485 million at the end of 2019,
primarily reflecting the retained profits for the year.
4. Common Equity Tier 1 capital as a percentage of total assets, excluding intangible assets,
Own funds and liquidity requirements
plus certain off balance sheet exposures
5. Balances with central banks, loans and advances to banks and investment securities
6. See note 16 to the financial statements
7. Net book value of acquired client relationships and goodwill (note 22)
8. Net book value of property, plant and equipment and computer software (notes 19
9. Total amounts of cash in client portfolios held by Rathbone Investment Management as a
and 22)
bank (note 24)
Own funds
As required under PRA rules, we perform an Internal
Capital Adequacy Assessment Process (ICAAP) and Internal
Liquidity Adequacy Assessment Process (ILAAP) annually,
which include performing a range of stress tests to determine the
appropriate level of regulatory capital and liquidity that we need to
hold. In addition, we monitor a wide range of capital and liquidity
statistics on a daily, monthly or less frequent basis as required.
Surplus capital levels are forecast on a monthly basis, taking
account of proposed dividends and investment requirements,
Rathbones is classified as a banking group for regulatory capital
purposes and is therefore required to operate within the restrictions
to ensure that appropriate buffers are maintained. Investment
on capital resources and banking exposures prescribed by the
Capital Requirements Regulation, as applied in the UK by the
Prudential Regulation Authority (PRA).
At 31 December 2020, the group’s regulatory own funds (including
verified profits for the year) were £304 million (2019: £282 million).
of proprietary funds is controlled by our treasury department.
We are required to hold capital to cover a range of own
funds requirements.
Table 18. Group’s own funds requirements1
Table 17. Regulatory own funds
Share capital and share premium
Reserves
Less:
Own shares
Intangible assets1
Tier 2 own funds
Total own funds
Common Equity Tier 1 own funds
2020
£m
218.0
342.6
(46.7)
(220.7)
293.2
10.7
303.9
2019
£m
213.8
313.6
(42.0)
(218.9)
266.5
15.7
282.2
Credit risk requirement
Market risk requirement
Operational risk requirement
Pillar 1 own funds requirement
Pillar 2A own funds requirement
Combined buffer:
– capital conservation buffer (CCB)
– countercyclical capital buffer (CCyB)
Total Capital Requirement (‘TCR’) and
2020
£m
46.9
0.6
52.4
99.9
40.0
31.1
0.1
2019
£m
46.5
0.4
49.8
96.7
39.8
30.2
11.3
Total Capital Requirement (‘TCR’)
139.9
136.5
1.
Net book value of goodwill, client relationship intangibles and software is deducted
Combined buffer
171.1
178.0
directly from own funds, less any related deferred tax
Common Equity Tier 1 (CET1) own funds increased by £26.5 million
during 2020, due to the inclusion of verified retained profits for the
2020 financial year.
1. Own funds requirements stated above include the impact of trading results and changes
to requirements and buffers that were known as at 31 December and which became
effective prior to the publication of the preliminary results
Pillar 1 – minimum requirement for capital
Pillar 1 focuses on the determination of a total risk exposure amount
(also known as ‘risk-weighted assets’) and expected losses in
respect of the group’s exposure to credit, counterparty credit,
market and operational risks, and sets a minimum requirement
for capital.
At 31 December 2020, the group’s total risk exposure amount was
£1,248 million (2019: £1,209 million).
Pillar 2 – supervisory review process
Pillar 2 supplements the Pillar 1 minimum requirement with firm-
specific Pillar 2A requirements and a framework of regulatory
capital buffers.
The Pillar 2A own funds requirement (which is set by the PRA and
the calculation of which remains confidential with the PRA) reflects
those risks, specific to the firm, which are not fully captured under
the Pillar 1 own funds requirement. Our Pillar 2A own funds
requirement was reviewed by the PRA during the year.
Pension obligation risk
The potential for additional unplanned capital strain or costs that
the group would incur in the event of a significant deterioration in
the funding position of the group’s defined benefit pension schemes.
Interest rate risk in the banking book
The potential losses in the non-trading book resulting from interest
rate changes or widening of the spread between Bank of England
base rates and LIBOR rates.
Concentration risk
Greater loss volatility arising from a higher level of loan default
correlation than is assumed by the Pillar 1 assessment.
The group is also required to maintain a number of regulatory
capital buffers, all of which must be met with CET1 capital.
Capital conservation buffer (CCB)
The CCB is a general buffer, designed to provide for losses in the
event of a stress, and represents 2.5% of the group’s total risk
exposure amount as at 31 December 2020.
Countercyclical capital buffer (CCyB)
The CCyB is designed to act as an incentive for banks to constrain
credit growth in times of heightened systemic risk. The amount of
the buffer is determined by reference to rates set by the FPC from
time to time, depending on prevailing market conditions, for
individual countries where the group has credit risk exposures.
The buffer rate is currently set at 0% for the UK. The group also
has some small, relevant credit exposures in other jurisdictions,
resulting in a weighted buffer rate of 0.01% of the group’s total risk
exposure amount as at 31 December 2020.
The surplus of own funds (including verified profits for the full year)
over Total Capital Requirement and Combined buffer was £133
million, up from £104 million at the end of 2019.
Pillar 2B PRA buffer
The PRA also determines whether any incremental firm-specific
buffer is required, in addition to the CCB and the CCyB. The PRA
requires any such buffer to remain confidential between the group
and the PRA.
In managing the group’s regulatory capital position over the next
few years, we will continue to be mindful of:
– future volatility in pension scheme valuations which affect both
the level of CET1 own funds and the value of the Pillar 2A
requirement for pension risk;
– regulatory developments; and
– the demands of future acquisitions which generate intangible
assets and, therefore, directly reduce CET1 resources.
We keep these issues under constant review to ensure that any
necessary capital-raising activities are carried out in a planned and
controlled manner.
The group’s Pillar 3 disclosures are published annually on
our website (rathbones.com/investor-relations/results-and-
presentations) and provide further details about regulatory
capital resources and requirements.
Total assets
Total assets at 31 December 2020 were £3.4 billion (2019: £3.4
billion), of which £2.6 billion (2019: £2.7 billion) represents the
investment in the money markets of the cash element of client
portfolios that is held as a banking deposit.
Treasury assets
As a licensed deposit taker, Rathbone Investment Management
holds our surplus liquidity on its balance sheet together with
clients’ cash. Cash in client portfolios as held on a banking basis of
£2.6 billion (2019: £2.7 billion) represented 5.7% of total Investment
Management funds under management and administration at
31 December 2020, compared to 6.2% at the end of 2019. Cash
held in client money accounts was £5.5 million (2019: £5.7 million).
The treasury department of Rathbone Investment Management,
reporting through the banking committee to the board, operates in
accordance with procedures set out in a board-approved treasury
manual and monitors exposure to market, credit and liquidity
risk as described in note 33 to the financial statements. It invests
in a range of securities issued by a relatively large number of
counterparties. These counterparties must be single-‘A’-rated
or higher by Fitch at the time of investment and are regularly
reviewed by the banking committee.
During the year, the share of treasury assets held with the Bank
of England reduced to £1.8 billion from £1.9 billion at 31 December
2019. Liquidity in client portfolios fell towards the end of the
year and we increased our holdings in certificates of deposit
by £50 million over the course of the year.
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43
Financial position continued
Loans to clients
Loans are provided as a service to Investment Management clients
who have short- to medium-term cash requirements. Such loans
are normally made on a fully secured basis against portfolios held
in our nominee name, requiring two times cover, and are usually
advanced for up to one year (see note 18 to the financial statements).
In addition, charges may be taken on property held by the client to
meet security cover requirements.
Our ability to provide such loans is a valuable additional service, for
example, to clients who require bridging finance when buying and
selling their homes.
Loans advanced to clients increased to £158.0 million at end of
2020 (2019: £132.0 million) as clients demand for bridging finance
increased in favour of drawing down from investment portfolios at
a time of market volatility.
Intangible assets
Intangible assets arise principally from acquired growth in funds
under management and administration and are categorised as
goodwill and client relationships. Intangible assets reported on
the balance sheet also include purchased and developed software.
At 31 December 2020, the total carrying value of intangible assets
arising from acquired growth was £218 million (2019: £215 million).
During the year, client relationship intangible assets of £11.0 million
were capitalised (2019: £5.3 million), including £6.9 million in
relation to the Personal Injury and Court of Protection business of
Barclays. Goodwill of £6.5 million was acquired during the year in
relation to this acquisition (2019: £nil).
Client relationship intangibles are amortised over the estimated
life of the client relationship, generally a period of 10 to 15 years.
When client relationships are lost, any related intangible asset is
derecognised in the year. The total amortisation charge for client
relationships in 2020, including the impact of any lost relationships,
was £14.3 million (2019: £15.4 million).
Goodwill, which arises from business combinations, is not
amortised but is subject to a test for impairment at least annually.
During the prior year, the goodwill relating to the trust and tax
business was found to be impaired as the growth forecasts for that
business have not kept pace with cost inflation. No goodwill was
identified as impaired during the year. Further detail is provided
in note 24 to the financial statements.
Capital expenditure
During 2020, we have maintained the overall level of investment
in the development of our systems and premises, with capital
expenditure for the year totalling £11.7 million (2019: £11.6 million).
Capital expenditure in 2020 included £1.4 million to facilitate
remote working. The level of capital spend on regulatory
driven projects and premises improvements reduced by
a commensurate amount.
Total costs for the purchase and development of software were
£7.9 million in the year (2019: £8.6 million) as work continued on
the development of our digital capability.
Overall, new investment accounted for approximately 88% of total
capital expenditure in 2020, compared with 84% in 2019, with
the balance of total spend incurred for the maintenance and
replacement of existing software and equipment.
Right-of-use assets
Following the adoption of IFRS 16, the group is required to
recognise each lease with a term of more than 12 months as a right-
of-use lease asset on its balance sheet, along with a corresponding
financial liability representing its obligation to make future
lease payments.
As at 1 January 2020, the group recognised right-of-use assets of
£54.3 million, largely representing the leases for premises occupied
by the group. During 2020, additions of £0.3 million were made.
Right-of-use assets are generally depreciated over the lease term
(or the expected life of the asset, if shorter). The total depreciation
charge for right-of-use assets in 2020 was £4.9 million.
Defined benefit pension schemes
We operate two defined benefit pension schemes, both of which
have been closed to new members for several years. With effect
from 30 June 2017, we closed both schemes, ceasing all future
benefit accrual and breaking the link to salary.
At 31 December 2020 the combined schemes’ liabilities, measured
on an accounting basis, had increased to £165.4 million, up 4.0%
from £159.1 million at the end of 2019, primarily reflecting the
decrease in interest rates used to discount the liabilities during
the year. The reported position of the schemes as at 31 December
2020 was a deficit of £9.8 million (2019: deficit of £8.0 million).
Triennial funding valuations form the basis of the annual
contributions that we make into the schemes. Funding valuations
of the schemes as at 31 December 2019 were completed during
the year. Having reviewed the long-term plan for the schemes, we
have agreed with the trustees a target to fund the schemes to a self-
sufficient basis over the medium term. This targets a level of assets
in the scheme sufficient to fund future cash flows from interest and
maturities of the scheme assets, reducing the reliance on equity
returns to meet the schemes’ requirements. This will significantly
reduce the volatility of the schemes and the future burden on
the group. Reflecting this, we agreed a schedule of contributions
totalling £25 million over the next six years. This schedule will be
reviewed at the next triennial valuations, as at 31 December 2022.
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Strategic report|
Liquidity and cash flow
Table 19. Extracts from the consolidated statement of
cash flows
Cash and cash equivalents at the end of
the year
Net cash inflows from operating activities
Net change in cash and cash equivalents
2020
£m
2019
£m
2,056.7 2,148.0
499.6
739.5
32.0
(44.6)
Fees and commissions are largely collected directly from client
portfolios and a significant proportion of expenses are predictable.
Consequently, we operate with a modest amount of working
capital. Larger cash flows are principally generated from banking
and treasury operations when investment managers make asset
allocation decisions about the amount of cash to be held in
client portfolios.
As a bank, we are subject to the PRA’s ILAAP regime, which requires
us to hold a suitable Liquid Assets Buffer to ensure that short-term
liquidity requirements can be met under certain stressed scenarios.
Liquidity risks are actively managed on a daily basis and depend on
operational and investment transaction activity.
Cash and balances at central banks was £1.8 billion at 31 December
2020 (2019: £1.9 billion).
Cash and cash equivalents, as defined by accounting standards,
includes cash, money market funds and banking deposits, which
had an original maturity of less than three months (see note 40 to
the financial statements). Consequently, cash flows, as reported in
the financial statements, include the impact of capital flows in
treasury assets.
Net cash flows from operating activities reflect a £106.0 million
decrease in banking client deposits (2019: £442.6 million increase),
as a result of asset allocation decisions to reduce the proportion
of funds under management and administration held as cash in
clients’ portfolios, reflecting market conditions at the year end.
Cash flows from investing activities also included a net outflow of
£53.1 million from the purchase of certificates of deposit (2019: net
inflow of £303.9 million), as we reduced the proportion of treasury
assets held with the Bank of England.
The most significant non-operating cash flows during the year were
as follows:
– outflows relating to the payment of dividends of £37.8 million
(2019: £36.0 million);
– payments made (net of cash acquired) in business combinations
of £12.0 million (2019: £nil);
– outflows relating to payments to acquire intangible assets
(other than as part of a business combination) of £9.5 million
(2019: £14.9 million); and
– £3.8 million of capital expenditure on tangible property, plant
and equipment (2019: £3.5 million).
Loans advanced to clients increased to £158.0 million at end of
2020 (2019: £132.0 million) as clients demand for bridging finance
increased in favour of drawing down from investment portfolios at
lease payments.
Loans to clients
Loans are provided as a service to Investment Management clients
who have short- to medium-term cash requirements. Such loans
are normally made on a fully secured basis against portfolios held
in our nominee name, requiring two times cover, and are usually
advanced for up to one year (see note 18 to the financial statements).
In addition, charges may be taken on property held by the client to
meet security cover requirements.
Our ability to provide such loans is a valuable additional service, for
example, to clients who require bridging finance when buying and
selling their homes.
a time of market volatility.
Intangible assets
Intangible assets arise principally from acquired growth in funds
under management and administration and are categorised as
goodwill and client relationships. Intangible assets reported on
the balance sheet also include purchased and developed software.
At 31 December 2020, the total carrying value of intangible assets
arising from acquired growth was £218 million (2019: £215 million).
During the year, client relationship intangible assets of £11.0 million
were capitalised (2019: £5.3 million), including £6.9 million in
relation to the Personal Injury and Court of Protection business of
Barclays. Goodwill of £6.5 million was acquired during the year in
relation to this acquisition (2019: £nil).
Client relationship intangibles are amortised over the estimated
life of the client relationship, generally a period of 10 to 15 years.
When client relationships are lost, any related intangible asset is
derecognised in the year. The total amortisation charge for client
was £14.3 million (2019: £15.4 million).
Goodwill, which arises from business combinations, is not
amortised but is subject to a test for impairment at least annually.
During the prior year, the goodwill relating to the trust and tax
business was found to be impaired as the growth forecasts for that
business have not kept pace with cost inflation. No goodwill was
identified as impaired during the year. Further detail is provided
in note 24 to the financial statements.
Capital expenditure
During 2020, we have maintained the overall level of investment
in the development of our systems and premises, with capital
expenditure for the year totalling £11.7 million (2019: £11.6 million).
Capital expenditure in 2020 included £1.4 million to facilitate
remote working. The level of capital spend on regulatory
driven projects and premises improvements reduced by
a commensurate amount.
Total costs for the purchase and development of software were
£7.9 million in the year (2019: £8.6 million) as work continued on
the development of our digital capability.
Overall, new investment accounted for approximately 88% of total
capital expenditure in 2020, compared with 84% in 2019, with
the balance of total spend incurred for the maintenance and
replacement of existing software and equipment.
Right-of-use assets
Following the adoption of IFRS 16, the group is required to
recognise each lease with a term of more than 12 months as a right-
of-use lease asset on its balance sheet, along with a corresponding
financial liability representing its obligation to make future
As at 1 January 2020, the group recognised right-of-use assets of
£54.3 million, largely representing the leases for premises occupied
by the group. During 2020, additions of £0.3 million were made.
Right-of-use assets are generally depreciated over the lease term
(or the expected life of the asset, if shorter). The total depreciation
charge for right-of-use assets in 2020 was £4.9 million.
Defined benefit pension schemes
We operate two defined benefit pension schemes, both of which
have been closed to new members for several years. With effect
from 30 June 2017, we closed both schemes, ceasing all future
benefit accrual and breaking the link to salary.
At 31 December 2020 the combined schemes’ liabilities, measured
on an accounting basis, had increased to £165.4 million, up 4.0%
from £159.1 million at the end of 2019, primarily reflecting the
decrease in interest rates used to discount the liabilities during
the year. The reported position of the schemes as at 31 December
2020 was a deficit of £9.8 million (2019: deficit of £8.0 million).
contributions that we make into the schemes. Funding valuations
of the schemes as at 31 December 2019 were completed during
the year. Having reviewed the long-term plan for the schemes, we
have agreed with the trustees a target to fund the schemes to a self-
sufficient basis over the medium term. This targets a level of assets
in the scheme sufficient to fund future cash flows from interest and
maturities of the scheme assets, reducing the reliance on equity
returns to meet the schemes’ requirements. This will significantly
reduce the volatility of the schemes and the future burden on
the group. Reflecting this, we agreed a schedule of contributions
totalling £25 million over the next six years. This schedule will be
reviewed at the next triennial valuations, as at 31 December 2022.
relationships in 2020, including the impact of any lost relationships,
Triennial funding valuations form the basis of the annual
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45
45
Risk management and control
Risk management and control
Our approach to risk management continued to develop in 2020, and we have adapted to the impact COVID-19
has had on the firm. Our risk governance, processes and infrastructure ensured that risk management across
the group was appropriate to existing and emerging challenges to the firm’s strategic objectives and day-to-day
activities. Our primary focus going into 2021 will be to continue managing risk effectively in accordance with our
risk appetite and for the long term, to meet the expectations of all of our stakeholders.
Responding to COVID-19
We faced multiple risks arising from the COVID-19 pandemic. We
focused on service to clients, the reliability of business operations
and the wellbeing of our colleagues, although this required some
agility as the risk profile changed. Overall, the firm has responded
well so far, although we remain alert to future uncertainty and
will adapt as required to the changing landscape. The board,
executive and risk committees have been fully supportive and
engaged throughout to ensure that our staff are protected, our
operations are resilient and the risk of material disruption to
our client services has been mitigated.
Risk culture
The risk culture embedded across the group continues to
enhance the effectiveness of risk management and decision-
making at all levels. The board sets the right tone, which supports
a strong risk culture and, through our senior management team,
encourages appropriate behaviours and collaboration on
managing risk across the business. Risk management is part of
everyone’s day-to-day responsibilities and activities; it is linked
to performance and development, as well as to the group’s
remuneration and reward schemes. Our approach creates an
open and transparent working environment, encouraging
employees to engage positively in risk management and
support the achievement of our strategic objectives.
Risk appetite
Risk appetite is defined as the amount and type of risk the
group is prepared to take or accept in pursuit of our long-term
strategic objectives.
The board, executive committee and group risk committee
regularly review and, at least annually, formally approve the
group’s risk appetite statement, ensuring it remains consistent
with our strategy and objectives. Our appetite framework is
aligned with the group’s overall prudential requirements
for strategic, financial and non-financial risk (conduct and
operational), and specific appetite measures are set for each
principal risk. Risks which have triggered key risk indicators or
risk appetite measures are reported and escalated in accordance
with our framework to the executive committee, group risk
committee and the board as appropriate, so that risk
mitigation can be reviewed and strengthened if needed.
In line with our strategy, the current economic outlook and
the evolving regulatory landscape within the sector, the board
remains committed to having a relatively low overall appetite
for risk and ensuring that our internal controls mitigate risk to
appropriate levels. The board recognises our performance is
susceptible to fluctuations in investment markets and has the
potential to bear losses from financial and operational risks
from time to time, either as reductions in income or increases
in operating costs.
Managing risk
The board is ultimately accountable for risk management and
regularly considers the most significant risks and emerging
threats to the group’s strategy and objectives. In addition, the
audit and group risk committees exercise further oversight of
and challenge to existing risk management and internal control.
The board delegates day-to-day responsibility for managing
risk across the business to the chief executive and executive
committee. Our executive risk committee provides further
challenge to and oversight of financial and non-financial risks
(conduct and operational risk), while the banking committee
oversees financial risk management. Both committees meet
monthly, reporting into both the executive committee and
group risk committee.
Throughout the group, all employees have a responsibility for
managing risk and adhering to our control framework.
Three lines of defence
We operate a three lines of defence model across the group to
support governance and risk management. The comments below
outline our expectations across the firm, with responsibility and
accountability for risk management broken down as follows:
First line
Senior management, business operations and support
functions are responsible for managing risks, by developing
and maintaining effective internal controls to mitigate risk in
line with risk appetite.
Second line
Risk, compliance and anti-money laundering functions maintain
a level of independence from the first line and are responsible for
providing oversight of and challenge to the first line’s day-to-day
management, including monitoring and reporting of risks to both
senior management and governing bodies.
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Rathbone Brothers Plc Report and accounts 2020
Strategic report| Third line
Our internal audit function is responsible for providing
independent assurance to senior management, the board
and board committees as to the effectiveness of the group’s
governance, risk management and internal controls.
Outside our internal lines of defence, external independent
assurance is obtained, primarily through the annual statutory
audit along with other ad hoc engagements which may be
required during the year.
Identification of risks
Regular reviews are undertaken to ensure we identify and
understand all relevant material risks which have the potential
to impact future performance and the delivery of our strategic
objectives and business priorities. We use a three-level
hierarchical model and this year have enhanced our risk
classification, so that it continues to reflect the current
and future risk profile of the group. Our highest level of risk
(Level 1) comprises business and strategic, financial, conduct
and operational risks. Our next level (Level 2) contains 20 risk
categories allocated to a Level 1 risk. Detailed risks (Level 3) are
identified as sub-sets of Level 2 risks. Level 3 risks are captured
and maintained within our group risk register.
We recognise that some Level 2 and Level 3 risks have features
which need to be considered under more than one Level 1 risk,
and our framework facilitates this through a system of primary
and secondary considerations. Risk exposures and our overall
risk profile are reviewed and monitored regularly, with risk
owners, senior management and business units across the group
considering the potential impact, existing internal controls and
management actions required to mitigate the impact and
likelihood of emerging issues and future events.
Risk assessment process
The board and senior management are actively involved
in a continuous risk assessment process as part of our risk
management framework, supported by the Internal Capital
Adequacy Assessment Process (ICAAP) and Internal Liquidity
Adequacy Assessment Process (ILAAP) work, which assesses
the principal risks facing the group.
Across the year our risk assessment process considers both the
impact and likelihood of risk events materialising which could
affect the delivery of strategic goals and annual business plans.
A top-down and bottom-up approach ensures that our assessment
of Level 2 risk categories and detailed Level 3 risks is challenged
and reviewed on a regular basis. The board, executive committee
and executive risk committee receive regular reports and
information from senior management, operational business
units, risk oversight functions and specific risk committees to
support this assessment.
We have a consistent approach to identifying and assessing
our Level 3 risks on both an inherent and residual basis over
a three-year period and against a number of different impact
criteria, including financial, client, operations, reputation,
strategy and regulation indicators. A residual risk exposure and
overall risk profile rating of high, medium, low or very low is then
derived for the three-year period including consideration of the
internal control environment and/or insurance mitigation. The
assessment of our control environment, undertaken by senior
management within the firm, includes contributions from first,
second and third line people, data, monitoring and/or
assurance activity.
Senior management also maintain a watch list as part of our
approach to identify and assess any current, emerging or future
issues, threats, business developments and regulatory or
legislative change, which will or could have the potential to
impact the firm’s current or future risk profile. Any material
changes may require active risk management, usually through
process changes or systems development. The group’s risk
profile, risk register and watch list are regularly reviewed by
the executive, senior management, group risk committee
and the board.
Stress tests include consideration of the impact of a number
of severe but plausible events that could impact the business.
The work also takes account of the availability and likely
effectiveness of mitigating actions that could be taken to
avoid or reduce the impact or likelihood of the underlying
risks materialising.
The executive risk committee, executive committee, group risk
committee and other key risk-focused committees consider the
risk assessments and stress tests, providing challenge on their
appropriateness, which is reported through the governance
framework and ultimately considered by the board.
Three lines of defence
Overview
External independent assurance
Third line: Internal independent assurance
Second line: Oversight and challenge functions
First line: Business operations and support
Executive risk
committee
Executive
committee
Audit and group
risk committee
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47
Risk management and control continued
Profile and mitigation of principal risks
Our risks are classified hierarchically in a three-level model.
Following a review of our risk taxonomy in 2020 we have
established four Level 1 risks, 20 Level 2 risks and 53 Level 3
risks. This approach to managing risk is underpinned by an
understanding of our current risk exposures and consideration
of how risks change over time. Our risks form the basis of the
group’s risk register, and to identify and manage our principal
risks, reviews take place with risk owners, senior management,
business units and committees across the group. The firm’s
senior management and risk function conduct these reviews
regularly during the year.
The group’s underlying risk profile has fluctuated during this
extraordinary year; however, ratings for the majority of Level 2
risks have stabilised, given our ability to respond and adapt to
the challenges presented by the COVID-19 pandemic and the
UK Government’s actions impacting firms. We prioritised client
service, operational resilience and employee wellbeing, adjusting
our operating model and processes to ensure we continued to
effectively manage client assets and focus on volatile investment
markets. In addition, the firm has continually monitored and
responded to the uncertainty implied by the potential for a hard
Brexit at the end of the transition period. While a degree of
uncertainty remains around a deal on financial services between
the UK and EU, our business operating model has not been
seriously impacted. We will however continue to monitor how
the future longer-term relationship between the UK and EU
evolves. The following table identifies the most important
changes to risk ratings during the year.
Based upon our risk assessment processes and notwithstanding
the impact on business and wider society of COVID-19, the board
believes that the principal risks and uncertainties facing the
group which could impact the delivery of our strategic objectives
have been identified below. These risks reflect the continued
focus in 2020 on our strategic initiatives, the sustainability of
our business model and client suitability in general; and more
specifically towards environmental and societal challenges, the
ever-changing cyber threat landscape, operational resilience in
relation to our suppliers, and the macroeconomic environment.
The board remains as vigilant as ever to risks that arise from the
longer-term impact of COVID-19 on our business, society and the
economy, and also to regulatory risks that, in turn, may arise
from the continuing development of law, regulation and
standards in our sector.
Our overall risk profile and the control environment for principal
risks are described below. The board receives assurance from first
line senior management that the systems of internal control are
operating effectively and from the activities of the second line and
third line that there are no material control issues which would
affect the board’s view of its principal risks and uncertainties.
We include in the tables the potential impacts (I) the firm might
face and our assessment of the likelihood (L) of each principal
risk crystallising. These assessments take into account the
controls in place to mitigate the risks. However, as is always the
case, should a risk materialise, a range of outcomes (both in scale
and type) might be experienced. This is particularly relevant
for firms such as Rathbones where the outcome of a risk event
can be influenced by market conditions as well as internal
control factors.
Risk change in 2020
Key changes to risk profile
Risk
Sustainability
Description of change
This risk was developed in our taxonomy in 2020 and was defined as the risk that the
business model does not respond in an optimal manner to changing market conditions,
including environmental and social factors, such that sustainable growth, market share or
profitability is adversely affected.
People risk increased in 2020 as a direct result of the pandemic. Although this has been
mitigated by management action, and employee feedback during the year has been positive.
Although the external threat landscape continues to evolve, we continue to invest
in improving our security posture, including staff awareness, preparedness and
technology developments.
Process improvements have been made in 2020, in part to simplify workflows as a result of
COVID-19. Further enhancements are expected in 2021.
This risk increased during 2020 as a result of the COVID-19 pandemic and Brexit, and also in
part due to legislative changes which could have impacted on service. However, our key
suppliers have been able to maintain service and together we have mitigated the risk of any
material disruption to our operations.
People
Information
security and cyber
Suitability
Third-party
supplier
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Rathbone Brothers Plc Report and accounts 2020
Strategic report| We have used ratings of high, medium, low and very low in this
risk assessment. We perceive as high-risk items those which have
the potential to impact the delivery of strategic objectives, with
medium-, low- and very low-rated items having proportionately
less impact on the firm. Likelihood is similarly based on a
qualitative assessment.
Emerging risks and threats
In 2020, we developed a new approach to monitor strategic risks
and horizon threats. This was reviewed by the Board and the
approach will be maintained in 2021.
Emerging risks, including legislative and regulatory change,
which have the potential to impact the group and delivery of our
strategic objectives, are monitored through our watch list. During
the year, the executive committee continued to recognise and
respond to a number of emerging risks and threats to the
financial services sector as a whole and to our business.
The board and executive also recognise that actions will be
required to better understand longer-term climate change risks,
both physical and transitional, along with sustainability risks
associated with our strategy, business model and operations.
This will be an area of specific focus during 2021 and will include
maintaining a climate change risk assessment as part of the wider
risk management framework and process.
The group’s view is that we can reasonably expect current market
conditions and uncertainties to remain throughout 2021, given
the implications of COVID-19 and Brexit. We are also monitoring
the political discussion around Scottish independence. Other
evolving risks remain stable and continue to include cyber
threats, changing regulatory expectations and further scenarios
potentially arising from geopolitical developments, along with
continuing tensions and uncertainty around global trade.
Principal risks
The most significant risks which could impact the delivery of our strategy and annual business plans are detailed below. The potential
impacts (I) the firm might face and our assessment of the likelihood (L) of each principal risk crystallising are included in the table.
Some of these risks increased at some stage in 2020, although they have since stabilised.
Level 2 risk
Credit
The risk that one or more
counterparties fail to fulfil
contractual obligations,
including stock settlement
How the risk arises
This risk can arise from placing
funds with other banks and
holding interest-bearing
securities. There is also a limited
level of lending to clients
Pension
The risk that the cost of funding our
defined benefit pension schemes
increases, or their valuation affects
dividends, reserves and regulatory
own funds
This risk can arise through a
sustained deficit between the
schemes’ assets and liabilities.
A number of factors impact a
deficit, including increased life
expectancy, falling interest rates
and falling asset values
Change
The risk that the change portfolio
does not support delivery of the
group’s strategy
This risk can arise if the
business is too aggressive and
unstructured in its change
programme to manage project
risks, or fails to make available
the capacity and capabilities to
deliver business benefits
Residual rating
I
L
High Low
High Med
Control environment
— Banking committee and senior
management oversight
— Counterparty limits and credit reviews
— Treasury policy and procedures
— Client lending policy and procedures
— Active monitoring of exposures
— Annual ICAAP
— Board, senior management and
trustee oversight
— Monthly valuation estimates
— Triennial independent actuarial valuations
— Investment policy
— Senior management review and defined
management actions
High Med
— Annual ICAAP
— Executive and board oversight of material
change programmes
— Transformation Office Programme
Board oversight and delivery-focused
operating model
— Documented strategic and business
change programmes
— Dedicated change delivery function, use
of internal and, where required, external
subject matter experts
— Two-stage assessment, challenge
and approval of project plans
— Documented project and
change procedures
rathbones.com
49
Risk management and control continued
Residual rating
I
L
High Med
Level 2 risk
Sustainability
The risk that the business
model does not respond
in an optimal manner to
changing market conditions,
including environmental
and social factors, such that
sustainable growth, market
share or profitability is
adversely affected
How the risk arises
This risk can arise from
strategic decisions which
fail to consider the current
operating environment, our
stakeholders’ expectations, or
can be influenced by external
factors such as environmental
and social factors, material
changes in regulation or
legislation within the
financial services sector
Regulatory compliance
and legal
The risk of failure by the
group or a subsidiary to
fulfil its regulatory or legal
requirements and comply
with the introduction of
new or updated regulations
and laws
Suitability
The risk of an unsuitable
client outcome either
through service, investment
mandate, investment
decisions taken, investment
recommendations
made or portfolio or
fund construction
Information security
and cyber
The risk of inappropriate
access to, manipulation,
or disclosure of, client
or company-sensitive
information
People
The risk of loss of key staff,
lack of skilled resources or
inappropriate behaviour or
actions. This could lead to
lack of capacity or capability
threatening the delivery of
business objectives, or
to behaviour leading to
complaints, litigation
or regulatory action
High Med
This risk can arise from
failures by the business to
comply with existing
regulation or failure to
identify and react to
regulatory change
High Med
This risk can arise through
failure to appropriately
understand the wealth
management needs of
our clients, or failure to
apply suitable advice or
investment strategies
High Med
High Med
This risk can arise from the
firm failing to maintain and
keep secure sensitive and
confidential data through its
operating infrastructure,
including the activities of
employees, and through the
management of cyber threats
This risk can arise across
all areas of the business
as a result of resource
management failures or
from external factors such
as increased competition
or material changes
in regulation
Control environment
— Board, executive and responsible business
committee oversight
— A documented strategy, including responsible
investment policy
— Annual business targets, subject to regular review
and challenge
— Regular reviews of pricing structure
— Continued investment in the investment process,
service standards and marketing
— Trade body participation
— Regular competitor benchmarking and analysis
— Board and executive oversight
— Management oversight and active involvement with
industry bodies
— Compliance monitoring programme to examine the
control of key regulatory risks
— Separate anti-money laundering function with
specific responsibility
— Oversight of industry and regulatory developments
— Documented policies and procedures
— Staff training and development
— Board, executive and general managers
committee oversight
— Investment governance and structured
committee oversight
— Management oversight and segregated quality
assurance and performance teams
— Performance measurement and attribution analysis
— ‘Know your client’ (KYC) suitability processes
— Weekly investment management meetings
— Investment manager reviews through
supervisor sampling
— Compliance monitoring
— Board and executive oversight
— Data governance committee oversight
— Information security policy, data protection policy and
associated procedures
— System access controls and encryption
— Penetration testing and multi-layer network security
— Training and employee awareness programmes
— Physical security
— Board and executive oversight
— Succession and contingency planning
— Transparent, consistent and competitive
remuneration schemes
— Contractual clauses with restrictive covenants
— Continual investment in staff training
and development
— Employee engagement survey
— Appropriate balanced performance
measurement system
— Culture monitoring and reporting
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Rathbone Brothers Plc Report and accounts 2020
Strategic report| Level 2 risk
Third-party supplier
The risk of one or more
third-party suppliers failing to
provide or perform authorised
and/or outsourced services to
standards expected by the
group, impacting the ability
to deliver core services.
This includes intra-group
outsourcing activity
How the risk arises
This risk can arise when
the firm does not have
appropriate governance
and oversight of its supplier
relationships, in particular
those considered key and
material to the operational
resilience of business
services provided to
clients or investors
Residual rating
I
L
High Med
Control environment
— Board and executive oversight
— Senior dedicated relationship managers
— Supplier contracts and defined service level
agreements/KPIs
— New supplier due diligence and approval process
— Close liaison and regular service review meetings
— Documented procedures
Further detailed discussion of the group’s exposures to financial risks is included in note 33 to the financial statements.
Assessment of the company’s prospects
The board reviews its strategic plan annually. This, alongside the
ICAAP and ILAAP, forms the basis for capital planning which
is discussed periodically with the Prudential Regulation
Authority (PRA).
During the year, the board has considered a number of
stress tests and scenarios which focus on material or severe
but plausible events that could impact the business and the
company’s financial position. The board also considers the plans
and procedures in place in the event that contingency funding
is required to replenish regulatory capital. On a monthly basis,
critical capital projections and sensitivities have been refreshed
and reviewed, taking into account current or expected market
movements and business developments.
The board’s assessment considers all the principal risks identified
by the group and assesses the sufficiency of our response to all
Pillar 1 risks (defined as credit, market and operational risks) to
the required regulatory standards. In addition, the crystallisation
of the following events were focused on for enhanced stress
testing: an equity market fall, a loss of business/competitive
threat, business expansion, pension obligation and a combined
market fall and reputational event. The economic and
commercial impacts of the global pandemic on the prospects
of the company were also factored into the assessment.
The group considers the possible impacts of serious business
interruption as part of its operational risk assessment process
and remains mindful of the importance of maintaining its
reputation. Although the business is almost wholly UK-situated,
it does not suffer from any material client, geographical or
counterparty concentrations.
While this stress test does not consider all of the risks that the
group may face, the directors consider that this stress testing
based assessment of the group’s prospects is reasonable in
the circumstances of the inherent uncertainty involved.
Viability statement
In accordance with the UK Corporate Governance Code, the
board has assessed the prospects and viability of the group over
a three-year period considering the risk assessments identified
above. The directors have considered the firm’s current position
and the potential impact of the principal risks and uncertainties
set out above. As part of the viability statement, the directors
confirm that they have carried out a robust assessment of both
the principal risks facing the group, and stress tests and scenarios
that would threaten the sustainability of its business model, and
its future performance, solvency or liquidity.
The board regularly reviews business performance and at least
annually its current strategic plan through to 2024, alongside a
strategic risk assessment. The board also considers five-year
projections as part of its annual regulatory reporting cycle,
including strategic and investment plans. However, the directors
have determined and continue to believe that a three-year period
to 31 December 2023 constitutes an appropriate and prudent
period over which to provide its viability statement given the
uncertainties associated with the global pandemic, as well as
economic and political factors and their potential impact on
investment markets over a longer period. This three-year view is
also more aligned to the firm’s detailed stress testing and capital
planning activity.
Stress testing and scenario analysis shows that under scenarios
such as a 42% fall in FTSE 100 levels or a major reputational risk
event, the group would remain profitable and able to withstand
the impact of such scenarios. An example of a mitigating action
in such scenarios would be a reduction in costs, specifically
around change initiatives, along with a reduction in dividend.
Based on this assessment, the directors confirm that they have a
reasonable expectation that the company will be able to continue
in operation and meet its liabilities as they fall due over the
period to 31 December 2023.
rathbones.com
51
Responsible business report
Responsible
business report
Being a responsible business
Our commitment to be a leader in responsible
business stems from our purpose in society.
It is core to our business. Thinking, acting and
investing responsibly not only shapes what we
do but how we do it. It is woven throughout our
business strategy, recognising that this approach
is core to our day-to-day decision-making. This
focus on the long term is how we will not only
create value for our clients but also make a
wider contribution to society.
Our approach to responsibility
We are committed to operating in a way that creates long-term
value for our stakeholders, benefits society and actively
addresses any adverse impacts our activities have on society,
people and the environment. This means understanding the
environmental, social and governance (ESG) issues that matter
to them and to our business. The pillars of our programme –
responsible investment, our people, society and communities,
and our environmental impact – position us to influence the
trends we face as an investor and as an active member of the
societies and communities in which we operate.
Responsible investment
Our aim is to be a leader in responsible investment. We
will achieve this through the purposeful integration of ESG
considerations into investment management processes and
ownership practices. Delivering to our clients by acting as good,
long-term stewards of the investments which we manage on
their behalf.
Our 2020 highlights
Responsible investment
PRI strategy and
governance score
A+
(2019: A+)
Our people
Market trends
Trends
Responsible
business
Number of companies
directly engaged with
226
(2019: 70)
The mainstreaming of environmental,
social and governance issues
Number of employees
participating in share schemes
2020 employee
engagement score
1,316
1,040
SIP (2019: 1,325)
SAYE (2019: 840)
91%
(2019: 86%)
Diversity
and inclusion
Society and communities
Community
investment
£467,000
(2019: £360,000)
Our environmental impact
Carbon intensity
(tCO2e/FUMA £bn)
20.5
Number of
charities supported
>50
Social criteria are
a growing priority
Climate has taken
centre stage
Total emissions
(tCO2e)
1,123
(2019: 41.5 (tCO2e/FUMA £bn))
(2019: 2,091 (tCO2e))
52
Rathbone Brothers Plc Report and accounts 2020
Our response
Now a recognised concept that continues to grow in
— Developed a new responsible business programme aligned
importance. The language and terminology vary as does
with our strategic goals
the level of strategic importance, the degree of integration,
and the overall scope of responsible business. What does
unite our sector is the competitive, dynamic and fast-
changing nature of this area.
our activities
our action plans
— Increased resource to support and implement
— Introduced the responsible business committee to oversee
Already the case for some who have achieved full but
— Established a roadmap for evolving our responsible
customised ESG integration across asset classes and
investment proposition
investment approaches. The next steps focus on how
ESG is integrated into the broader approach, how data is
blended and how analytics capabilities are leveraged for
ESG-based investment insight on investment performance.
— Released a new responsible investment policy
— Increased our level of engagement
— Developed new services and products for clients
Moving beyond the compliance-driven focus on female
— Increased the coverage of our collated diversity data
representation in senior management and boards, some
firms are looking more broadly at race and ethnic diversity.
The societal focus seen in 2020 on social equality leads
us to expect a greater sectorial focus on race and ethnic
diversity and perhaps broader social inclusion in 2021.
— Piloted blind CVs as part of our recruitment process
— Introduced a graduate intake that is two-thirds female
— Introduced internal mentoring programme for colleagues
— Continued support for She Can Be and joined the 100
Black Interns initiative
2020 has seen the focus on regional inequalities, local
— Supported Mental Health UK and the Trussell Trust’s
economies, and how they link to globalisation intensify,
COVID response programmes
accelerated by the impact of COVID-19. There is a growing
expectation that companies will demonstrate their positive
role in society. Investors are increasing their assessment
of companies through multiple lenses that include
employee conditions and human rights.
— Continued increase in charitable donations
— Reviewed and updated our approach to
community investment
— Audited our material suppliers to ensure Modern Slavery
Act compliance
— Offered ongoing support to suppliers
The combination of growing government climate
— Published our climate position statement
regulation and policy has strengthened the case for more
active engagement on issues of climate resilience and
the zero-carbon transition. Initiatives and standards are
proliferating, including the development of sector-specific
Science Based Targets, while November saw the UK state
its intent to make TCFD reporting mandatory.
— Released our first TCFD statement
— Continued reducing our operational footprint and
offsetting our residual emissions
Page
52
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57
22
60
61
61
63
61
66
65
65
65
64
67
70
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Strategic report| Our people
Recognising that our business relies on the commitment of our
employees, we aim to become the employer of choice for the
wealth management sector, through the creation of a diverse
and inclusive workplace that motivates, develops and leverages
the strengths of our employees, ensuring that we maintain a
professional and high-performing culture.
Society and communities
We aim to be a trusted partner in the societies in which we
operate, building on our long-standing tradition of supporting
local communities, helping them to prosper. Leveraging our
employees’ knowledge and experience alongside integrating
clear supplier engagement processes will enable the
development of sustainable and prosperous societies.
Our environmental impact
Our aim is to play our part in the move to a net zero economy.
Achieving this depends on us understanding the impact we have
on the environment, both directly through our operations and
indirectly through the investments we make. We will actively
promote approaches that mitigate and minimise our impact
on the natural world.
We have a clear understanding of who we are as a business and
are committed to thinking, acting and investing responsibly. This
includes putting in place strong governance foundations to hold
us to account. Alongside clear accountability we will set targets,
track and monitor our progress and transparently report against
our commitments in a timely manner.
We recognise that we cannot achieve our aims alone. Through
selected partnerships we will work to deliver action and
continually challenge ourselves around the issues that we
can materially impact.
Rathbones has been trusted for generations to manage and
preserve our clients’ wealth. Our tradition of investing and
acting responsibly has been with us from the beginning and
will continue to lead us forward.
Now a recognised concept that continues to grow in
importance. The language and terminology vary as does
the level of strategic importance, the degree of integration,
and the overall scope of responsible business. What does
unite our sector is the competitive, dynamic and fast-
changing nature of this area.
Already the case for some who have achieved full but
customised ESG integration across asset classes and
investment approaches. The next steps focus on how
ESG is integrated into the broader approach, how data is
blended and how analytics capabilities are leveraged for
ESG-based investment insight on investment performance.
Moving beyond the compliance-driven focus on female
representation in senior management and boards, some
firms are looking more broadly at race and ethnic diversity.
The societal focus seen in 2020 on social equality leads
us to expect a greater sectorial focus on race and ethnic
diversity and perhaps broader social inclusion in 2021.
2020 has seen the focus on regional inequalities, local
economies, and how they link to globalisation intensify,
accelerated by the impact of COVID-19. There is a growing
expectation that companies will demonstrate their positive
role in society. Investors are increasing their assessment
of companies through multiple lenses that include
employee conditions and human rights.
The combination of growing government climate
regulation and policy has strengthened the case for more
active engagement on issues of climate resilience and
the zero-carbon transition. Initiatives and standards are
proliferating, including the development of sector-specific
Science Based Targets, while November saw the UK state
its intent to make TCFD reporting mandatory.
rathbones.com
Our response
— Developed a new responsible business programme aligned
Page
52
with our strategic goals
— Increased resource to support and implement
our activities
— Introduced the responsible business committee to oversee
our action plans
— Established a roadmap for evolving our responsible
investment proposition
— Released a new responsible investment policy
— Increased our level of engagement
— Developed new services and products for clients
— Increased the coverage of our collated diversity data
— Piloted blind CVs as part of our recruitment process
— Introduced a graduate intake that is two-thirds female
— Introduced internal mentoring programme for colleagues
— Continued support for She Can Be and joined the 100
Black Interns initiative
— Supported Mental Health UK and the Trussell Trust’s
COVID response programmes
— Continued increase in charitable donations
— Reviewed and updated our approach to
community investment
— Audited our material suppliers to ensure Modern Slavery
Act compliance
— Offered ongoing support to suppliers
— Published our climate position statement
— Released our first TCFD statement
— Continued reducing our operational footprint and
offsetting our residual emissions
54
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56
57
22
60
61
61
63
61
66
65
65
65
64
67
70
67
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The mainstreaming of environmental,
social and governance issues
Market trends
Trends
Responsible
business
Diversity
and inclusion
Social criteria are
a growing priority
Climate has taken
centre stage
Responsible business report continued
Responsible business governance
Having taken our first step by defining our framework in 2019, this year saw us undertake further engagement to review and update
our underlying plans, review our operating environment and ensure the business had suitable governance in place to oversee the
programme in the future. We also conducted an extensive engagement programme with colleagues to ensure our programme
aligned with their interests and values.
To this end we formed the responsible business committee, co-chaired by our chief executive and the head of Rathbones specialist
and charity business, with members from risk and investment and representatives from the business who act as workstream leads.
The board
Group executive committee
Responsible business committee
The key activities of the committee are as follows:
— Identify emerging risks and opportunities related
to the social and environmental impacts of the firm
— Provide oversight of the firm’s responsible
business strategy and reporting
— Oversee the firm’s policies and progress across
our framework
Rathbones responsible business framework
Committee members:
— Chief executive
— Head of specialist and charity business
— Chief risk officer
— Company secretary
— Workstream leads
Responsible
investment
Led by our
stewardship director
Our people
Led by our head
of organisational
effectiveness
Society and
communities
Our environmental
impact
Led by our corporate
responsibility manager
Led by our head of
property and facilities
It is in our clients’
best interests for the
companies in which
we invest to adopt best
practice in managing
environmental, social
and governance risks.
We act as good long-
term stewards of the
investments which we
manage on their behalf
and are increasingly
holding companies
to account on their
ESG performance.
Our people are a key
asset in delivering
our strategy, excellent
client experience and
meeting our stakeholder
commitments. As an
equal opportunities
employer, we must
continue to promote
diversity, transparency
and equality within
our workforce.
Rathbones has a
long-standing tradition
of supporting our local
communities. The
success of our business
and the investments we
manage are intrinsically
linked to promoting
the development of
a sustainable and
prosperous society.
Economic prosperity
depends on the
sustainable use of
natural resources.
By understanding the
impact we have on the
environment, through
our operations and the
investments we make,
we actively encourage
approaches that mitigate
and minimise our impact
on the natural world.
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Rathbone Brothers Plc Report and accounts 2020
Strategic report| Committee activity in 2020
Below is a summary of the key issues that the committee considered at each of its meetings
during the year.
July 2020
— Approval of the committee’s terms of reference
— Agreement on committee membership
— Review of our stakeholder engagement feedback
— Review of our 2020 progress
October 2020
— Agreement of our responsible business strategy
— Review of progress against our existing responsible
investment and diversity and inclusion programmes
— Assessment of our community investment approach
— Review of the impact of COVID on our operational footprint
Standards and frameworks
Over the last 12 months we have worked to understand the
impact we can have as a business. Our approach to responsible
business clearly supports our business strategy. Our commitment
to the following organisations supports our development and
together we will work to have a positive impact. We have
mapped our framework to the following standards
and frameworks:
The United Nations Sustainable
Development Goals (SDGs):
Rathbones maps to the SDGs on many levels
across our businesses. In 2021, we will map our
impact against the goals and report our progress
in support of the goals in our next report.
The FTSE4Good Index*:
We are pleased to have been included in the
FTSE4Good Index for over 10 years. As a
business we will continually develop our
approaches to maintain our listing.
To find out about other standards, frameworks and ratings which we
align to please see our website.
December 2020
— Agreement of our responsible business narrative
— Discussion on standards and frameworks that align
with our responsible business approach
— Review of our progress against our plans
— Agreement on our community investment strategy
— Agreement of our responsible investment proposition
and updates to our responsible investment policy
Looking forward
Acting on environmental, social and governance issues is not
only the right thing to do but is fundamentally beneficial to
the long-term success of our business and the welfare of our
stakeholders. To ensure that we deliver over the next year
we will:
— engage stakeholders on ESG matters
— ensure alignment with our selected standards and frameworks
— enhance our data disclosure
— further enhance our approach to supplier management
— continue to strengthen our governance of these issues through
updated policies and reviewing our committee structure.
We commit to reporting transparently and will share our progress
as we deliver our responsible business programme. This will
result in a standalone report alongside our 2021 annual report
and accounts.
If you would like to talk to us about our responsible
business programme please contact us at
responsiblebusiness@rathbones.com.
* FTSE Russell (the trading name of FTSE International Limited and Frank Russell Company) confirms that Rathbone Brothers Plc has been independently assessed according to the
FTSE4Good criteria, and has satisfied the requirements to become a constituent of the FTSE4Good Index Series. Created by the global index provider FTSE Russell, the FTSE4Good Index
Series is designed to measure the performance of companies demonstrating strong environmental, social and governance (ESG) practices. The FTSE4Good indices are used by a wide
variety of market participants to create and assess responsible investment funds and other products.
rathbones.com
55
Responsible business report continued
Responsible investment
Our responsible investment committee
defines responsible investment
as, ‘the purposeful integration of
environmental, social and corporate
governance considerations into
investment management processes
and ownership practices in the belief
that these factors can have an impact
on financial performance.’
Matt Crossman
Stewardship Director
Our approach
Our purpose, thinking, acting and investing responsibly,
is intrinsic to our organisational culture as well as to our
investment process. The pandemic has accelerated interest
among our clients and the general public in responsible
investment (RI) and sustainability. It has also brought a number
of social and environmental issues and trends to the fore,
sharpening the financial system’s understanding of the future
risks caused by issues such as climate change and biodiversity
loss. Our ambition is that our future RI proposition will cater to
the needs of all clients – whether their interest in environmental,
social and governance (ESG) factors is driven simply by financial
materiality or by more specific sustainability preferences. At the
same time, we will build on our existing expertise in Greenbank
and in RUTM’s specialist funds to continue to lead the market in
innovative responsible investment propositions and products.
Building on the important work of 2019 which saw the
introduction of our responsible investment committee and
our first group RI policy, 2020 saw further development
and improvement across all our RI programme.
Our responsible investment principles
In 2020 we updated our RI principles. The aim of the principles
is to ensure a consistent approach to RI across the group.
They align to the RI policy work and apply at group level,
encompassing all Rathbones business units. We practise
RI via four core principles:
— ESG integration: we will consider ESG factors in the evaluation
of investments to help identify ESG opportunities and risks
— voting with purpose: we will actively vote across over 95%
of the value of our holdings in line with our RI commitments.
This may involve voting against management to help drive
positive change
— engagement with consequences: we will prioritise engagement
where we can make a real difference in addressing the world’s
systemic environmental and societal challenges. We are
prepared to reduce our holdings in companies who continue
to present an ESG risk over time
— transparency: as a prominent participant in the financial
market, we are committed to being transparent about our
approach to RI. We will actively report on the progress of our
RI activities to our clients, shareholders and other stakeholders.
Introducing new principles and requirements cannot be
done without training all our employees on our ambition and
approach, with investment managers receiving more practical
training. Through 2020, sessions have been run on specific issues
such as AGM voting. Throughout 2021, training will be rolled out
across the business explaining our RI ambition, progress to date
and plans for the future. In 2020 nine members of the research
team completed advanced training in responsible investment
through the PRI Academy module, with four more currently
working to complete it.
Collaborating to drive change
We know that collaboration will increase our ability to
drive change and we are pleased to continue our support
at group level for a number of organisations, including the
IIGCC, ClimateAction100+ and our 11th year as a signatory
of the PRI.
PRI annual survey results
— A+ strategy and governance (2019: A+)
— A listed equity – active ownership score (2019: A)
— B listed equity – incorporation score (2019: B)
— C fixed income – corporate financial and non-financial
score (2019: B)
We retain memberships of other organisations through our
business units. To learn more please see our website.
56
Rathbone Brothers Plc Report and accounts 2020
Strategic report| Environmental, social and governance integration
We are investment managers and our fiduciary responsibility is
to generate returns for our clients. However, being a responsible
investor means taking responsibility for the impact that the
companies we invest in have on the world. We believe
integrating ESG factors into the investment process helps
achieve a balance between these aims. It will also help drive
investment returns by limiting ESG risks and identifying
emerging investment opportunities. Being leaders in RI will allow
us to provide clients with new investment opportunities, identify
high-quality investments and make a contribution to solving the
problems facing society.
Our in-house research team is the foundation of our decision-
making process and they utilise multiple data sources to support
both qualitative and quantitative assessments that are included
in stock selection recommendations. In 2020 we became an
organisational alliance member of the Sustainability Accounting
Standards Board (SASB), supporting Rathbones in our learning
as we integrate financially material ESG considerations into
our process. Alongside the purchase of a specific ESG data set,
this will enable our team to include more indicators in their
assessments and therefore support investment managers with
more detailed recommendations. This increase in data will
be built into updated reporting templates and ultimately feed
into our client reporting, supporting conversations about
a broader set of risks and opportunities that may impact
a client’s investments.
Stewardship
We believe it is in our clients’ best interests for the companies
in which we invest to adopt best practice in managing
environmental, social and governance risks. This provides
a framework for each company to be managed according
to the long-term interests of its shareholders. Mindful of our
responsibilities to our clients, we act as good, long-term stewards
of the investments which we manage on their behalf, as
expressed in our responsible investment policy. We have
developed a robust approach to proxy voting as a clear
expression of our stewardship responsibilities. However,
stewardship is not limited to this activity. Engagement with
companies on ESG issues is an important adjunct to voting
activities. A summary of our activity can be found on the
following page and our responsible investment report shares
more detail on Rathbones’ approach to proxy voting and
engagement within the context of our ESG activities over
the last 12 months.
Number of direct engagements in 2020
226
(2019: 70, 2018: 31)
Engagement with consequences
It is important that we maintain a dialogue with the companies
in which we invest, as our clients expect us to use our voice to
influence companies towards better, more sustainable long-term
performance, which takes account of all stakeholders. We
recognise that engagements often present themselves across a
spectrum of severity and in order to maximise the effect of our
engagements and deliver on our responsibilities to clients, we
must be selective and pragmatic. Whilst the specific approach
taken to engagement will be decided on an ad hoc, case-by-case
basis, the following principles guide the selection of an issue for
more active engagement (definitions are provided in our
engagement policy):
— exposure
— severity
— location
— expertise.
Engagement must have consequences to be effective.
Following our best efforts made through a campaign of focused
engagement for change, we are prepared to reduce our holdings
in companies who continue to present an ESG risk over time.
If an existing investment conflicts with our RI policy we may
decide to stop investing with them altogether and begin the
divestment process. We would outline clear criteria and
timescales for such divestments.
As signatories to the PRI, we make use of the organisation’s
collaboration platform to participate in engagement on ESG
topics with a number of global firms. To read more about our
approach to engagement and examples undertaken please see
our responsible investment report.
Engaging together: Votes against slavery
In 2020, Rathbones convened an investor collaboration
with £3.2 trillion in assets under management to challenge
FTSE 350 companies that had failed to meet the reporting
requirements of Section 54 of the Modern Slavery Act 2015.
We worked with a respected international NGO to develop
a target list of companies, our aim being to achieve full
compliance from 22 laggard companies. We expect
members of the FTSE 350 to lead in this area, taking
substantive action against the prevalence of slavery in their
supply chains. As at the end of December 2020, 20 out of 22
companies have now become compliant. Our engagement
was shortlisted at the PRI 2020 Awards for the ‘Stewardship
Project of the Year’.
rathbones.com
57
Responsible business report continued
Voting with purpose
The cornerstone of all responsible investment is an active and
considered approach to proxy voting. Since 2010, the group’s
voting activity has been coordinated by a dedicated committee,
which issues voting recommendations based on best practice,
establishing a baseline for consideration by the major holders of
the companies in question. Rathbone Investment Management
exercises the voting rights attached to its largest holdings,
covering the most widely held stocks across the business.
Voting is also undertaken on any company if requested by an
underlying shareholder. Our voting policy was strengthened in
several areas in 2020, to align with new regulation and to deepen
the integration of ESG risk factors into the voting process. We
also developed a separate, detailed voting policy dealing with
collective investments.
Details of our voting activity for the year can be seen in the table
below. We voted against management on resolutions that were
related to:
— director re-election
— executive pay
— business issues such as poor ESG disclosure and approval of
accounts and auditors.
Voting against management is rare, but significant, and we
ensure any such vote is followed up by direct engagement.
To learn more about our voting and engagement see our
responsible investment report.
Voting activity
Category
Number of items voted
Number of votes FOR
Number of votes AGAINST
Number of votes ABSTAIN
Number of votes WITHHOLD
Number of votes on shareholder proposals
Transparency
Transparency is essential when working to integrate ESG factors
into our processes, and as we build on the support currently
offered to clients to ensure they have more information to enable
their decision-making. Regular communication with our
stakeholders covered a variety of themes, from regular client
updates on their portfolio performance, to awareness sessions
looking at specific issues facing our clients. We continue
to benchmark our performance against industry peers on
responsible investment through involvement in the UN PRI
annual reporting cycle. Our full PRI submission is available
on request.
Our annual and interim responsible investment reports as
well as our RI thought leadership are all available on our website.
We are supportive of the TCFD recommendations and our first
disclosure can be found on page 70. We will evolve this through
our work in 2021 and improve alignment in our 2021 disclosure.
Looking forward
In 2021 we will continue to evolve our well-established
investment process and client proposition, giving greater scope
to tailor portfolios to individual client sustainability preferences
while considering a wide range of ESG risks and opportunities
and emerging sustainable investment themes. We will work to
mainstream RI at Rathbones. Specific initiatives will include:
— continued integration of ESG data into our
research recommendations
— increased training of our employees
— improved communication to clients on their exposure to ESG
risks and opportunities.
From 2021 we will report publicly on our voting activities on
our website, and in summary form in our annual responsible
investment report, where we also provide further detailed
rationale around the specific holdings that are excluded from
the process (c. 5%).
2020 number
7,375
7,162
237
47
7
144
2020 percentage
97.15%
2.21%
0.64%
0.09%
1.95%
2019 number
4,817
4,759
62
70
0
26
2019 percentage
98.80%
1.29%
1.45%
0.00%
0.54%
58
Rathbone Brothers Plc Report and accounts 2020
Strategic report| Our people
Rathbones is an equal opportunity
employer. We are working to create an
engaged, talented and diverse workforce
which can deliver to our clients whilst
operating in line with our purpose.
Simon Burnett
Head of Organisational Effectiveness
Our approach
Our people faced a challenging year, having to adapt to new ways
of working whilst continuing to deliver excellent client service in
an uncertain and worrying time. To support our employees, the
management team and the board increased ongoing engagement
with all our people and this included frequent dialogue between
our leaders, managers and the broader workforce. All employees
were given opportunities to understand and discuss the issues
impacting them, ensuring that responses were focused
and proportionate.
Having introduced new values in 2019, this was a year of
integration and embedding into our core processes. With a
continued focus on culture, we created a dashboard to support
regular reporting to the executive and board on the eight aspects
of our corporate culture we have identified (see pages 88-89).
Work continued across our focus areas of diversity and inclusion,
engagement and wellbeing.
The wellbeing of our people
There is no question that 2020 was an extraordinary year for
our employees. The need to work under different and varied
conditions created both new opportunities and additional
pressures. Ensuring the wellbeing of our people remained our
utmost priority, giving security and support as they adapted to
the changing conditions. Contact and virtual meeting frequency
was high, and we undertook surveys to assess the wellbeing,
working conditions and productivity of our employees. Our
existing wellbeing programmes were reviewed and reinforced to
address the new challenges. Flexibility was essential, allowing
employees to select the support they need across our mental,
physical and social wellbeing programmes.
We recognised that for a proportion of our people remote
working was particularly difficult. As a result, we strengthened
our support networks for them, including:
— continued support through the Rathbones Employee
Assistance Programme provided by CiC. This offers a 24-hour
advice line, a self-help website and a telephone helpline for
managerial advice and confidential counselling sessions
— the Rathbones Mental Health First Aiders, who have
been trained to sign-post our people to suitable support,
circulated regular emails on how to take care of and improve
mental health
— mental health training to managers
— access to a mental wellbeing app offered free to everyone
We reprioritised investment in IT solutions and infrastructure,
such as desks, chairs and screens that facilitate home working,
fostered digital communication and provided physical
equipment to employees at home as necessary. At times of
high pressure, we understood the importance of bringing our
employees together for fun. Our sports and social committee
continued to organise regular virtual events for all employees,
for example virtual yoga lessons, art or cookery lessons and
virtual children’s parties.
2020 survey highlights
Overall experience
%
1
9
%
6
8
%
7
7
91%
2019 FSB
2020
I am proud to say I work for Rathbones
%
1
9
%
6
8
%
6
7
2019 FSB
2020
Autonomy
%
6
7
%
6
7
%
7
6
2019 FSB
2020
Rathbones 2019
91%
76%
— a range of live wellbeing sessions to give support to employees
Financial services benchmark (FSB) 2020
Rathbones 2020
rathbones.com
59
Responsible business report continued
Diversity and inclusion
We want Rathbones to be a company where everyone has the
opportunity to build a successful career and find the right
balance between work and personal life, regardless of age,
ethnicity, gender, religion or background. World events in
2020, such as the international anti-racism protests and the
celebrations of Pride month, have served to highlight how
important this is across all businesses and sectors.
Our gender pay gap
Although our workforce is approximately 50:50 female to male,
when we look at all levels of employee, this balance shifts as we
move up the business. We are committed to taking all steps
possible to reduce our gender pay gap and have had some
success in increasing representation in more junior professional
levels, which will provide better representation at senior levels,
albeit over time. We published gender pay gap data in April 2020
and will do so again before April 2021.
Our diversity
Our board has three female directors out of eight and we also
have three on the group executive committee (GEC), which
means we have exceeded our commitment to meet the 33% of
female board representation for FTSE 350 companies. We see
this as a good foundation on which to build, but not an end point.
It remains the fact that women have been less well represented
at all levels in the investment management industry and further
addressing this imbalance is a key priority. We continue to
develop our plans to align with the recommendations published
in the Hampton-Alexander review and are working hard to
appoint more women in graduate trainee positions. We are also
working to encourage more applications from women to our
work experience and financial career programmes. We continue
to target the progression and development of existing female
employees with opportunities for leadership and management
programmes. We are signatories to the Women in Finance
Charter and the firm is committed to achieving 25% female
senior management representation by 2023. As of 2020, we
have reached 24.6% (2019: 20.3%).
Gender diversity at 31 December 2020
All employees
%
3
5
%
7
4
%
2
5
%
8
4
%
2
5
%
8
4
2018
2019
2020
Senior managers1
%
7
7
%
0
8
%
3
2
2018
%
0
2
2019
Group executive members
%
0
9
%
0
1
2018
Female
Male
%
8
7
%
2
2
2019
%
5
7
%
5
2
2020
%
0
7
%
0
3
2020
1. Senior managers includes senior individuals who report directly into the group
executive committee
60
Rathbone Brothers Plc Report and accounts 2020
Strategic report| Our activity
The work of Rathbones Included, the working group set up to
consider the challenges we face and suggest responses to them,
accelerated in 2020. Priority workstreams for diversity and
inclusion (D&I) were identified for 2020 and 2021:
Addressing our gender and race & ethnicity imbalance:
— in 2020 we aligned our core processes with our values, piloted
the use of anonymised CVs and increased our graduate intake
to two-thirds female
— in 2021 we will continue to review and update our processes,
move unconscious bias training online and make inclusive
leadership mandatory for managers
Improving our D&I insight across Rathbones:
— in 2020 we expanded our collation of diversity data to cover all
the categories of the Equality Act of 2010
— in 2021 we will utilise the data to help us develop appropriate
D&I policies and practices
Rathbones Included – Q&A with Darren Seaton
Why is diversity and inclusion important
to Rathbones?
It’s our opportunity to review the way we do things and to
make sure everyone feels they belong and that their voice
is heard. It is also important that as an organisation we are
truly reflective of wider society and our employees, clients
and communities.
What challenges does the business face?
Turning talk into actionable outcomes is a big challenge.
It is important to ensure what we are trying to achieve isn’t
just a tick-box exercise but an authentic and positive cultural
change to the organisation. Time is another challenge. It can
take time to change processes and perceptions, but we have
progressed quickly so far and are moving in the right direction.
What is Rathbones doing to make people
feel included?
Raising internal awareness is key to our success and we are
starting to build a programme highlighting key diversity and
inclusion events for employees to run throughout the year,
such as conversations with the Olympic swimmer Mark Foster
and Selina Flavius, author of Black Girl Finance. We have an
employee-led taskforce who contribute their time and effort
to help us meet our objectives.
How does Rathbones Included help the business have
meaningful conversations?
We are the employee voice and want to make sure we
integrate D&I thinking across the organisation. We work
together with our partners in other functions within the
Building D&I into our working practices:
— in 2020 we developed our processes and training to increase
awareness of diversity and enhance inclusivity, and expanded
our employee networks. The firm joined the 100 Black Intern
programme and continued to support the She Can Be initiative
— in 2021 we will run more events and embed our support of
external programmes
Improving D&I awareness:
— in 2020 we focused on building both internal and external
awareness, including but not limited to supporting Inclusion
Week and Black History Month
— in 2021 we will help our people and broader stakeholder
base understand the challenges facing a diverse and
inclusive workforce
business, such as HR, technology and change and learning &
development, who are helping us to implement the changes
to our processes that will enable us to meet our objectives.
Together we can also find opportunities to make our processes
and practices, such as employee and graduate recruitment,
training and communications, more inclusive.
What does the future hold for Rathbones Included?
We feel extremely positive about the future. As a group, in the
challenging conditions presented by the pandemic, we have
made some amazing progress this year and look forward to
building on that success in the years to come. A priority in
the short term is creating employee networks designed to be
spaces of support, where people can share experiences and
knowledge with their colleagues and allies. We will also be
continuing our alliances with external organisations such as
She Can Be, which endeavours to empower young women to
make informed decisions about their careers.
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Responsible business report continued
Diversity in our graduate programme
Rathbones is proud of our graduate programme which
maintains a high-quality pipeline of younger talent.
Betsy completed our graduate programme in 2020:
I joined Rathbones in September 2018. Like many
graduates, I was unsure about my career direction but was
completely open-minded and excited about my future –
wherever it would take me. Fortunately, it took me to
Rathbones and I haven’t looked back since. For 15 months,
I rotated around eight different departments in the business,
including a stretch in the Liverpool office and a very long
stretch at home! Whilst lockdown has had its challenges,
the programme continued to present me with exciting and
interesting opportunities – I worked with experienced
professionals, participated in corporate projects, presented
to senior managers, joined a committee, completed my
Investment Advice Diploma, began my studies for the
CFA, became a buddy and landed my new role as Assistant
Investment Manager at Rathbone Greenbank Investments.
By participating in the programme, I have gained in-depth
knowledge of the business and formed a development
pathway to becoming an investment professional at
Rathbones. I look forward to my next chapter and wish
all the new graduates the best on the rotation programme!
Betsy Ashburner,
Assistant Investment Manager, Rathbone Greenbank Investments
Our programme is a key part of diversifying our talent
pipeline and we are pleased that in 2020 our graduate
intake was two-thirds female. Having chosen to work with
a recruitment agency which understood our desire to
have gender balance in our process we began candidate
identification. Our nine successful candidates were selected
from over 1,400 applicants shortlisted via an interview
process to go through to the next stage of psychometric
and ability testing. The 2020 intake started in October
and like Betsy are studying for their Investment Advice
Diploma as they work alongside our investment
management teams.
Culture and values
Having introduced updated corporate values last year, 2020 was
a year of integration. Values have been included in the year-end
appraisal process for the first time and the link to remuneration
is under review. To equip managers in this process, mandatory
training was rolled out to support the year-end appraisal
conversations. These sessions included guidance on how
to discuss the values and examples shared for reference.
Further tracking of how the business is living our values was
collated in a culture dashboard. To find out more about the
dashboard see the corporate governance report (pages 88-89).
Engagement
An engaged workforce is essential to delivery of our purpose
and strategy. Throughout 2020 a range of direct and indirect
engagement activities was undertaken to ensure that the
business was aware of relevant issues and considerations as
part of its decision-making and oversight activities. A summary
of employee engagement activities is provided below:
— annual employee survey
— pulse surveys in light of COVID-19
— board branch visits
— CEO team visits
— employee townhalls
— non-executive director drop-in sessions with front office and
support teams across the country.
The board’s workforce engagement programme, part of our
compliance with the 2018 Corporate Governance Code, moved
virtual in 2020 to maintain the discussion. Colin Clark and Sarah
Gentleman remain the designated non-executive directors
responsible for gathering employee feedback. Feedback from
the sessions is collated and the key themes are presented for
discussion by the board and are taken into consideration when
making decisions. For more detail on the sessions held in 2020
see pages 90-91.
The 2020 engagement survey had an 82% response rate and
results saw an increase in overall engagement of 5% (91% in 2020
and 86% in 2019). Given the uncertain year these results showed
that Rathbones continues to have a good corporate culture and
remains higher than the Financial Service Benchmark average of
77%. Of note were positive scores across the business for caring
about the future of the organisation, being proud to work here
and people understanding how their role aligns to our purpose.
Positive data points such as these link to employee retention,
performance and productivity. The survey also identified a few
specific areas where we can seek to increase engagement and
showed improvements in all our target areas from last year.
62
Rathbone Brothers Plc Report and accounts 2020
Strategic report| Investing in our people
As part of the benefits that we offer, UK employees can
participate in the company’s pension arrangement, which began
to integrate environmental, social and governance factors into its
investment decisions in 2020. We support our people through
health and periods of illness by providing private medical cover,
annual medicals, income protection and life assurance cover to
everyone. Further, all employees have the opportunity to join the
Share Incentive Plan (SIP), which enables employees to benefit
from share matching by the company on a one-to-one basis
and receive free shares and dividend shares, as well as the
opportunity to join the Save As You Earn (SAYE) share option
plan each year. Rathbones prides itself on being a ‘real Living
Wage’ employer and ensures our sub-contracted workforce are
paid these rates as a minimum.
We actively prioritised the development of our employees by
building and delivering high-quality programmes that enable
participants to put relevant learning into practice, whichever
part of the business they work in. We did this by engaging
line managers and other stakeholders across the business
to understand what skills are needed and ensure that the
opportunity and support are in place for employees to deploy
them. Responding to the challenge of COVID-19, early in the
year additional training sessions were offered to line managers
helping them communicate with their team and enabling them
to share best practice.
Understandably, COVID-19 impacted access to training and
therefore the level of external training decreased. While we
continued to support our people as they completed professional
qualifications the average investment per person was £468
(compared to £727 in 2019). However, these figures are a
conservative estimate because there is much more employee
development that has no direct cost and is conducted informally;
for example we supported national learning at work week where
we shared stories from our senior managers about their career
paths, including hearing from our CFO and COO.
In addition to the online courses offered to all new employees,
we increased online learning across the firm, continuing to
deliver sessions on a variety of issues, including:
— anti-money-laundering
— data security
— stewardship.
We rolled out new sessions focusing on:
— business continuity
— client protection
— client asset sourcebook (CASS)
— SEC training, targeting SEC approved people but offered as
Number of employees and
share scheme participation
2
1
5
,
1
5
2
3
,
1
0
4
8
8
8
5
,
1
6
1
3
,
1
0
4
0
,
1
2019
2020
Headcount at 31 December 2020/2019
Number of employees in SIP
Number of employees in SAYE
In 2020 this included the formalising of our approach to mentoring,
such that at the end of 2020 we had 40 mentoring pairs. Focused
on, but not limited to, our investment management community,
our business development programme, continued to run over
nine months and covered a number of modules including,
commercial mindset, building a book of business and
engaging and presenting to clients.
For all managers a suite of management and leadership courses
remained available, enabling the firm to support high-potential
employees to ultimately grow into senior leadership roles. An
example of this was the ’Driving Productivity’ course introduced
in the last quarter of 2020, covering enhanced communication
and flexible leadership styles.
For our junior employees, we provided opportunities for
personal and professional development through initiatives
including our apprenticeship programme, which continued
to run successfully.
Looking forward
We are committed to continually improving our employee
experience. Working together and supporting each other will
be key to our business success, especially given the uncertainty
that we face as a society. Building on the foundations we have
put in place, 2021 will be a year of evolution and embedding new
processes, mindful that there is only so much change people
can cope with, be it in work or personally. The resilience of
our employees is something we remain proud of. Next year,
in addition to our existing processes we will:
— build D&I into more of our working practices
— create broader awareness of D&I across the business
— update our values in our appraisal and talent
optional CPD course for all.
management process
Rathbones is committed to developing a pipeline of high-calibre
talent to ensure appropriate skills and succession planning for
the future and 2020 was our third graduate development
programme. For existing employees we provide professional
and personal development for all.
— roll out our updated approach to hybrid working
— expand our existing mentoring programme.
rathbones.com
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Responsible business report continued
Society and communities
Rathbones has a long-standing tradition
of supporting our local communities.
The success of our business and the
investments we manage for our clients
are intrinsically linked to promoting
the development of sustainable and
prosperous communities.
Helen Wilson
Corporate Responsibility Manager
As a responsible business, we work to promote the same
expectations across our supply chain as we set ourselves. This
year has been particularly challenging for many of our society
stakeholders, be it the smaller businesses we engage with in our
supply chain or the recipients of grants and support from the
many charities that we have continued to partner with through,
what has been a year in which they have all seen an increase in
demand for their services. With the move by many of our clients
and employees to remote working we have focused attention on
keeping them safe by reviewing our approach to cyber security
and ensuring it provides safe and secure channels through which
we can communicate and continue to deliver the high-quality
service of which we are proud.
Our partners and our regulators
Our relationships with regulators
We value our reputation for ethical behaviour and integrity and
comply with the Prudential Regulation Authority (PRA) and the
Financial Conduct Authority’s (FCA), client’s best interests rule.
We aim to build positive relationships with our regulators and
acknowledge that they provide important oversight of how we
run our business. Our clients’ interests are therefore best served
when we work constructively with our regulators. We regularly
engage with them to ensure that our business understands
and contributes to evolving regulatory requirements. Senior
management hold regular meetings with regulators to foster
healthy working relationships. We also report regularly to the
board and the audit and risk committees on engagement with
regulators and how changes in regulatory regimes may impact
our business processes and procedures. In 2020, these reports
included the financial implications of climate risk on our
business and the impact of Brexit.
Code of conduct and whistleblowing
Central to our commitment to thinking, acting and investing
responsibly is our approach to governance and risk management.
We ensure all our people know the role they play through
training, and our policies and processes are overseen by the
board, audit and risk committees (see pages 84-99). Maintaining
the highest possible standards of openness, probity and
accountability means amongst other things enabling our
employees and other stakeholders to raise any concerns they
may have in a confidential manner. All employees undertake
training on our code of conduct and whistleblowing procedures,
ensuring that they understand what the business expects of
them and the systems and processes in place should they wish
to raise a concern.
Anti-bribery policy
Rathbones has zero-tolerance to bribery and corruption and we
ensure all our employees and suppliers are adequately trained so
as to limit our exposure to bribery by:
— setting out clear anti-bribery and anti-corruption policies
— providing mandatory training to all employees
— encouraging our employees to be vigilant and report breaches
or concerns
— reporting suspected cases of bribery in accordance with the
specified procedures
— escalating and investigating instances of suspected bribery
and assisting the police or other appropriate authorities in
their investigations.
We are committed to training our employees to ensure everyone
understands our approach, their responsibility and the risk if our
processes are not followed.
Human rights
We recognise our responsibility to respect those who work
within Rathbones and those who are in our broader stakeholder
network, including but not limited to those who work within our
supply chain. We support the International Labour Organization’s
standards and the Universal Declaration of Human Rights. We
will not tolerate child or forced labour and support the right to
freedom of association and collective bargaining. Whether it is in
our approach to creating a diverse and inclusive workforce (pages
61-62) or in our impact in local communities (pages 64-66),
we uphold these standards not only in our operations but also
through the work of our stewardship team (pages 57-58).
64
Rathbone Brothers Plc Report and accounts 2020
Strategic report| Modern slavery
As a UK-based financial services business, Rathbones has a
relatively low risk of modern slavery within its direct supply
chain. Indirect suppliers further down our supply chain however
present a potential elevated risk. In 2020, we engaged a third-
party sustainability consultant, Avieco, to undertake our second
supply chain modern slavery risk assessment. Overall, Avieco
concluded that the risks identified have predominately remained
unchanged since our initial assessment conducted in 2018.
The key areas of elevated risk were identified as follows:
— direct risk – UK construction and India software supply
and services
— indirect risk – UK soft services (cleaning, hospitality) and UK
retailers (procurement of products).
These four areas however represent a very small proportion of
our total procurement expenditure. Through the identification of
the procurement areas with elevated risk, we are embracing the
opportunity to strengthen oversight, control and due diligence
processes within our procurement practices, including through
increased supplier engagement. Our modern slavery statement
lays out our process in more detail and is reviewed and approved
by the board.
We are continuously building capacity within Rathbones to
manage the risk of modern slavery, and understand risk exposure
within our operations, our supply chain, and our services. As a
financial service business, Rathbones does not have significant
physical inputs into its business operations, but understands that
no supply chain is risk-free, and that greater risk may be present
further down the supply chain with indirect suppliers. Looking
forward, during 2021 our focus will be on our procurement
framework, and the recruitment of specialist supplier
management resource. Alongside the further strengthening
of our supplier due diligence processes with additional focus
on high risk sectors, and a wider internal training programme
for key employees to support awareness and understanding.
Our role in keeping our clients cyber safe
Instances of fraud have continued to rise, with some
fraudsters using COVID-19 as an opportunity to exploit
the vulnerable. The sophistication of these approaches
continues to increase and in 2020 alone we saw phishing
emails claiming to be from HMRC, NHS scam emails and
schemes that focused on Brexit. These scams are designed
to gain trust and convince people that they are dealing with
legitimate representatives. Everyone is susceptible: staying
alert and remembering a few key warning signs helps to
protect against these attacks. In regular communication
with our clients we reminded them how we will and will
not contact them and reassured them that we support
every effort to keep them safe. Clear and open
communication helped to maintain and build trust in
these testing times, and this extended to all our employees
through the provision of regular cyber awareness training
along with frequent reminders to remain vigilant through
business communications channels.
Community investment
In the uncertain times of 2020, the demand for support from the
charitable sector saw a dramatic increase. The role of a business
in looking after both its people and the communities in which it
operates only gained in importance and we are pleased with how
Rathbones pulled together, continuing to deliver to our clients
and increasing the support we offered community partners. In
2020 the group made donations of £467,000, representing 1.1%
of group pre-tax profit (2019: £360,000 and 0.9%). This consisted
of support from a number of sources including the Rathbone
Brothers Foundation, with each regional office selecting local
projects. In total, £200,000 of financial support was shared
between around 50 charities. We continued to match employee
fundraising, up to £150 per employee per year, and our Give
As You Earn scheme raised over £201,000 through employee
donations, which was matched up to £200 per month for an
annual total of £166,000. With the shift to remote working in
2020 we were able to donate over £200,000-worth of IT
equipment to eligible causes.
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65
Responsible business report continued
Our COVID-19 community response
Employees selected two national charities, Mental Health
UK and the Trussell Trust, to receive additional funds
which would help deliver services in response to COVID-19
programmes. Both charities received over £70,000.
Mental Health UK1
In 2020, demand for mental health services,
advice and information soared across the UK.
Mental Health UK connects with people and
organisations to improve understanding and
provide vital care. Rathbones has supported
Mental Health UK to reach over three million
people online with information on how to
manage their mental health, and over 15,000
people directly through their helplines.
Thanks to our partnership, more people across
the UK have been able to find help for their
own mental health, as well as their friends,
family and carers.
The Trussell Trust2
The Trussell Trust supports a nationwide
network of food banks who together provide
emergency food and support to people locked
in poverty and campaign for change to end the
need for food banks in the UK. Rathbones
was pleased to partner with them and our
donation provided flexibility in ever-changing
circumstances to allow them to continue to
support their food bank network during a
highly challenging time. In the first six months
of the pandemic, food banks in the Trussell
Trust network saw a 47% increase in need
compared to the same time last year, providing
1.2 million emergency food parcels to people
in crisis with approximately 2,600 food parcels
going to children everyday during that time.
We also continued with our pre-COVID-19 initiatives The
Rathbones Folio Mentorships programme, which started in
2017, provides talented young writers from state schools the
transformational opportunity to be mentored by published
authors, one-on-one, for a year. In 2020, and in spite of COVID-19
restrictions, four young people participated through remote
delivery of the programme. For the last three years we have also
piloted a digital reading programme in schools, in association
with The Pigeonhole (a digital book club) and HarperCollins
publishers. The Rathbones Folio Mentorships programme
will continue into 2021 with new mentors assigned to four
new students.
As a financial services business we also recognise our role in
supporting financial awareness in youngsters, we do this via
the Rathbones Financial Awareness programme. Investment
managers deliver presentations for 16-to-25-year-olds within our
offices and at schools around the UK. The programme aims to
equip those attending with the necessary information to take
ownership of their finances at a young age. We migrated the
programme online in response to the pandemic, enabling us
to offer access to more participants and in 2020 we had 250
individuals joining sessions. This means that in the last seven
years, we have reached close to 10,500 young people.
In 2020 we took the opportunity to review our approach to
community investment. After revisiting our history, our purpose
and engaging our people we identified equality as the theme
on which we feel we could have a material impact. Focusing
on disadvantaged youth will allow us to continue a number of
existing projects whilst identifying opportunities to increase
the impact of our community investment programmes.
Looking forward
Rathbones has a strong tradition of operating responsibly. In 2021
we will look to develop our current approach, with programmes
focusing on:
— the strengthening of our existing procurement processes
— identification of partners to support our community
investment ambition
— increasing our volunteering opportunities
— improved communication on our impact.
1. A registered charity in England and Wales, number 1170815
2. A registered charity in England and Wales (1110522) and Scotland (SC044246)
66
Rathbone Brothers Plc Report and accounts 2020
Strategic report| Our environmental impact
Recognising the part we can play in the
transition to a net zero economy, we
have continued to track and reduce our
operational footprint and are working to
understand the impact of climate change
on our investment portfolios.
Mark McGahern
Head of Property and Facilities
Our approach
The world’s response to COVID-19 only served to underscore the
impact that can be had if people, nations and businesses work
together. Despite the inevitable postponement of COP26, 2020
did not see a decrease in effort towards slowing and reversing
the climate crisis. Businesses came together to call on the UK
Government to drive a green recovery. Recognising the part
Rathbones can play in the transition to a net zero economy, we
have continued to track and reduce our operational footprint and
are working to understand the impact of climate change on our
investment portfolios.
CDP Score
B
(2019: B-)
As a business we continued to support CDP (formerly the Carbon
Disclosure Project), both as an investor and as a responding
business. With CDP’s move to align its framework to the
Task Force on Climate-related Financial Disclosures (TCFD),
additional financial services questions were introduced in 2020.
Our score of B reflected our willingness to respond to this new
methodology and we are confident that delivering on a number
of existing projects, such as the setting of targets and integration
of ESG factors into the decision-making for our investment
portfolios, will continue to improve our score.
We support the work of the TCFD and in 2020 produced our first
response in alignment with its recommendations (see pages
70-74). Allied to the work being undertaken by our business
to integrate environmental, social and governance data into our
investment decisions and engagement process (see page 57-58)
we have created a cross-functional team to oversee our approach.
The responsible business committee has oversight of both our
responsible investment programme and our environmental
programme and supports their interaction as well as approving
our TCFD, PRI and CDP disclosures.
Carbon footprinting the Greenbank portfolio
The transition to the low-carbon economy has already
begun: aligning a portfolio to both support and benefit from
this transition should help to insulate it from medium- and
long-term risks and position it to capitalise on long-term
opportunities. In order to limit warming to 1.5°Cabove
pre-industrial levels, global carbon emissions will need to
fall dramatically by 2030 and achieve net zero by 2050.
At Greenbank, the team works with clients to provide
practical ways to align to a 1.5°C pathway:
— assess the exposure of investment portfolio holdings to
climate risk
— reduce the exposure to industries whose activities are
misaligned with a low-carbon pathway
— increase exposure to ‘climate-sustainable assets’
— engage with companies and policy-makers to encourage
actions consistent with a low-carbon transition.
Each year, Greenbank confirms its commitment to the
Montreal Pledge by publishing a footprint of the equity
holdings within the investment portfolios it manages.
The impact of our investments
As a provider of investment and wealth management services we
recognise the need to improve our understanding of the climate-
related risks which will impact our clients’ investment portfolios,
as this is the material proportion of our footprint. In 2020, a
cross-functional team from our investment, risk, stewardship,
research and responsibility divisions collaborated to expand
our understanding of the impact of climate on our investments.
Whilst we currently footprint our specialist funds and those
offered through Greenbank, 2021 will see us expand our current
portfolio footprinting to cover more of our core offerings. In 2020,
the introduction of our climate statement (available on our
website) formalised our commitment to engaging with investee
companies on their approach to climate change and the
associated risks and opportunities that face them as we
transition to a zero-carbon economy.
Our operational footprint
In 2020, our carbon footprint reduced by 46.3% with total
emissions of 1,123 tCO2e (2019:2,091 tCO2e). With our total funds
under management increasing by 8.6% to £54.7 billion, our
emissions intensity (tCO2e/£bn FUMA) has correspondingly
decreased by 50.6%. Under normal circumstances energy from
our built estate accounts for nearly half of our annual emissions.
Given the proportion of the year in which our employees were
based remotely, this year’s footprint has evidently been impacted
by COVID-19. Much of our workforce has been based at home
since March. Offices were made COVID-safe, which not only
rathbones.com
67
Responsible business report continued
meant reducing capacity and creating one-way systems but
also ensuring safe ventilation. At some sites this could be done
by simply opening windows; however, at our larger offices, it
required the running of air circulation systems to ensure fresh air
was pulled into the building rather than recirculated. All emission
categories, business travel, water and waste were also reduced as
we moved systems online and continued to operate remotely.
Total emissions (tCO2e) since baseline year
)
e
2
O
C
t
(
s
n
o
i
s
s
i
m
e
l
a
t
o
T
3,000
2,500
2,000
1,500
1,000
500
0
2
3
6
,
2
1
9
0
,
2
3
2
1
,
1
2013
(baseline)
2019
2020
Intensity (tCO2e/FUMA £bn)
175
150
125
100
75
50
25
0
I
n
t
e
n
s
i
t
y
(
t
C
O
2
e
/
F
U
M
A
£
b
n
)
Given the challenges faced throughout 2020, we are pleased that
we were able to accelerate several important initiatives, reflecting
our continued commitment to reducing our environmental
impact. In 2019, we initiated a review and upgrade of desktop
IT and, due to the prolonged period of time for which our
employees were remote working, this programme was
completed early. Following discussions in an environmental
focus group, we gathered suggestions for further improvements,
such as updated waste management systems and a reduction in
printed material, which we will look to implement in the near
future. In 2020 we confirmed that our London and Liverpool
offices were covered with green utility contracts and although
not an owner-occupier at any of our sites, we will collaborate
with other tenants and our building management firms on the
sourcing of green energy for our other sites. The measurement
of our data was also increased in 2019 to quarterly and is now
reported to the responsible business committee twice a year.
This regular oversight has allowed the management team to
monitor the impact of COVID-19 and focus capital investment
where required.
Carbon offsetting programme
Whilst our footprint has evidently reduced this year, we
recognise that this level is unlikely to be sustained. Our
commitment to reducing our footprinting our operations in
parallel with offsetting of our residual emissions remains and
we purchased and retired 1,171tonnes of CO2e credits in 2020 to
compensate for our 2020 residual emissions and the additional
emissions from our restatement of 2019 scope 3. Having
reviewed our approach to offsetting we are furthering our
partnership with ClimateCare to identify high-impact projects
which reduce carbon emissions and enable community
development. Each of these exciting projects was selected in
line with our support of the UN’s Sustainable Development Goals
and is certified by internationally accredited bodies. As we set
long-term targets we will continue to assess the role of offsetting,
including the source of our credits.
Compliance with regulations
We continue to meet the greenhouse gas (GHG) emissions
reporting requirements of the Companies Act 2006 (Strategic
and Directors’ Reports) Regulations 2013 and our obligations
under the Companies (Directors’ Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations 2018. We
have prepared this report in accordance with the requirements
for quoted companies under these regulations by including our
specific energy usage and energy-efficiency initiatives and have
split out our global and UK emissions. Rathbones continues to
report all material GHG emissions across our direct operations.
The methodology used to compile this disclosure is in
accordance with Defra’s, Environmental Reporting Guidelines:
Including streamlined energy and carbon reporting guidance
(March 2019), and the World Resources Institute Greenhouse
Gas (WRI GHG) Protocol Corporate Standard. Rathbones uses an
operational control approach and has included GHG emissions
arising from business activities in the reporting year 1 January
2020 to 31 December 2020.
It has not been practical to gather data on energy use at our
Lymington office and we have used typical energy consumption
benchmarks to calculate the energy use at this site based on
floor area.
Avieco opinion statement
This statement provides Rathbones and its stakeholders with a
third-party assessment of the quality and reliability of Rathbones’
carbon footprint data for the reporting period 1 January 2020
to 31 December 2020. It does not represent an independent
third-party assurance of Rathbones’ management approach
to sustainability.
Avieco has been commissioned by Rathbones for the twelfth
consecutive year to calculate Rathbones’ carbon footprint for
all offices in its 2020 annual report. Through this engagement,
Avieco has assured Rathbones that the reported carbon footprint
is representative of the business and that the data presented is
credible and compliant with the appropriate standards and
industry practices. Data has been collected and calculated
following Defra’s ‘Environmental Reporting Guidelines: Including
streamlined energy and carbon reporting guidance (March 2019)’
and the WRI GHG Protocol Corporate Standard principles of
relevance, completeness, consistency, transparency and
accuracy. Avieco’s work has included interviews with key
Rathbones personnel, a review of internal and external
documentation and interrogation of source data and data
collection systems, including comparison with the previous
years’ data. Avieco has concluded the following:
Relevance
We have ensured the GHG inventory appropriately reflects the
GHG emissions of the company and serves the decision-making
needs of users, both internal and external to the company.
68
Rathbone Brothers Plc Report and accounts 2020
Strategic report|
Completeness
Rathbones continues to use the operational control approach
to define its organisational boundary. Rathbones calculates
total direct Scope 1, 2 and major Scope 3 emissions. Reported
environmental data covers all employees and all entities that
meet the criteria of being subject to control or significant
influence of the reporting organisation.
Consistency
To ensure comparability, we have used the same calculation
methodologies and assumptions as for the previous year, or
stated any updates made across all years.
Transparency
Where relevant, we have included appropriate references to the
accounting and calculation methodologies, assumptions and
recalculations performed.
Accuracy
To our knowledge, data is considered accurate within the limits
of the quality and completeness of the data provided.
Looking forward
With the delayed climate talks in Glasgow now in 2021, and the
strengthening commitment from government and regulators
supporting the transition to a low-carbon economy, and the
UK’s aim to achieve net zero by 2050, the need for business to
understand and act with regard to our climate impact will only
grow. Aligning work across our operations and investments will
help us play our part in the economy’s transition. The focus of
our environmental programme in 2021 will be:
— investigating our net zero transition pathway,
including understanding the impact of climate on
our investment portfolios
— setting targets across our operational footprint
— transitioning our offices to green energy
— expanding our external disclosures for example TCFD and CDP.
Carbon footprint by scope (tCO2e)
Rathbones’ reporting period for greenhouse gas emissions is 1 January to 31 December 2020, aligned to our financial year.
Location-based emissions (tco2e)1
Scope 1
UK-based2 scope 1 emissions
Global2 scope 1 emissions
Natural gas
Refrigerants
Company cars
Scope 2
UK-based2 scope 2 emissions
Global2 scope 2 emissions
Purchased electricity
Scope 3
Business travel
Data centres3
Paper
Waste
Electricity transmission and distribution4
Total location-based5
UK emissions
Global emissions (excl. UK)
Total energy consumption (kWh)6
UK consumption (kWh)
Global consumption (excl. UK) (kWh)
Intensity ratio
FUMA (£bn)
Emissions intensity (tCO2e/FUMA £bn)
2019
322
322
–
322
–
–
657
638
19
657
1,112
827
135
87
7
56
2,091
2,072
19
2013 (baseline)
306
306
–
276
30
0
1,424
1,401
23
1,424
902
496
150
117
9
130
2,632
2,609
23
2020
198
198
–
198
–
–
455
437
18
455
470
259
117
51
4
39
1,123
1,105
18
4,748,931 4,320,690 3,494,079
4,678,559 4,247,556 3,423,288
70,791
73,134
70,372
22.0
120
50.4
41.5
54.7
20.5
% change
-39%
-39%
–
-39%
–
–
-31%
-32%
-5%
-31%
-58%
-69%
-13%
-41%
-43%
-30%
-46%
-47%
-5%
-19%
-19%
-3%
+9%
-51%
1.
In accordance with best practice introduced in 2015, we report two numbers to reflect emissions from electricity. Location-based emissions are based on average emissions intensity of the
UK grid and market-based emissions to reflect emissions from our specific suppliers and tariffs. Total market-based emissions from 2020 are 637 tCO2e (2019: 2,5535)
2. Under SECR regulation we are required to split our global and UK emissions. Our global emissions (excl. UK) and global consumption (excl. UK) reflect electricity emissions and consumption
(respectively) from our Jersey office. It is not possible to split out travel and allocate to our Jersey office at this stage
3. Data centre emissions are reported as Scope 3, as per the WRI GHG Protocol
4. Electricity transmission and distribution (T&D) reflects emissions from line losses associated with electricity transmission and distribution
5. Total emissions reported in 2019 has been restated from 2,043 to 2,091 tCO2e due to a processing error of electricity T&D which was previously reported as 8 instead of 56 tCO2e
6. Total energy consumption (kWh) of our Scope 1 and Scope 2 emissions (electricity and natural gas)
rathbones.com
69
Responsible business report continued
Climate-related financial disclosure
At Rathbones, we see it as our responsibility to invest for everyone’s tomorrow. That means doing the right
thing for our clients and for wider stakeholders. When we make decisions, we aim for sustainable outcomes by
keeping the future in mind and looking beyond the short term. This allows us to build enduring value for our
clients, make a wider contribution to society and create a lasting legacy. We recognise that what we do affects
the world around us. Both our business, and the businesses in which we invest, have an impact on climate
change. This is why we believe it is our responsibility to reduce our impact on the environment by playing
our part in the transition to a net zero economy. In this, our first report aligned with the recommendations
of the Task Force on Climate-related Financial Disclosures (TCFD), we lay out our approach.
Governance
We believe that everyone in our company has a role to play
in reducing risks, from our board and executive team, down to
each of our employees. If an entire workforce can operate with
accountability, this in turn enhances the effectiveness of risk
management and decision-making across the group. Our
approach to risk governance, processes and infrastructure
ensures that we are constantly considering both existing and
emerging risks to our purpose, values and strategic objectives.
During the year, we revised and strengthened this risk
management framework in support of our ‘three lines of defence’
model, which operates across the group. Each of these lines of
defence plays an important role in the Rathbones risk framework
(see pages 46-51 for more detail).
Key personnel and committees
Oversight of the Rathbones risk framework starts with our board
of directors, which is responsible for setting the right tone for
the business, supporting a strong risk management culture and,
through our senior leadership team, encouraging appropriate
behaviours and collaboration across the business. Supported by
the group risk committee, the board ensures risk management
is integrated into our company culture and that our people
embrace it as part of their day-to-day responsibilities. We believe
everyone at Rathbones has a role to play in risk management,
which is why it is not only linked to our employees’ individual
performance and development, but also to the group’s
remuneration and reward schemes.
Our chief executive, Paul Stockton, has responsibility for bringing
climate-related matters to the board. Meanwhile, our chief risk
officer (CRO), Sarah Owen-Jones, is the senior management
function responsible for climate-related financial risks, as
designated in accordance with the Prudential Regulation
Authority’s Supervisory Statement on managing financial
risks relating to climate change (SS3/19). The CRO reports
to the non-executive chair of the board’s risk committee.
The CRO plays an important role in identifying and
understanding the risks that Rathbones is exposed to. In June
2020, the CRO delivered a presentation to our executive risk
committee that laid out the drivers, consequences and impacts
of climate-related risks on the firm, and how we believe this
maps to existing issues within our framework. This report was
presented alongside a paper on the impact of climate change
on our Internal Capital Adequacy Assessment Process (ICAAP).
Moreover, to ensure we are actively managing climate risk, we
also updated our group risk register to include sustainability as a
principal risk. This is defined as the risk that our business model
does not respond in an optimal manner to changing market
conditions, including environmental and social factors
(see page 50 for more detail).
Day-to-day responsibility for climate change-related matters lies
with the company secretariat team and is led by our corporate
responsibility manager, who joined Rathbones in 2020. We are
committed to responding to our stakeholders’ expectations,
which is why we take our corporate responsibility seriously.
Ensuring we have made a positive and lasting impact is an
important part of this.
Our responsible business committee, co-chaired by our
chief executive and head of specialist and charity business,
oversees the four pillars of our responsible business programme,
which includes climate risk, helping Rathbones deliver on its
overarching climate responsibility. Established in 2020, the
committee will meet at least four times a year and report to the
group executive committee and the board at least twice a year.
Our stewardship, responsible investment and investment
executive committees oversee the impact of climate change on
our portfolios. This includes the data, research and tools required
to integrate climate change into our investment decisions.
Updates are given on our responsible investment activities
at each responsible business committee meeting.
Employee engagement
Rathbones creates an open and transparent working environment
where employees are encouraged to engage positively in risk
management and support our key objectives. We want our
employees to be risk-aware and feel empowered to make decisions
that are in the best interests of our company, our stakeholders
and the world around us. In situations where environmental,
social and governance (ESG) risks form a key part of an employee’s
role, these considerations will be incorporated into their appraisal
discussions and performance assessments. Remuneration will be
influenced by various factors, depending on the role.
For our investment managers, we take a number of financial
and non-financial factors into consideration when determining
remuneration. All variable awards are subject to our risk adjustment
to variable remuneration policy, through which we can adjust
overall bonus pools across any schemes in consideration of
current and future risks, both financial and non-financial. This
policy allows us to adjust individual variable awards to take into
account crystallised risk or adverse performance outcomes, such
as misconduct. When we consider risk adjustments to variable
remuneration, we do so to reflect the risk and performance of
the firm, business area or individual employee.
70
Rathbone Brothers Plc Report and accounts 2020
Strategic report| Governance of our climate risk
Rathbone Brothers Plc
Board
Group Risk
Committee
Group Executive
Committee
Executive Risk
Committee
Responsible Business
Committee
Investment Executive
Committee
Board Committee
Executive Committee
Responsible Investment
Committee
Stewardship
Committee
Our strategy
Climate change is one of the biggest challenges of our times.
In 2020, climate-related risks gained even greater attention
as concerns about higher temperatures, rising sea levels and
increasingly frequent extreme weather events came to the fore.
Given these threats, our stakeholders expect us to play a role in
understanding and minimising the effects of climate change,
both on our business and on society.
The Rathbones board believes that the most significant climate
change-related risk to our company is the potential negative
impact on investment performance of our portfolios. This may
affect our organisation and stakeholders in the short, medium
and long term. With this in mind, we are not only working to
integrate climate considerations into our investment decisions
but also to provide our clients with products that not only meet
their financial needs, but can also adapt to the continually
evolving environment. This is fully aligned with our corporate
purpose of thinking, acting and investing responsibly, and is
delivered through our strategic objectives (see pages 20-21).
Our responsible investment approach
As responsible investors, we have been members of the UN-
supported Principles for Responsible Investment (PRI) for 11
years. The principles set by the PRI have help to inform our
approach to responsible investing and influence portfolio
decisions. Building on this foundation, and following a review of
our corporate purpose, principles and values in 2019, the board
and executive committee formalised our approach to responsible
investment. This resulted in the formation of our responsible
investment (RI) committee and the publication of our first RI
policy. Following a review in 2020 we updated our principles
and they are as follows:
— ESG integration – we will consider ESG factors in the evaluation
of investments to help identify opportunities and risks
— Engagement with consequences – we prioritise engagement
where we can make a real difference in addressing the world’s
systemic environmental and social challenges. We are
prepared to reduce our holdings in companies who continue
to present an ESG risk over time
— Voting with purpose – as shareholders we will actively vote
across over 95% of the value of our holdings in line with our RI
commitments. This may involve voting against management
to help drive positive change
— Transparency – as a prominent participant in the financial
markets, we are committed to being transparent about our
approach to RI. We will actively report on the progress of our RI
activities to our clients, shareholders and other stakeholders.
We review our RI policy on an annual basis and it is readily
available on our website.
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71
Responsible business report continued
Along with integrating climate change-related risk management
into our business, we are committed to provide our clients
opportunities to invest in a way that drives down the carbon
intensity of the economy. Our overall approach to achieving
this is outlined in our climate change statement. We also offer
a number of products that invest in accordance with ESG
principles. These include investment management offerings
from Rathbone Greenbank Investments, as well as the Rathbone
Greenbank Global Sustainability Fund, Rathbone Ethical Bond
Fund and Rathbone Greenbank Multi-Asset Portfolios (GMAPs).
See page 24 for more detail on the GMAPs.
Key transition and physical risks to our business
In our CDP disclosure (available from the CDP website) and in our
group climate statement, we recognised the potential impacts for
our business, including those associated with the transition to a
greener economy (transitional risks) and the physical effects of
climate change.
The transitional risks that we recognise as a company include,
but are not limited to:
— market risks associated with change in the preferences of
our clients
— the increasing amount of climate policy and regulation
impacting our business, for example the FCA commitment
to make TCFD mandatory
— an increase in the likelihood of litigation if we do not deliver on
our fiduciary duty to clients by including material risks in our
investment decisions
— the impact on our reputation if we do not respond to growing
interest and the call for action from society, by addressing
our role in and limiting the effects of climate change. We
may also be impacted if we do not understand the risks and
opportunities facing the companies in which we invest. A lack
of understanding may impact the value of our portfolios, which
could lead to the loss of clients.
Meanwhile physical risks affecting our business or the companies
in which we invest are classified into two categories:
— acute: such as through the effect of extreme weather on the
ability to work as planned, such as worker health and safety
being at risk due to extreme heat
— chronic: where longer-term issues like rising sea levels
would impact sites where businesses operate, such as a
manufacturing plant based near the coast as sea level rises.
Scenario analysis
As investment managers, it is important that we are aware of the
climate impacts associated with our investment portfolios and
are transparent in sharing this information with our clients and
stakeholders. With that in mind, in 2021 we will begin conducting
scenario analysis as part of our investment management process
to help us understand the impact of the transitional and physical
risks of climate change on their performance.
This analysis will help us respond to our clients’ requirements
and expectations, as well as the changes in our operating
environment. It will strengthen our resilience by allowing us to
start to integrate climate risk into our stock selection process.
As outlined in our responsible investment principles (which
can be found on page 56) this includes engaging with businesses
that materially impact our portfolio performance and voting to
support or change corporate behaviour. In addition, we also
encourage our investee companies to report openly and
honestly about their activities to help us better understand their
operations and the risks they face. Improving our understanding
of where these risks and opportunities sit will help us deliver
better outcomes for our clients and support the aims of our
wider stakeholder group.
In 2020, we piloted further tools to support our approach to
scenario analysis. We will finalise our decision in 2021 on which
best help us to assess performance against a number of scenarios,
including a Paris-aligned 2oC warming scenario.
We know that, in order to deliver the required scale of change
and achieve success, we need to join likeminded organisations.
We are proud to be active members of the PRI, the International
Investors Group on Climate Change (IIGCC), the net zero
asset managers initiative and Climate Action 100+. Alongside
other members of the IIGCC, we supported the UK Build Back
Better campaign and called on EU heads of state to develop a
sustainable recovery plan for the EU. Our RI report shares further
examples of our engagements across several matters, including
climate change. In 2020, the PRI, which has aligned its questions
with the TCFD recommendations, once again ranked Rathbones
in the ‘A+’ band for strategy and governance linked to the
responsible investment agenda.
Risk
Along with robust management of our own direct risks, we also
believe it is in our clients’ best interests for the companies in
which we invest to adopt best practice in managing and reporting
on ESG risks. We see this as part of our duty as a good, long-term
steward of the investments we manage on our clients’ behalf.
This is expressed in full in our RI policy, which outlines our
responsible investment principles and how they are being
integrated into our stewardship process. Our approach provides
a framework for each company we engage with to be managed
according to the long-term interests of its shareholders.
Given the significant impact that climate change represents,
we are committed to playing a positive role in the transition to a
net zero economy. This will involve increasing our exposure to
businesses aiding or benefiting from the transition to a net zero
economy, while also decreasing our exposure to high-carbon
businesses that are unable to demonstrate transition plans in
alignment with the Paris Agreement.
Our overarching approach comprises the following pillars:
— ESG integration
— engagement with consequences
— voting with purpose
— transparency.
Climate change integration
We recognise that climate risks can affect the performance and
valuation of our investments. Our research team and investment
committees are actively defining methods and developing
systems to fully embed climate change in the investment process
across all asset classes. This will lead to updated internal policies
72
Rathbone Brothers Plc Report and accounts 2020
Strategic report| and procedures and training requirements, as well as client-
facing documentation.
Our proxy voting consultant provides us with third-party
research that complements our in-house function. The
sustainability issues that our consultant provides to us serve as
additional insights that are shared with investment teams in the
form of company share profiles. Our investment professionals
consider these profiles when making investment decisions.
In 2020, we included external data in the review process
and this helped to strengthen our existing approach.
We also continue to invest in developing our people. In 2020, we
trained investment professionals across our offices in aspects of
corporate governance and stewardship policy, including climate
change, and will be rolling out further training in 2021. This
training enables our employees to identify, manage and monitor
the risks and opportunities that face the companies within their
portfolios. It also lays out the stewardship process of voting and
engagement undertaken on behalf of our clients.
Our commitment to RI is demonstrated by a significant number
of our research team undertaking the PRI’s Foundations in RI or
Advanced RI Analysis training courses and the CFA Certificate in
ESG Investing. In doing so, they have deepened their knowledge
of global sustainability standards and regulations that may
impact businesses and apply these considerations on assessing
the materiality of ESG risks and opportunities. This allows us
to share insights with investment managers and incorporate
our understanding into securities analysis and
investment recommendations.
Engagement with consequences
In our climate engagements with companies, we expect progress
in several areas: from enhanced corporate disclosure and board
accountability, to setting Paris-aligned science-based targets
(SBTs) and transition pathways, along with corresponding capital
expenditure plans. With many companies committing to net-zero
targets for 2050, our focus is now on engaging with companies
we invest in on behalf of our clients to identify meaningful
short-term metrics to demonstrate they are acting on their
ambition. Although we favour engagement over divestment to
influence corporate behaviour, we are prepared to reduce our
holdings in companies that continue to present severe climate
risks over time.
Voting with purpose
We make full use of shareholder votes and ownership rights to
influence companies as part of the transition to a carbon-neutral
economy. As responsible investors, we are prepared to file
shareholder resolutions and vote against a company’s
management if we believe it is not managing climate risks
appropriately. This can include, among other things, issues
related to the alignment of executive remuneration with climate
change targets, boards’ accountability and oversight of climate
risks, climate change-related lobbying activities and credible
pathways to reach net-zero carbon targets by 2050 with near-
term adjustments in capital expenditure. We are also advocates
for companies giving investors an annual ‘say on climate’ at their
annual general meetings, and will encourage them to adopt this
approach as a matter of regular business.
Transparency
At Rathbones, we are committed to improving the quantity
and quality of our climate change-related financial disclosure
by endorsing and implementing the TCFD framework. We also
support efforts to make TCFD-aligned disclosures mandatory
across the UK by 2025, with a significant portion of mandatory
requirements in place by 2023.
To oversee our approach, our RI committee is served by two
working groups that deliver active proxy voting and engagement
on ESG issues: our proxy voting committee and company
engagement committee.
Proxy voting and shareholder engagement at Rathbones
is overseen by the 10 full-time members of the stewardship
committee, who are supported by the stewardship director, our
stewardship team which expanded in 2020 to include new team
members including a climate specialist, and an external proxy
voting consultant. We target our resources where they can make
the most difference to the greatest number of clients, and have
recently taken steps to improve our coverage. As such, we focus
our voting resources on our largest listed security holdings and
where we hold more than 3% of the shares of a company.
In practice, this approach means that we cover the majority
of relevant assets under management within the wealth
management business with a bespoke voting policy. Wealth
management clients retain the ability to issue individual voting
instructions on their stocks held in our nominee account. We
have recently extended the scope of the guidance provided by
the proxy voting consultant to include sustainability issues and
will be incorporating these considerations into our bespoke
voting policy in 2021 and beyond. More information on our
approach, action and engagement is published on our website.
Metrics and targets
As with many financial services businesses, our initial
assessment of our environmental impact focused on our own
operations. Like many companies, we have been successful in
reducing our emissions and have offset our residual emissions
since 2013. The report on our 2020 emissions and the progress
we have made is on pages 67-69.
At present, our operational focus is on the largest components of
our footprint: our offices and travel. So far, we have reduced our
carbon intensity by 79% (tCO2e per employee) since 2013 and
we are working hard to make further reductions. With that in
mind, we will continue to work with our landlords and travel
providers to support greener choices and review our approach
to offsetting in line with our net zero ambition.
While we do not currently provide a footprint report for all our
portfolios, Rathbone Greenbank publishes the footprint of its
equity holdings in line with its commitment to the Montreal
Pledge (see the Rathbone Greenbank website). This analysis
covers 97% of the equity part of the Greenbank investment
portfolios, which itself accounts for 37% of their total assets
under management. Greenbank continues to work on increasing
the scope of coverage by also including fixed-income
investments and managed funds, using a weighted average
carbon intensity method rather than share ownership.
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73
Responsible business report continued
This measures a portfolio’s exposure to carbon-intensive
companies based on CO2 emissions per million pounds of sales,
adjusted according to each holding’s weighting within a portfolio.
Footprinting is a useful tool for understanding the impact we
are having on the environment. We will be expanding our use of
footprinting and, as previously mentioned, scenario analysis in
our efforts to achieve net zero commitments.
— evaluate, update and publish our approach and strategy to
managing climate risk
— engage and collaborate with other parties to play our part in
achieving the UK’s goal of net zero by 2050
— strengthen our alignment to the TCFD recommendations, in
particular scenario analysis, to ensure complete alignment
in 2022.
Looking forward
At Rathbones, we understand the time for action on climate
change is now. The risks and opportunities facing our business
and our stakeholders grow at an ever-increasing rate. This is
why we are working hard to put in place a robust framework
for minimising and managing climate-related risks, whilst also
exploring the opportunities that affect our business, our investee
companies, our clients and our stakeholders. In 2021 we will
continue to develop our approach and we commit to:
— gather further data deepening our understanding of the impact
of climate change on our business
— review and identify the tools and processes needed to expand
our understanding of how climate risk impacts our business
— investigate our net zero transition pathway
— continue to reduce our impact by integrating climate factors
into our decision-making process
— update our responsible investment policy to include our
approach to investment in carbon-intensive businesses
— develop our understanding of climate risk at board level
and across our employee base
The strategic report contains certain forward-looking
statements, which are made by the directors in good faith
based on the information available to them at the time of
their approval of this annual report. Statements contained
within the strategic report should be treated with some
caution due to the inherent uncertainties (including but
not limited to those arising from economic, regulatory and
business risk factors) underlying any such forward-looking
statements. The strategic report has been prepared by
Rathbone Brothers Plc to provide information to its
shareholders and should not be relied upon for any
other purpose.
Pages 1 to 74 constitute the strategic report, which
was approved by the board and signed on its behalf by:
Paul Stockton
Chief Executive
03 March 2021
Jennifer Mathias
Group Finance Director
Non-financial information statement
Reporting requirement
Environmental matters
Some of our relevant policies and standards
Group sustainability policy
Where to read more in the report about our impact
Our approach to responsibility
Responsible investment policy
Responsible investment
Employees
Code of conduct
Our environmental impact
Our TCFD disclosure
Our approach to responsibility
Human rights
Social matters
Health and safety policy
Our people
Compliance framework policy
Workforce engagement with the board
Anti-bribery policy
Modern slavery statement
Human rights
Code of conduct
Code of conduct
Modern slavery
Our approach to responsibility
Anti-corruption and anti-bribery
Anti-bribery policy
Community investment
Code of conduct and whistleblowing
Conflicts of interest policy
Anti-bribery policy
Whistleblowing policy
Business model
Non-financial key
performance indicators
Our business model
Our market and opportunities
Our people
Our carbon footprint
Page
52
56
67
70
52
59
90
64
65
52
65
64
64
08
18
59
69
74
Rathbone Brothers Plc Report and accounts 2020
Strategic report| Governance
Corporate governance report
Introduction from the chairman
Governance at a glance
Board of directors
Group executive committee
Role of the board
Board and board
committee evaluation
Risk management
Relations with shareholders
Workforce engagement
Group risk committee report
Audit committee report
Nomination committee report
Remuneration committee report
Remuneration committee
chairman’s annual statement
Remuneration summary for 2020
Directors’ remuneration policy
Annual report on remuneration
Directors’ report
Statement of directors’
responsibilities in respect of the
report and accounts
76
76
78
80
83
84
86
87
88
90
92
95
100
103
103
106
108
117
127
130
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75
Corporate governance report
Corporate governance report
Mark Nicholls
Chairman
The key responsibilities of the board are to ensure effective
leadership, the long-term sustainability of the firm and the
creation of value for our stakeholders. The board recognises
that sustainable business success is not possible without a clear
purpose and that good governance is about more than complying
with rules; it is also about culture, behaviours and how we service
our clients. The board is therefore committed to ensuring that the
firm’s purpose, values and culture are set by the whole board and
embedded throughout the firm. The executive directors and
management team play an integral role in this, ensuring that our
people understand the firm’s culture and what is expected of
them to achieve our purpose. I believe that all this, together with
our strong governance framework, allows the board to ensure
that the whole firm is moving in the right direction as we
develop and execute our strategy.
During the COVID-19 pandemic, the board has adapted its
ways of working to ensure that it continues to provide effective
oversight of the firm’s operations, with appropriate challenge and
support for the senior management team, whilst maintaining its
clear focus on stakeholder interests. The board has met regularly
via video conference during the pandemic, including weekly
meetings during the peak of the 2020 UK lock down. Further
information on the operation of the board during the pandemic
appears later in this report.
The board recognises the important role that it plays in
establishing and monitoring the group’s purpose, culture and
values, and setting the right tone from the top. The ongoing
assessment of the contribution of culture and values to the
group’s long-term success remains a focus for the board. I have
direct experience of the group’s strong and distinctive culture
in action, as evidenced by our employees’ desire to support
customers, clients and partners during the COVID-19 pandemic.
The board has long championed the benefits of diversity across
the firm as well as in the composition of the board. I am pleased
that as at the date of this report, female directors comprise over
30% of our board membership. As discussed in the responsible
business report, the firm is taking steps to continue improving
diversity across the organisation through a variety of initiatives.
Purpose and culture
Following the firm’s launch of a new purpose last year,
the board has continued to provide oversight through the year.
In addition, we place great emphasis on the firm’s culture, which
has developed over many years and represents a key competitive
advantage. The firm’s client focus and integrity are fundamental
to achieving the best results for clients, colleagues and
shareholders over the long term. As a board, we are responsible
for setting the tone and for championing a healthy, responsible
culture that will promote long-term sustainable success for all
of our stakeholders, which is at the heart of our purpose. In order
to achieve this goal, the board has developed a new culture
dashboard which is used to monitor and analyse the firm’s
culture. This dashboard contains eight core drivers that help to
shape the firm’s culture and address a variety of areas including
leadership, clients, employees and other stakeholders, and
the firm’s attitude to change. The dashboard contains both
quantitative and qualitative data and each core driver has
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Rathbone Brothers Plc Report and accounts 2020
Governance| specific KPIs with a Red-Amber-Green (RAG)-based trend rating.
The culture dashboard is updated every six months and
presented to the board for review and monitoring.
In addition, non-executive directors assess the firm’s culture
through informal engagement, branch visits to teams as well
as the workforce engagement initiatives that are discussed
on pages 88-91.
Executive remuneration
Executive remuneration remains an important area of focus
and debate, and the board continues to monitor developments
on this topic closely. As reported last year, the Remuneration
Committee has spent considerable time reviewing the impact
of CRD V on executive remuneration and, as part of our triennial
review of the Directors’ Remuneration Policy, a number of
changes are proposed for approval at this year’s AGM. Further
information on the new policy can be found on pages 107-116.
Sarah Gentleman, Chair of the Remuneration Committee,
carried out an extensive consultation exercise with our
largest shareholders before finalising the new policy.
Responding to the COVID-19 pandemic
The board met frequently at the height of the COVID-19
pandemic to oversee the firm’s response to safeguarding the
health and well being of our colleagues, clients and communities
while protecting the firm. Practically speaking, we have held all
board and board committee meetings electronically since March.
We have continued to keep in close contact with the executive
team and colleagues from across the firm despite the remote
working arrangements that have been in place for a substantial
part of the year. The board continues to monitor closely our
response plans as the pandemic ebbs and flows. We are also
focused as a board on how our business should change and
adapt going forward as we learn lessons from the crisis.
Engagement with our stakeholders
Stakeholder engagement continues to be a priority for the board.
During the year the board has used formal meetings and other
opportunities to discuss the firm’s performance and the delivery
of its strategy. You can find our formal statement in relation to
section 172 of the Companies Act 2006, together with further
detail about how the directors have engaged with, and had regard
to the interests of, stakeholders, in the Strategic Report on pages
10-13. We also continue to fulfil our other core duties to oversee
the firm’s culture, governance, financial controls, risk and
change management.
There are a number of routes through which the board gains
an understanding of employees views. These have included
additional employee surveys during the pandemic, as we were
keen to learn how home working was progressing and also the
state of mental health of our staff. The feedback was then used
for targeted measures to improve the safety and well being of
our people. Separately, the board’s workforce engagement
programme, led by Colin Clark and Sarah Gentleman, continued
during the year with ongoing engagement with members of staff.
This was particularly important in light of the pandemic and
details of this initiative can be found on pages 90-91.
In addition, both I and my non-executive director colleagues
used formal and informal opportunities to talk to members of
staff across all offices through virtual events during the year.
I and other non-executive director colleagues have also been
pleased to meet and talk with a number of our shareholders
during the year and we found these meetings to be most
constructive. They allowed us to provide useful feedback
to the whole board.
Our shareholders are key stakeholders and we continue to
manage a comprehensive engagement programme with them
throughout the year. During this past year we undertook a
number of investor meetings, either in person or virtually. The
Group Finance Director continues to report to the Board regularly
on shareholders’ views on the firm, and the firm’s corporate
brokers present frequently to the board on market developments
and shareholder perceptions. This helps to ensure that the Board
is fully briefed on the views and aspirations of shareholders.
Unfortunately, because of the COVID-19 pandemic, the firm’s
2020 AGM had to be held via telephone conference due to
compulsory government measures restricting public gatherings
and non-essential travel. This meant that shareholders could not
attend the meeting in person. We are very aware that the AGM
provides an important forum for shareholders to meet the
board and raise questions and to ensure this was achieved,
shareholders were encouraged to raise any questions
beforehand and responses were published on our website.
Succession
As I mentioned in last year’s report, I have served over nine
years as Chairman and Director of the firm and, as required by
the 2018 Code, I intend to step down at the 2021 AGM. Following
an extensive recruitment process during 2020, it is intended that
Clive Bannister will become chairman following the 2021 AGM,
and subject to regulatory approval. I am confident that Clive and
Paul will be successful in implementing our strategy. There is
further insight into the search process on page 100.
In addition, Jim Pettigrew has also indicated that he will not be
seeking re-election at the 2021 AGM and will step down from the
board. As part of the board’s succession planning, Colin Clark will
succeed Jim as senior independent director, subject to regulatory
approval. As part of our review of board effectiveness and
succession planning, we have monitored constantly the breadth
and depth of knowledge, industry experience and diversity
within the board. As a result, we have initiated a process to
appoint an additional non-executive director to the board.
This report, in its entirety, has been approved by the board of
directors and signed on its behalf by:
Mark Nicholls
Chairman
3 March 2021
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77
Corporate governance report continued
Governance at a glance
Corporate governance framework
The Board
Accountable to shareholders for the long-term sustainable success of the group. This is achieved through setting the strategy,
monitoring objectives and providing oversight of the implementation of these objectives by the management team.
Chairman
Chief
Executive
Senior
Independent
Director
Non-executive
Directors
Group
Finance
Director
Nomination
Committee
Responsible for
recommending changes
to the composition of the
board and reviewing
succession planning
Audit Committee
Ensures there is confidence
in the integrity of internal
financial controls and
corporate reporting
Risk Committee
Provides oversight of
the firm’s risk appetite
and framework
Remuneration
Committee
Responsible for the
directors’ remuneration
policy and oversight of the
firm’s remuneration
strategy
Read more on page 100
Read more on page 95
Read more on page 92
Read more on page 103
Group Executive Committee
Implements the agreed strategy and oversees the day-to-day management of the group
Board activities in 2020
Strategy:
— Held a number of additional board meetings in response
to COVID-19
— Set up a Crisis Management Team to address the needs of
the firm
— Monitored the firm’s new strategy
— Held strategy day with group executive team
— Conducted an external review of market trends and
emerging competitors
— Focused on delivery of organic growth initiatives
Risk management:
— Discussed and considered the impact of COVID-19 on
our stakeholders
— Approved the firm’s risk framework and appetite
— Monitored the firm’s principal risks and
compliance programme
— Received detailed reports on significant regulatory risks
and management’s mitigating actions
— Reviewed the implications of Brexit for the organisation
— Oversight and review of the firm’s whistleblowing report
— Discussed and considered the firm’s business continuity plans
Performance review:
— Discussed various financial and market scenarios in the
COVID-19 climate
— Oversaw financial performance against the plan and
market expectations
— Reviewed and approved capital requirements of the firm
— Approved interim and full-year financial statements,
interim dividend and recommended final dividend
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Rathbone Brothers Plc Report and accounts 2020
Governance| Non-executive
Directors
— Provide constructive
challenge to
management
performance
and strategy
— Contribute to the
firm’s strategy
— Provide independent
judgement to
the board
Division of responsibilities
Chief Executive
— Provides executive
leadership and
management to
the business
— Responsible for the
effectiveness of the
executive committee
— Delivers on strategic
objectives set by the
board in line with the
group’s risk appetite
— Maintains strong
relationships with the
chairman, the board
and key shareholders
and stakeholders
Chairman
— Leads the board and
sets the agenda for
board discussions
— Ensures the board
is effective
— Encourages the
presentation of
accurate, clear and
timely information
— Promotes effective
and constructive
dialogue between
non-executive
directors, executive
directors and the
executive team
— Chairs the
nomination
committee, which
considers the
composition of
the board and
succession plans
— Evaluates the
performance of the
board, its committees
and individual
directors on an
annual basis
Group Finance
Director
— Oversees the financial
position of the group
Senior
Independent
Director
— Acts as a sounding
— Together with the
chief executive,
leads discussions
with investors
— Responsible for the
management of the
capital structure of
the company
— Contributes to the
management of the
group’s operation
board for the
chairman and serves
as an intermediary for
the other directors
if required
— Holds meetings with
the non-executive
directors (without the
chairman present) at
least annually
— Is available to meet
with a range of major
shareholders to
develop a balanced
understanding of
their issues and
concerns, and reports
the outcome of such
meetings to the board
— Leads the board in the
ongoing monitoring
and annual
performance
evaluation of
the chairman
Strategy
Risk management
Performance review
Governance
Operational
25%
15%
20%
20%
20%
Board activities
discussed
Governance:
— Discussed the various workforce engagement mechanisms
— Assessed and oversaw the firm’s culture and how it
was monitored
— Conducted an internal board evaluation
— Discussed and reviewed the firm’s culture dashboard
Operational:
— Reviewed executive management succession and
transition plans
— Assessed the firm’s change management processes and
project delivery
— Assessed and approved the firm’s 2021 budget and
regulatory returns
— Discussed the firm’s suitability programme
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Corporate governance report continued
Board of directors
Chairman
Executive Directors
Mark Nicholls
Chairman
Paul Stockton
Chief Executive
Jennifer Mathias
Group Finance Director
Appointed: 01/12/2010
Appointed: 09/05/2019
Appointed: 01/04/2019
N, Re
GEC
GEC
Experience, skills, and contributions
Mark is a lawyer and corporate financier and
was appointed as chairman at our 2011 AGM.
After studying law at Cambridge, he qualified
as a solicitor at Linklaters before joining S G
Warburg in 1976. He became a director of
Warburgs in 1984 and head of investment
banking in 1994. In 1996, he joined Royal
Bank of Scotland and became head of their
private equity group, leaving in 2003 to
pursue a plural career.
Current external appointments
Chairman of West Bromwich
Building Society
Experience, skills, and contributions
Paul was appointed chief executive in May
2019, having served as managing director of
Rathbone Investment Management from
May 2018. He was previously group finance
director from 2008 to April 2019.
Paul qualified as a chartered accountant
with PriceWaterhouse in 1992, subsequently
taking up a position in New York before
returning to London in 1996. In 1999 he
joined Old Mutual Plc as group financial
controller, becoming director of finance of
Gerrard Limited in 2001. In 2005, two years
after the sale of Gerrard, he left to work
initially for Euroclear and, subsequently, as
a divisional finance director of the Phoenix
Group. He was formerly a non-executive
director of the Financial Services
Compensation Scheme.
Current external appointments
None
Experience, skills, and contributions
Jennifer began her career on the Lloyds
TSB Finance graduate scheme following
her graduation in 1995 and qualified as a
chartered management accountant in 1999.
At Lloyds, Jennifer held a number of senior
management roles and worked closely with
the board-level team of the Lloyds TSB
Group, and was a member of the Corporate
Banking and Wholesale Finance Executive
Committees. In addition to her position as
a finance director of Corporate Banking,
Jennifer spent three years as head of Credit
Risk & Compliance for the Commercial
Banking division of Lloyds TSB. In 2012,
she joined Coutts as the global chief finance
officer, and in 2015, she moved to EFG
Private Bank (UK), where she was chief
finance officer and deputy chief
executive officer.
Current external appointments
None
A
N
Re
Audit committee
Nomination committee
Remuneration committee
Group risk committee
Ri
GEC Executive committee
Bold in biographies indicates committee chairman
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Rathbone Brothers Plc Report and accounts 2020
Governance| Non-executive Directors
Jim Pettigrew
Senior Independent Director (Independent)
James Dean
Non-executive Director (Independent)
Sarah Gentleman
Non-executive Director (Independent)
A, N, Re, Ri
A, N, Re, Ri
A, N, Re, Ri
Appointed: 06/03/2017
Appointed: 01/11/2013
Appointed: 21/01/2015
Experience, skills, and contributions
James was appointed as a non-executive
director in 2013 and is chair of our
audit committee.
He is a chartered accountant with over
30 years’ experience working in financial
services. He has worked in a variety of roles
at Ernst & Young over a period of 14 years,
including holding the position of managing
partner for the UK Financial Services Audit
Practice for four years.
Since 2012, James has gained significant non
executive director experience serving on the
boards of a large UK retail insurer, LV= and a
small Building Society. More recently he has
joined the board of a start up, PE backed
London Market insurance and reinsurance
company, Inigo Ltd. He is also Chairman of
Reigate Grammar School
Current external appointments
Senior Independent Director of The Stafford
Railway Building Society, and Non-executive
director at Inigo Ltd
Experience, skills, and contributions
Sarah is chair of our remuneration
committee. She was appointed as a
designated non-executive director for our
workforce engagement in 2019 along with
Colin Clark.
She started her career as a consultant at
McKinsey & Company and then worked for
several years in the telecoms and digital
sectors, latterly as chief financial officer of
the LCR Telecom Group. In 1999, she joined
the internet bank Egg, the internet banking
subsidiary of Prudential, where she was
responsible for business development and
strategy. In 2005, she joined Sanford C.
Bernstein & Co, the institutional research
and trading arm of Alliance Bernstein, as
a banking analyst covering the European
banking sector. Sarah is also an adviser
to early-stage technology companies.
Current external appointments
Non-executive director of Engine B Ltd
Experience, skills, and contributions
Jim was appointed as a non-executive
director at our 2017 AGM and was appointed
as senior independent director in
August 2017.
Jim has over 30 years of experience in the
financial services industry. Jim was most
recently non-executive chairman of Virgin
Money plc. He oversaw Clydesdale Bank’s
successful IPO in 2016 and its acquisition
of Virgin Money plc in 2018 to create the
UK’s largest challenger retail bank. He was
formerly CEO at CMC Markets plc, COO at
Ashmore Group plc, CFO at ICAP plc and
Group Treasurer at Sedgwick Group plc.
He has extensive non-executive director
experience as chairman at Edinburgh
Investment Trust Plc, Miton Group Plc, RBC
Europe Ltd and Scottish Financial Services
trade body SFE. He has also held non-
executive director positions at Aberdeen
Asset Management plc, Crest Nicholson Plc,
Aon UK Ltd, Hermes Fund Managers Ltd and
Pacific Investments. Jim is a Past President
of The Institute of Chartered Accountants
of Scotland (ICAS) and was co-chair of
Scotland’s Financial Services Advisory Board
(FiSAB) with the First Minister of Scotland
from 2016 to 2019, during which time he
also sat on the City UK Advisory Board.
Current external appointments
Chair of BlueBay Asset Management LLP,
Dundee Heritage Trust, and Scottish Ballet
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Corporate governance report continued
Non-executive Directors
Terri Duhon
Non-executive Director (Independent)
Colin Clark
Non-executive Director (Independent)
Clive Bannister
Chairman Designate
A, N, Re, Ri
A, N, Re, Ri
Appointed: 02/07/2018
Appointed: 24/10/2018
Appointed: 12/01/2021
Experience, skills, and contributions
Terri was appointed as a non-executive
director in July 2018 and is chair of the
risk committee.
Terri graduated with a Maths degree from
Massachusetts Institute of Technology
(MIT). She is currently a non-executive
director on the board of Morgan Stanley
International where she chairs the risk
committee and is also chair of Morgan
Stanley Investment Management Limited.
She is an Associate Fellow at The Saïd
Business School at Oxford University and
on the MIT Corporation Visiting Committee.
Previously, Terri sat on the boards of CHAPS
Co and UK Operation Smile and was a
founding member of the Women’s
Leadership Group for the Prince’s Trust. As
an executive, Terri held a number of senior
roles at JP Morgan and ABN AMRO before
setting up her own consultancy firm.
Current external appointments
Chair of Morgan Stanley Investment
Management Ltd and non-executive director
of Morgan Stanley International Ltd, and
Hanover Investors Ltd.
Experience, skills, and contributions
Colin was appointed as a non-executive
director in October 2018 and as a designated
non-executive director for our workforce
engagement programme in 2019. In addition,
Colin will assume the role of senior
independent director following the
conclusion of 2021 AGM, and subject
to regulatory approval.
He is currently chairman of Merchants Trust
Plc, AXA Investment Managers UK and a
non-executive director of AXA Investment
Management SA. Previously, Colin worked
at Mercury Asset Management and Merrill
Lynch Investment Managers for over 20
years. In 2004, he was appointed a non-
executive director at Standard Life
Investments, and in 2010, he was appointed
as an executive director of Standard Life
Investments. He was appointed to the
Standard Life Plc board as an executive
director with responsibility for the Global
Client Group and retired from this position
in 2017. He was previously a non-executive
director of Alpha Strategic Plc, and the Royal
Marsden NHS Foundation Trust.
Current external appointments
Chairman of Merchants Trust Plc, Axa
Investment Managers UK and non-executive
director of AXA Investment Managers SA.
Experience, skills, and contributions
Clive was appointed as chairman
designate on 12 January 2021, subject
to regulatory approval.
He started his career as a banker at First
National Bank of Boston in 1981 in Boston
and London, and in 1984, he joined Booz
Allen & Hamilton as an associate and became
a partner in the financial consulting practice
in 1990.
In 1994, Clive joined HSBC Investment
Bank as Director and Head of Planning and
Strategy in London with a remit to help with
the integration of part of James Capel. He
moved to New York in 1996 to be the deputy
CEO of HSBC Inc and Head of Investment
Banking in the US. In 1999, he was appointed
Chief Executive of HSBC Group Private
Banking and subsequently became Group
General Manager in July 2001, and Group
Managing Director in 2006 on the Executive
Committee, of Group Insurance and Asset
Management at HSBC Holdings Plc. In 2011,
Clive was recruited as group CEO of the
Phoenix Group, the UK’s largest life and
pensions consolidator. During his time
at Phoenix Group, a series of successful
acquisitions were made, including AXA
Wealth, Sun Life, Standard Life Assurance
and the acquisition of ReAssurance from
Swiss Re.
Current external appointments
Clive is currently a chairman of the
Museum of London.
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Governance| Group executive committee
The group executive committee (GEC) is chaired by Paul Stockton, chief executive, and he is supported by the
senior management team. The key role of the GEC is day-to-day management of Rathbones. The committee
actively reviews and assesses business performance supported by a range of committees that operate across
the group. Kathleen Jones was appointed as an Interim Chief People Officer in June 2020 for a term of
11 months from June 2020 to May 2021.
Full biographies of the group executive committee are available at
https://www.rathbones.com/investor-relations/corporate-governance/group-executive-committee
Paul Stockton
Chief Executive and chair of GEC
Jennifer Mathias
Group Finance Director
Ivo Darnley
Head of Specialist and Charity Business
Andrew Morris
Head of Investment Management
outside of London
Sarah Owen-Jones
Chief Risk Officer
Rupert Baron
Head of Investment Management in London
Andrew Brodie
Chief Operating Officer
rathbones.com
Richard Smeeton
Head of Investment Management Special
Projects and Recruitment
Mike Webb
Chief Executive of Funds and Head of Group
Marketing and Distribution
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Corporate governance report continued
Compliance with the 2018 UK Corporate
Governance Code
In relation to compliance with the 2018 UK Corporate
Governance Code (the ‘Code’), which applies to the firm, this
report together with the directors’ report states the position as
at 3 March 2021. The directors have considered the contents and
recommendations of the Code and confirm that throughout the
year the company has applied the main principles and complied
with the provisions of the Code with the exception of provision
19 relating to the tenure of Mark Nicholls and provision 21
relating to completion of an external board evaluation. The board
has reviewed and considered provision 19 and, as reported last
year, Mark Nicholls will be retiring at the 2021 AGM. With regards
to provision 21, relating to an external board evaluation, the board
decided it was not the right time to conduct this review and
that it would be postponed until the chairman transition was
completed in 2021. Nevertheless, a thorough and rigorous
internal board evaluation was completed in 2020 which
was supported by an external provider.
Code principles
Leadership and purpose
Our purpose
Chairman’s statement
Board of directors
Group executive committee
Stakeholder engagement (s172)
Workforce engagement
Division of responsibilities
Corporate governance framework
Division of responsibilities
Operations of the board
Composition, succession, and evaluation
Board induction
Board and board committee evaluation
Board diversity
Nomination committee report
Audit, risk and internal control
Audit committee report
Risk committee report
Viability statement
Statement of directors’ responsibilities
Remuneration
Remuneration committee chairman’s annual statement
Remuneration summary for 2020
Proposed remuneration policy for 2021
Directors’ report
2
4
80
83
10
90
78
79
85
85
86
86
100
95
92
51
130
103
106
107
127
The role of the board and its committees
The board has collective responsibility for the management,
direction and performance of the company. It is accountable to
shareholders for the creation and delivery of strong, sustainable
financial performance and long-term shareholder value. In
discharging its responsibilities, the board takes appropriate
account of the interests of our wider stakeholders including
clients, employees, regulators and society as a whole. To achieve
its goals, the board requires a diverse and talented membership
with a range of skills and experiences and the ability to challenge
and support the executive management. The board has a strong
non-executive membership, which comprises former executives
with financial, risk management and operational experience
drawn from a variety of financial institutions. In addition, the
broad experience of the non-executive directors allows them to
understand the challenges and opportunities that face the firm
and enables them to contribute to discussions and decisions.
Board meetings
Most scheduled board meetings are preceded by a board dinner
which allows for broader discussions on particular topics. The
board dinners also provide an opportunity for the board to meet
members of the management team or to receive training. In the
months where no formal board meeting is scheduled, an informal
meeting of the non-executive directors, the chairman and the
chief executive is generally held. The non-executive directors
also have informal meetings without the chairman or chief
executive present. The roles of the chairman, the chief executive,
the senior independent director and the non-executive directors
have been clearly defined and agreed by the board to ensure a
separation of power and authority. During the pandemic, it was
important that the board continued to meet informally outside
of board meetings and virtual board sessions were introduced.
At every board meeting, the chief executive updates the board on
the implementation of strategy and recent developments. The
group finance director reviews the financial performance and
forecasts against plan and market expectations. The chief risk
officer updates the board on key risk areas and any emerging
regulatory issues which impact the business. The board is
updated on shareholder sentiment and significant changes in the
share register. In addition, members of the executive committee
attend meetings as required to present and discuss progress in
their individual businesses and functions.
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Governance|
Operations of the board
The board has a rolling agenda, which ensures that key matters
are addressed. The board held seven scheduled meetings during
the year, a strategy day and a number of additional formal and
informal meetings. The chairman and the company secretary
manage board and committee meetings and ensure that the
board (and particularly the non-executive directors) receive
appropriate and balanced information. The company secretary
manages the timely circulation of information to the board. All
board papers are prepared by executives and clearly indicate any
action required. As part of the annual board evaluation process,
board members provided input on the level and quality of the
information that is provided. In addition, the company secretary
ensures board procedures are complied with and applicable
rules are followed.
The company secretary facilitates the induction process for
new directors, assists with their professional development
and advises the board on corporate governance matters and
on the rules and regulations that affect a UK-listed company.
The appointment or removal of the company secretary is a
matter for the board.
Board attendance
Director
M P Nicholls
J W Dean
S F Gentleman
J N Pettigrew
J M Mathias
R P Stockton
T L Duhon
C M Clark
Meetings attended (eligible to attend)
10(10)
10(10)
10(10)
9(10)
10(10)
10(10)
10(10)
9(10)
Independence
The board, on the recommendation of the nomination
committee, considers that all of the non-executive directors are
independent, including the chairman. All board members are
required to disclose any external positions or interests which
might conflict with their directorship of Rathbones prior to
their appointment so that any potential conflict can be properly
assessed. The board has regard to the fact that experienced
non-executive directors in financial firms are a valuable resource
and may sit on several boards. Potential conflicts of interest of
non-executive directors can generally be managed by due
process and common sense.
Board induction
Our executive and non-executive directors are offered a
comprehensive and tailored induction programme to introduce
them to the business, industry and regulatory context. The
programme is based on one-to-one meetings with the executive
directors and executive committee members, the heads of group
functions and the company secretary, and covers the areas of
business outlined below:
Business review
— Strategic direction and priorities
— Business strategy and market analysis
— Risk appetite, principal risks and risk management framework
— Operations
Performance and market positioning
— Review of financial and market performance
— Recent analyst and media coverage
— Budget review
— Analysis of shareholder base and investor perception
— Shareholder engagement
Regulatory environment
— Overview of the group’s key compliance and
regulatory policies
— Recent changes in regulatory landscape and impact of
upcoming regulatory developments
— Hot topics and key priorities
People, culture, and values
— Discussion of corporate values and the firm’s culture
— Key people and succession plans
— Board procedures and governance framework
— Board structure, processes and relationships
— Board interaction with key business areas
— Overview of listed company obligations, reporting and
governance framework
— Directors’ duties and responsibilities
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Corporate governance report continued
Board development
The firm is committed to the training and development of all staff
to ensure professional standards are maintained and enhanced.
All directors are encouraged to update their skills and any
training needs are assessed as part of the board evaluation
process. The knowledge and familiarity of non-executive
directors with the firm is enhanced by full access to senior
management and visits to teams in London and offices across
the country.
The company secretary assists with the professional
development requirements of the board. In addition, the board
receives mandatory annual training on the following areas:
— Client Assets and Money (CASS)
— Securities and Exchange Commission (SEC) obligations
— Internal capital adequacy assessment process (ICAAP) and
internal liquidity adequacy assessment process (ILAAP).
During the year, the board received presentations on cyber
security, impact of the Capital Requirement Directive V (CRD V)
and regulatory investment requirements including the associated
change programmes that will be required. Committee members
also receive regular updates on technical developments at
scheduled meetings.
Board diversity
Diversity, including ethnic diversity, is a key factor when
assessing the board’s composition. It ensures there is the
correct balance of skills, experience and expertise amongst
non-executive directors to contribute to decision-making
and assess the performance and strategy of the company.
The board has adopted a board diversity policy to ensure
transparency and diversity in making appointments to the
board on the recommendation of the nomination committee.
This policy expresses our commitment to the principle of
non-discrimination and to the promotion of fair participation
and equality of opportunity for all. The gender balance of the
board is also taken into consideration when recruiting a new
non-executive director. This is reflected in the composition of
the board, which comprised three female and five male members
during 2020. The board remains committed to improving
diversity at all levels across the firm. As such, it supports and is
updated on diversity initiatives in place below the executive
level with regular reporting to the nomination committee.
Board and board committee evaluation
Each year, the board undertakes an annual review of its
effectiveness with an external review taking place every
three years. As discussed previously in the report, we have
decided to delay our external evaluation as a result of the
chairman transition that will take place in 2021.
In 2020, we conducted a self-evaluation, supported by
Independent Audit Limited, who have no other connection
with the firm. The board was keen for the evaluation to highlight
learnings from the past and build on these for the future. The
review consisted of a focused questionnaire on composition,
how effectively members work together to achieve objectives,
and key topics such as:
— strategy and risk
— culture and stakeholders
— oversight of risk management and internal audit
— the effectiveness of the board committees.
In addition to responding to questions, directors provided
detailed comments.
Independent Audit Limited provided a report, based on
responses to this questionnaire, They presented the results,
which were thoroughly discussed by the full board with a
particular focus on areas where the board might develop further.
Overall, the board effectiveness review was positive on the
following areas:
— the board’s response to COVID-19 and how it operated in a
virtual environment;
— board relations had strengthened during the year and board
members appreciate one another’s strengths;
— the board has continued to develop and strengthen its
oversight of the culture of the firm;
— the committees are working well and are chaired well.
Suggestions for improvement included:
— additional focus on the competitive landscape and the
implementation of the firm’s strategy
— advance the people agenda and continue to build on the firm’s
diversity initiatives
— continue to improve papers and information flow to the board.
The board will conduct an independent external evaluation
in 2021.
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Governance| In addition to the board evaluation process, the senior
independent director led a separate performance review in
respect of the chairman which involved a discussion with the
non-executive directors, excluding the chairman, and separate
consultation with the chief executive. The senior independent
director subsequently provided feedback to the chairman on his
appraisal which confirmed his effectiveness. The chairman also
conducted a performance review of each individual director,
holding one-to-one meetings to discuss contribution in and
outside the boardroom and any training and development needs.
Succession planning
The nomination committee is responsible for both executive
and non-executive director succession planning and
recommends new appointments to the board. When making
board appointments, the board seeks to ensure that there is a
diverse range of skills, backgrounds and experience, including
relevant industry experience. Further information is included
in the nomination committee report.
Board committees
Details of the work of the principal board committees are set out
in the separate reports for each committee, which follow
this report.
Accountability
The statement of directors’ responsibility for preparing the report
and accounts is set out at the end of this governance section.
Within this, the directors have included a statement that the
report and accounts present a fair, balanced and understandable
assessment of the group’s position and prospects. To help the
board discharge its responsibilities in this area, the board
consulted the audit committee, which advised on the key
considerations to comply with best practice and the Code’s
requirements. Following the committee’s advice, the board
considered and concluded that:
— the business model and strategy were clearly described
— the assessment of performance was balanced
— the language used was concise, with clear linkages to different
parts of the document
— an appropriate forward-looking orientation had been adopted.
The directors’ report on viability and the going concern basis
of accounting, which the directors have determined to be
appropriate, can be found in the strategic report, which
also describes the group’s performance during the year.
Risk management
In accordance with the Code, the board is required to monitor
the firm’s risk management and internal control systems on an
ongoing basis and carry out a review of their effectiveness and
report on this review to shareholders. Details of the company’s
ongoing process for identifying, assessing and managing the
principal risks, including any emerging risks, faced by the firm
are contained in the risk management section on pages 46-51,
together with details of those principal risks and their related
mitigating factors. Whilst the board retains overall responsibility
for the firm’s risk management and internal control systems, it
has delegated oversight to the audit and group risk committees.
The group’s financial controls framework is designed to provide
assurance that proper accounting records are adequately
maintained and that financial information used within the
business and for external publication is reliable and free
from material misstatement, thereby safeguarding the
company’s assets.
The board receives regular reports from the chairman of the
group risk committee and chief risk officer on the key risks facing
the firm that impact on operational and financial objectives.
This assessment is completed together with assurance that the
level of risk retained is consistent with and is being managed in
accordance with the board’s risk appetite. These reports include
current and forward-looking assessments of capital and liquidity
adequacy and a summary ‘risk dashboard’ is presented. Also,
during the year the board reviewed and approved the operational
risk assessment process for the 2020 ICAAP document, which
includes a capital assessment of financial, conduct and
operational risks.
The board assesses the effectiveness of the firm’s internal
controls on an annual basis and a report is provided for
consideration. The report is considered one element of the
overall assurance processes, and the board also considers other
sources, which include reports emanating from first line of
defence and second line of defence assurance teams, including
group compliance, anti-money laundering (AML), as well as
investment risk and information security.
A one-year risk-based approach drives internal audit coverage,
and, over the course of the year, review work by the function
covers all material controls across the firm including compliance,
operations and finance. The observations arising from this work
form the basis for the annual internal audit opinion.
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Corporate governance report continued
Relations with shareholders
The board is committed to proactive and constructive
engagement with the firm’s investors and is keen to develop
its understanding of shareholder views.
Effective communication with investors and analysts regarding
the firm’s strategy and performance is held through regular
meetings and roadshows by the chief executive and finance
director. The board receives and discusses shareholder and
analyst feedback at each board meeting. The chairman and
non-executive directors are available to meet with investors
at any time including at the AGM.
Investor relations activity in 2020 included the following:
— 2019 year-end results — UK investor roadshow and
analyst presentation
— Q3 trading update — analyst call
— AGM
— 2020 interim results — UK investor roadshow and
analyst presentation
— Investec Best Ideas Conference.
During 2020, the key areas which the chief executive and finance
director have discussed with investors included:
— performance expectations during COVID-19 environment
— Q1 and Q2 results
— resilience of the business
— S & J synergies
— M & A activity.
During the year, the chairman of the remuneration committee
contacted our top 20 shareholders to update them on our
proposed new remuneration policy and meetings were held with
those interested to discuss the proposed changes. We will also
continue to engage with ISS (Institutional Shareholder Services)
and the Institutional Voting Information Service (IVIS) of the
Investment Association, and Pensions & Investment Research
Consultants Ltd (PIRC), before the AGM.
Shareholder meetings
We welcome shareholders to our AGM in May each year. At every
AGM our shareholders are given an overview of the progress
of the business and outlook for the year. This is followed by
the opportunity for shareholders to ask questions about the
resolutions before the meeting and about the business more
generally. However, in the event that there are travel restrictions
in place, we plan to hold a closed AGM as we did in 2020.
Shareholders will be able to appoint a proxy and send their
questions to the Company Secretary before the meeting and
answer will be posted on our website.
Culture
The board recognises the importance that culture
and values play in the long-term success of the firm,
and the role of the board in monitoring and
assessing culture.
The board also acknowledges the importance of individual
directors, and the board as a whole, acting with integrity,
leading by example and promoting the desired culture. The
ongoing assessment of the contribution of culture and values
to the group’s long-term success remains a key focus for the
board and during the year a new culture dashboard was
developed based on key drivers which include leadership,
clients, people, attitude to change and interaction with
various stakeholders.
The board also spends time monitoring, and satisfying itself as
to, the alignment of the group’s purpose, values and strategy
with its culture. During the year, the board monitored,
assessed and promoted the group’s culture, including
in the following ways:
— half yearly review and discussion of the culture dashboard,
which included setting out an assessment of culture, conduct
metrics, across the firm focused on the key drivers
— regular updates to the board on external guidance and
insight on culture, including from regulators and industry
bodies, which are used by the board to benchmark the
group’s approach and plans
— discussing feedback received from employees across
the group in regular employee opinion surveys. This year,
surveys included specific questions in the areas of culture
and inclusivity, together with check-in surveys during the
COVID-19 pandemic on employee wellbeing
— receiving updates on activities across the group in relation to
culture and values, including employee training programmes
— consideration of culture, behaviour and conduct issues by
the Remuneration Committee on assessing the EIP award
to executives
— reviewing the group’s whistleblowing arrangements
by which employees can raise concerns in confidence
— regular direct engagement with employees as part of the
board’s workforce engagement programme, including site
visits and participation in employee meetings
— encouraging and enabling eligible employees to participate
in schemes to promote share ownership. Eligible employees
are able to participate in the group’s Save As You Earn
(“SAYE”) and Buy As You Earn (“BAYE”) schemes, which
provide cost-effective opportunities for employees to
acquire shares in the company.
The activities described above have allowed the board to
effectively monitor the group’s culture during the year and to
ensure that culture continues to be aligned with the group’s
purpose, values and strategy.
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Governance| Key drivers of our corporate culture
The board considers that there are a number of key drivers that work together to define the firm’s
culture. Below is an overview of the key areas of focus that are monitored and presented back to
the board in the form of a culture dashboard.
Our leadership
A leadership team that
is effective, balanced and
engages with the business
How we treat our clients
A strong emphasis on client
service and optimised outcomes
Our interactions with
our stakeholders/
society
Engaging with our
stakeholders responsibly
and positively impacting
our communities
Our interactions
with regulators
Maintaining open
relationships and meeting
regulatory expectations
Rathbones
Corporate
Culture
Our people
A highly effective,
collaborative and
engaged workforce
Our interactions with
our shareholders
Providing clarity and value
to our shareholders
Our attitude to risk control
The appropriate identification,
escalation and management of risk
Our attitude to change
Change in line with our strategy is delivered
and adapted across the business
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Corporate governance report continued
Workforce engagement with the board
Colin Clark and Sarah Gentleman are the two designated non-executive directors responsible for gathering
employee feedback. A workforce engagement framework was developed which built upon existing employee
engagement activities that have been in place and provide a range of opportunities to engage directly with
employees and receive feedback. The framework takes account of guidance and suggestions published by
the FRC in this area and is illustrated below:
Board
— listen to the views and feedback
of employees
— analyse the information
and take into consideration
inputs during its decision-
making process
— communicate key messages
and actions across the firm
Designated non-executive
directors (NEDs)
— be identified and accessible
to the workforce
— engage with segments of the
workforce on a quarterly basis
— communicate the workforce’s
feedback and messages to the board
— ongoing and regular dialogue with
group executive committee/chief
executive on workforce themes
arising from these initiatives
Workforce
engagement
structure
Workforce
— contribute to engagement
initiatives and provide
feedback to the board
— collaborate with the
board and NEDs on
implementing initiatives
— able to influence new
working practices and
processes across the firm
Management of
workforce programme
— review and analyse
workforce feedback
from various initiatives
— prepare and discuss findings
with designated NEDs and agree
recommendations for the board
— support in deliver of the annual
engagement programme
The board acknowledges the benefits of meaningful “two-way” engagement between the directors, the executive team and the
workforce. During the pandemic it was of paramount importance that the board ensured continuous engagement with our people
and a range of direct and indirect employee engagement activities were launched. A summary of these activities are provided below:
Annual
staff survey
Quarterly pulse
surveys
Board
branch visits
CEO
team visits
Virtual staff
townhalls
Numerous
NED drop-in
sessions with front
office and support
teams across the
country
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Rathbone Brothers Plc Report and accounts 2020
Governance| Following these workforce engagement initiatives, a summary of the key themes, and actions, in 2020 are detailed below:
Themes
Communications
Employee feedback
— Enable continuous
communications with colleagues
and rest of the business
Management response
— Ongoing and regular communication from the executive team
through regular virtual events on key areas of concern
— Regular ongoing board engagement and communication across
— Enable continuous
the firm
communication with our clients
— Introduction of the use of video conferencing tools to engage
Employee
wellbeing
with clients
— Focus on the health and safety
of our employees
— Support need to manage
mental wellbeing
— Support for flexible working to
balance work and life at home
— Regular employee update emails on wellbeing and tools
— Line managers training on wellbeing of employees
— Line managers encouraged and provided guidance to interface with
their teams by regular video/phone calls to support wellbeing
— Annual leave policy was reviewed and amended to enable people to
take time away from work more easily
Working at home
— Working effectively from home
— Enabling a return to the office
— Rapid up scaling of secure remote access was enacted
— Processes have been reviewed and redesigned to enable people to
during COVID-19
work effectively at home
Clients
— Communication with our clients
— Quality of service delivered to
our clients
— Maintaining client security
— Roll-out of software and hardware across the firm
— Dedicated team to address COVID-19 related questions
— Processes have been reviewed and redesigned to enable people to
continue serving clients without reducing controls and oversight.
Examples include (but not limited to):
— Enhanced client identity verification by phone introduced
— The use of video conferencing tools to engage with clients has been
evaluated and approved by Risk, Compliance, Cyber and IT
— Significant uplift in deployment of recorded mobile phones for client
facing employees
— Employees are regularly reminded about how to avoid data leakage,
stay within GDPR requirements and ensure client security
Learning and
development
— Provide support to new starters
during COVID-19
— Development of our people to
learn new skills
— Introduced mentoring programme across the firm
— Financial planning events for our people
— Offered wider online training courses
Strategy
— Impact of COVID-19 on our
strategy and the business model
— Key projects agreed pre-COVID have continued to progress
— Launched our ESG strategy to invest responsibly and encourage
greater engagement with our stakeholders
— Significant investment in technology
— Consideration being given to hybrid working in the future
Feedback from our Workforce Engagement Programme:
I thought it was a very positive thing to
do. Colin and Sarah seemed genuinely
interested in hearing people’s thoughts.
It was also a great opportunity for
people across different departments to
get to meet/see each other, even briefly,
and understand the challenges and
ideas of different areas of the business.
I felt that the board members were very open and
encouraging of everyone sharing their candid
views and opinions on the questions asked.
The directors were very open-minded and
welcomed both positive/negative thoughts.
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Group risk committee report
Group risk committee report
Group risk committee chairman’s annual statement
On behalf of the board, I am pleased to present the group risk
committee report as its chairman.
The Risk Committee’s principal roles and responsibilities are to
support the board in its oversight of risk management across the
group. The identification, management and mitigation of risk is
fundamental to the success of the group. The committee plays
an important role in setting the tone and culture that promotes
effective risk management across the group.
At the start of the year, the committee had a clearly defined
plan to continue embedding improvements to the firm’s risk
management infrastructure, systems and skills. There was
a renewed focus on monitoring the firm’s liquidity policy
for investment portfolios, investment process, suitability,
operational resilience and climate change risks. However,
following the government announced lockdown in March 2020,
the committee’s focus changed slightly to also include the
changing key risks facing the firm and mitigating management
actions to ensure the firm could continue serving its clients and
other stakeholders. Despite the numerous challenges posed
by the lockdown, which included equipping our colleagues to
work from home at short notice, I am pleased to report that our
response has been swift, efficient and robust. We are also seeing
the clear benefits of the investment made in recent years in
enhanced risk management systems, cyber defences and
management information. Throughout the crisis the committee
and the board have received regular and timely updates on
operations, liquidity and balance sheet risks and we are well
placed to meet the challenges and uncertainties ahead.
The following sections set out the committee’s membership,
its key responsibilities and the principal areas of risk upon
which we have focused during the year.
Committee meetings
Our current members are the independent non-executive
directors, who met formally on five occasions during the year
and, informally twice to review some of the inputs to key
regulatory reports. In addition to the members of the committee,
standing invitations are extended to the chairman, the executive
directors, the chief risk officer, the chief operating officer and the
head of internal audit. All attend committee meetings as a matter
of course and inform the committee’s discussions. Other
executive committee members and risk team members are
invited to attend the committee from time to time as required
to present and advise on reports commissioned.
I frequently meet with the chief risk officer in a combination
of formal and informal sessions throughout the year. I also
meet with senior management across all divisions of the group
including the risk and compliance division throughout the year
to discuss the business environment and to gather their views of
emerging risks.
Membership and attendance
Director
T L Duhon (chairman)
C Clark
J W Dean
S F Gentleman
J N Pettigrew
Meetings attended (eligible to attend)
5(5)
5(5)
5(5)
5(5)
4(5)
Roles and responsibilities
The key activities of the committee are to provide oversight
on the firm’s risk appetite and framework. To do this we:
— Review and discuss reports from the risk team on risk
appetite issues and advise the board accordingly
— Discuss significant loss events, complaints and near
misses, the lessons learned and management action taken
— Review end-to-end process risk assessments undertaken
and any resulting internal control enhancements
— Advise the board on the risk aspects of proposed major
strategic change
— The annual review of the remuneration policy this
year was delayed to 2021 given the significant
remuneration changes
— Review (prior to board approval) key regulatory
submissions including the Group Internal Capital
Adequacy Assessment Process (ICAAP) document
— Receive reports from first line risk owners on risk
management and improvements to controls and processes.
Full terms of reference for the committee are reviewed
annually and are available on the company’s website.
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Governance| Committee effectiveness
An evaluation of the committee’s effectiveness was undertaken
during the year as part of the internal board effectiveness review.
The review found that the committee operated well and ensured
that the firm’s risks were sufficiently analysed during the year.
In addition, the committee is satisfied that it has access to
sufficient resource to enable it to carry out its duties and
continue to perform effectively.
The committee has an agreed annual standing agenda to cover
key risk items in the year, which are required to be addressed in
accordance with the terms of reference. The committee always
starts with the chief risk officer’s report which covers the second
line risk view, followed by reports from management which give
the first line risk view. We then hear about financial risks, and
finally internal audit gives any thoughts at the end of the meeting
to cover the third line risk view. Prior to each meeting, I agree the
agenda with the chief risk officer and the company secretary to
identify key issues impacting on the firm that may require the
committee’s attention, which either become ad hoc agenda
items or standing agenda items depending on the issue.
The committee is also responsible for the inputs, outputs and the
process followed to produce the following key regulatory reports:
— Internal Liquidity Adequacy Assessment Process (ILAAP);
— Internal Capital Adequacy Assessment Process (ICAAP);
— Pillar 3; and
— Resolution and Recovery.
Committee activity in 2020
In addition to reviewing the risk register, emerging risks, investment risk programme progress, suitability
programme progress, contingency plans for Brexit and financial risks at each meeting, the list below
summarises the key issues that the committee considered at each of its meetings during the year in
addition to any other standing reports.
February 2020
— Review results of third party suitability review
— Review the firm’s cyber security plan
— Review the firm’s liquidity policy
— Review and attest firm’s business continuity
management framework
September 2020
— Discuss firm’s people risk profile
— Review and approve the 2020 recovery plan and
resolution pack
— Discuss ICAAP stress testing and the impact of COVID-19
— Review and approve ILAAP liquidity stress proposal
— Review of the firm’s change portfolio for the year
for 2020
May 2020
— Discuss and review 2020 ICAAP and ILAAP assumptions
— Review the approach towards vulnerable clients
— Review the cyber threats, risks and mitigation plans
— Review and consider the firm’s risk profile in the context
of COVID-19 impacts
June 2020
— Discussion and approval of the ICAAP operational
risk capital
— Review and consider the firm’s risk profile in the context
of COVID-19 impacts
— Discuss and review firm’s IT suppliers
— Discuss and review ICAAP capital stress testing model
— Discuss and review liquidity risk profiles
November 2020
— Approval of risk management policy statement
— Annual approval of the firm’s risk appetite statement
and risk taxonomy
— Discuss the strategic risk profile of the group
— Review pension risk profile
— Review insurance coverage of the group
— Review the updated cyber strategy
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Group risk committee report continued
Committee activity in 2020
Following the in-depth review of the risk management and
risk appetite frameworks last year, the risk function continues
to evolve with the three lines of defence model now well
established and a mature and effective risk management
framework in place. The risk design has been strengthened
further with both the recruitment and development of
additional skills and resource in 2020.
In light of COVID-19, the committee increased its focus on a
number of areas including human capital risk, controls and
processes, and the increased risk of fraud. Regarding human
capital risk the focus was on employee wellness, both mental
and physical. The committee received a spotlight report on this.
Regarding controls and processes, the focus was on the need
for review or adjustment given the new working from home
environment. Regarding fraud risk, the committee and the firm
continued their focus on cyber-crime during the year, as the
number of industry attacks continues to increase. This risk has
been mitigated by reinforcing the importance of strong cyber
defences to protect client data and assets. As a result, the firm
implemented a number of tangible standard operating processes,
developed key structures to support the firm’s response to
a cyber attack and organised regular specialist training for
members of staff. In addition, the committee receives
regular updates from the head of cyber security about
the implementation of the firm’s cyber strategy to
ensure this important risk is managed appropriately.
Notwithstanding the demands of the COVID-19 crisis, the
Committee has delivered on all of its planned objectives for
the year. In particular, the risk appetite framework continues
to evolve, as does the quantitative analysis that supports the
group’s risk management capabilities. This has allowed us
to adopt and refine risk appetite measures. In addition, the
committee has continued to review the firm’s suitability risks
and mitigating actions to ensure progress and continuous
improvement. At each meeting, a progress report was presented
by management that would be reviewed and challenged by
the committee.
Brexit continued to receive focus recognising that, given the
group’s footprint, these were likely to be secondary in nature.
Nevertheless, the firm continued to develop appropriate plans
given the additional complications posed by the concurrent
pandemic, with the committee being updated on status at
each meeting.
A number of areas of operational and financial risks were stressed
as part of the annual ICAAP and ILAAP. These conversations
were particularly robust given the market moves that occurred
at the beginning of the pandemic. Following extensive debate
and challenge, the committee and board were satisfied that the
group’s business model and allocated risk appetite remained
appropriate. This is an important outcome given not only the
pandemic, but also the number of change management
programmes underway across the group.
The committee also increased its focus on investment
risk throughout the year, looking at improved management
information, processes and governance enhancements. This
included providing oversight on the firm’s vulnerable clients
policy and its implementation across the firm, including
training for members of staff.
Finally, the links between culture, risk and remuneration are
fundamental. The risk committee and chief risk officer have
provided input to the remuneration committee to ensure
behaviours and the management of risk during the year
were considered in remuneration committee decisions.
Looking ahead to 2021
In reviewing the committee’s priorities for the coming year,
consideration will be given to the following areas:
— continued focus on the firm’s investment and
suitability processes
— continued focus on operational resilience
— oversight of the firm’s change programme
— oversight of the cyber and data security programme
— increased focus on climate change risk
— oversight of the refreshed conduct risk framework.
Terri Duhon
Chairman of the group risk committee
3 March 2021
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Governance| Audit committee report
Audit committee chairman’s annual statement
The audit committee’s key role is to ensure there is confidence in
the integrity of our processes and procedures as they relate to
internal financial controls and corporate reporting. The board
relies on the committee to review financial reporting and to
appoint and oversee the work of the internal and external auditors.
During 2020, the committee has continued to provide
independent scrutiny of the processes in place to monitor the
company’s financial and non-financial reporting. This included
oversight of the viability statement process and ensuring that
this report and accounts meets the criteria for fair, balanced
and understandable reporting. We have also overseen the
effectiveness of the firm’s systems of internal controls. In light
of the COVID-19 pandemic, there were regular internal reviews
with management, the auditor and the audit chair to understand
the challenges faced in delivering audited financial results.
The committee has considered a wide range of topics with a
focus on the following areas:
— analysis of the firm’s financial reporting with particular
consideration of accounting judgements made during the
preparation of the financial statements
— review of the firm’s client assets sourcebook (CASS) audit
and submissions
— defined benefit pension scheme assumptions
— Speirs & Jeffrey earn-out consideration
— review of the acquisition of the Personal Injury and Court of
Protection business of Barclays Wealth
— refocus of the internal audit plan to include rapid assurance
on control changes made to accommodate home working
— consideration of disclosures made relating to Brexit
and COVID-19.
Committee meetings
Our current members are the independent non-executive
directors, who met on seven occasions in 2020 (2019: seven).
The qualifications of each of the members are outlined in
the biographies on pages 81 and 82. The Committee brings a
diverse range of experience in finance, risk, control and business,
with particular experience in the financial services sector. The
composition of the committee satisfies the relevant requirements
of the UK Corporate Governance Code. The board has confirmed
that the members of the committee have the necessary expertise
required to provide effective challenge to management. The
board also considers that I have the appropriate recent and
relevant experience.
In addition to the members of the committee, standing
invitations are extended to the chairman, executive directors,
chief risk officer, head of internal audit, group financial controller,
and the external audit partner and manager. Other executives
and external advisers are invited to attend the committee
from time to time as required to present and advise on reports
commissioned. During 2020, the audit committee met with the
external auditor and head of internal audit without management
present. These meetings provided an opportunity for any matters
to be raised confidentially.
Membership and attendance
Director
J W Dean (chairman)
C M Clark
T L Duhon
S F Gentleman
J N Pettigrew
Meetings attended (eligible to attend)
7(7)
7(7)
7(7)
7(7)
6(7)
Roles and responsibilities
The key activities of the committee are as follows:
— Provide oversight of the firm’s financial performance
and reporting, announcement of results and significant
judgements areas
— Review the firm’s whistleblowing arrangements and
ensure appropriate and independent investigations
on matters
— Review the effectiveness of the firm’s internal controls
and of the internal audit function
— Oversee the appointment, performance and
remuneration of the external auditor, including
the provision of non-audit services to the firm.
Full terms of reference for the committee are reviewed
annually and are available on the company’s website.
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Audit committee report continued
During the year, I have regular meetings with the group finance
director, head of internal audit and the external audit partner to
discuss key audit-related topics ahead of each meeting.
The committee has an agreed annual standing agenda to ensure
key areas are covered during the year, which it is required to
address under its terms of reference. Prior to each meeting,
I agree the agenda with the company secretary.
Committee activity in 2020
Below is a summary of the key issues that the committee considered at each of its meetings during
the year.
January 2020
— Review of the report and accounts
— Review the year end areas of key judgements
and provisions
— Review of key corporate governance changes
and disclosures
— Assessment of going concern and the viability statement
— Review of internal audit plan and internal audit cycle
— Approval of ISAE3402 audit report
February 2020
— Approval of the report and accounts
— Assessment of the report and accounts being fair,
balanced and understandable
— Review of the firm’s distributable reserves and dividend
policy for 2020
— Year-end external audit report and audit opinion
— Review and approval of representation letter
— Review of external auditor’s letter of independence
April 2020
— Review and approval of the firm’s CASS submission
— Review and approval of the Q1 interim
management statement
— Review and approval of the external auditor’s letter
of engagement and audit fee
— Review of internal audit plan for 2020 and completed
assessments across the firm
— Ongoing review of the new internal audit co-source partner
July 2020
— Approval of half-year report for 2020
— Assessment of the firm’s statement of going concern
— External auditor’s half-year review
— Proposed external audit plan for the year end
— Review of the FRC external audit quality inspection report
— Annual review of audit and non-audit fee policy
— Updated internal audit plan for 2020 in light of
COVID-19 restrictions
— Approval of the internal audit charter
— Approval of committee’s terms of reference
October 2020
— Review and approval of the Q3 interim
management statement
— Review of internal audit plan for 2020 and completed
assessments across the firm
— Review of and input to the development of the
internal audit plan for 2021
— Annual review of the whistleblowing report
— Annual review of the whistleblowing policy
December 2020
— Review of key judgements and provisioning for the year end
— Review of audit and non-audit fees for the year
— Review of internal audit plan for 2020 and approval of the
2021 internal audit plan
— Review and approval of the firm’s ISAE3402 report
— Review of corporate governance changes for the year
January 2021
— Review of the report and accounts
— Review of key judgements for the annual report
— Review of Speirs & Jeffrey earn-out consideration
— Review of 2020 internal audit plan and 2021 internal
audit cycle
February 2021
— Approval of the report and accounts
— Assessment of going concern and the viability statement
— Assessment of the report and accounts being fair, balanced
and understandable
— Review of the firm’s distributable reserves and dividend
policy for 2021
— Year-end external audit report and audit opinion
— Review and approval of representation letter
— Review of external auditor’s letter of independence
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Governance| Committee effectiveness
The annual review of the effectiveness of the committee was
carried out internally during the year. The committee members
and executive directors were invited to respond to questions on
the content, management, quality and focus of discussion during
meetings. I am pleased that their responses indicated that the
committee is performing well with no areas of concern.
Financial reporting
Accounting judgements
As part of the committee’s role of monitoring the integrity of the
firm’s financial information contained in the interim and annual
financial statements, a review of key accounting judgements
and policies that were adopted by management was conducted
and assessed. Following discussion with management and
the external auditors, the committee concluded that these
judgements were appropriate and proportionate for the firm.
Details of these key significant judgements can be found in note 2
to the financial statements.
Impact of COVID-19
The Committee considered the impact of COVID-19 on the
financial sustainability and operational resilience of the business,
taking into account the additional stress testing completed as
part of the going concern and viability assessments. As a result
we reviewed our approach for the interim and year end
results and considered the following key areas of focus
for COVID-19 impact:
— Impairment of goodwill and client intangibles
— Market volatility and its impact on business performance
— Increased risk of fraud
— Going concern and viability
— Impact on operation of key controls over financial reporting
— Adequate disclosures in the Interim and Annual Report.
Fair, balanced and understandable statement
On behalf of the board, we reviewed the financial statements as
a whole in order to assess whether they were fair, balanced and
understandable. We discussed and challenged the balance and
fairness of the overall report with the executive directors and also
considered the views of the external auditor. During this review
we carefully considered the clarity and coherence of disclosures
made in respect of the impact of COVID-19 plus the consistency
of the narrative covering the wider impacts of the pandemic on
business performance and operational resilience. In addition, we
carefully reviewed the s172 statement and corporate governance
disclosures. We considered the overall presentation of the
financial statements and was satisfied that the Annual Report
could be regarded as fair, balanced and understandable and
proposed that the board approve the Annual Report in
that respect.
Viability and going concern
The committee considered the requirements contained in the
Code regarding the company’s viability statement, including
the proposed three-year assessment period. After significant
discussion, and having considered the firm’s current position
and impact of potential risks, the committee concluded that the
three-year assessment period continued to be appropriate and
recommended the viability statement (as set out on page 51) to
the board for approval. The committee also reviewed the going
concern disclosure (as set out on page 129) and concluded that
the firm had adequate resources to continue in operational
existence for the foreseeable future and confirmed to the board
that it was appropriate for the firm’s financial statements to be
prepared on a going concern basis.
The carrying value of assets
We reviewed the methodology for valuing assets where a
significant amount of judgement is required, including intangible
assets, particularly goodwill and client relationships.
Impairment of goodwill
We challenged management’s goodwill impairment calculations
to ensure mechanical accuracy. This challenge also looked at
sensitivity analysis to assess the risk whether reasonably possible
changes to the assumptions used by management could give rise
to an impairment. Following discussion with management, we
decided not to impair any of the firm’s goodwill.
The valuation of defined benefit pension obligations
Following the triennial valuation of the pension schemes,
we reviewed the key assumptions supporting the valuation of
defined benefit pension obligations, particularly salary increases,
investment returns, inflation and the discount rate, which are
disclosed in note 4 to the financial statements. We reviewed
the professional advice taken by the company and discussed
the assumptions used by us and by other companies with the
external auditors. We satisfied ourselves that the assumptions
used were reasonable and consistent with the requirements
of IAS19.
Speirs & Jeffrey consideration
Following the first trigger date of the earn out payment, we
reviewed the relevant calculations as well as the key assumptions
supporting the forecast of the qualifying FUM for the second
trigger date. In particular, we reviewed and challenged the
estimated level of qualifying funds under management
transfer to the firm as this was a significant judgement area
for management that would lead to a wide range of potential
payouts. We asked management to review the earn-out
consideration in light of COVID-19 which was challenged by
the committee. Additionally, Internal Audit tested the earn out
calculations and reported independently on the results of this
work to the committee.
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Audit committee report continued
Acquisition of the Personal Injury and Court of Protection
business of Barclays Wealth
In April 2020, the firm completed its acquisition of the Personal
Injury and Court of Protection business of Barclays Wealth.
The transaction meets the definition of a business combination
under IFRS 3 and the committee concluded that there was no
impairment required on either the client relationship intangible
or the goodwill balance held as at 31 December 2020. Also, the
committee reviewed and challenged the earn-out arrangements
and it was determined that these costs could be capitalised under
IFRS 15 as these payments were deemed to be incremental and
a direct cost of the transaction.
Per its policy, the committee reviews annually the effectiveness
of the internal audit function and its level of independence. The
evaluation for the year under review was completed internally
and supported by feedback from stakeholders across the group.
The internal audit function was operating in line with the
Chartered Institute of Internal Auditors’ standard. In addition, the
committee ensures the internal audit function has appropriate
resources and it provides effective assurance to the firm.
As well as meetings with management, I have regular meetings
on a one-to-one basis with the head of internal audit before audit
committee meetings to ensure that any concerns can be raised
in confidence.
Provisions and contingent liabilities
The committee discussed provisions totalling £8.7 million, which
have been summarised in note 26 to the financial statements.
The main areas of provisions related to the Speirs & Jeffrey
acquisition, deferred payment for acquired business and
client compensation.
Internal audit
Internal audit function
The internal audit function is an independent and objective
team designed to add value and improve the firm’s operations
by bringing a systematic and disciplined approach to evaluating
and improving the effectiveness of risk management, control
and governance processes. The internal audit function is the
third line of defence within the controls framework, providing
independent assurance to both senior management and the audit
committee. EY, our co-source partner were appointed in 2019. Its
role is to assist with audits which require specialist knowledge
and provide support to the internal audit planning process.
Reporting and performance review of internal audit
The committee has authority to appoint or remove the head
of internal audit, who reports directly to the chairman of the
committee. During the year, the committee reviewed the tenure
of the firm’s head of internal audit and concluded that, because
it exceeded seven years, a succession plan was required for this
role. As a result, a new head of internal audit was appointed and
the committee will provide oversight of an orderly handover in
2021. The chairman of the committee sets the objectives of the
head of internal audit, appraising her performance against
those objectives and recommending her remuneration to the
remuneration committee, with advice from the chief executive.
Internal audit effectiveness
Following the EY review of the effectiveness of the internal
audit function last year, the committee ensured any areas of
improvement had been implemented. Also, the Annual Internal
Audit Assessment, which found the governance and risk and
control framework of the group to be generally effective, was
reviewed by the committee in accordance with the Chartered
Institute of Internal Auditors’ guidance.
Internal audit plan
The Committee reviewed, challenged and approved the internal
audit plan for the year, and supported the introduction of a more
agile and thematic audit planning approach. This methodology
has facilitated flexibility to provide assurance over controls
impacted by COVID-19 and the internal audit function’s ability
to meet ad hoc requests from the committee and the business.
In reviewing the audit plan, the committee continued to assess
the level of internal audit resource and the appropriateness of
the skills and experience of the internal audit function. Ongoing
feedback on the performance of the co-source provider was
presented to the committee throughout the year. The committee
received regular reports on internal audit activities across the
group, detailing areas identified during audits for strengthening
across the group’s risk management and internal control
framework. 48 audits were delivered during the period under
review. These were summarised by the head of internal audit
at each of the committee’s meetings.
External audit
Audit work 2020
The committee has spent significant time with Deloitte during
the year. In particular, the committee reviewed and challenged
reports from Deloitte, which outlined their risk assessments and
audit plans for 2020 (including their proposed materiality level
for the performance of the annual audit), the impact of COVID-19
on their audit, and issues arising from it. Particular focus was
given to their testing of internal controls, their work on the key
judgement areas and possible audit adjustments. Given COVID-19
and its impact on the audit work, Deloitte enhanced their audit
procedures in respect of understanding the impact on the design
and operating effectiveness of internal controls on which they
planned to place reliance, as a result of moving to remote working.
This year’s statutory audit is Manbhinder Rana’s second year
as the audit partner and also Deloitte’s second year as auditors.
The committee confirms that the Group has complied with
the Statutory Audit Services for Large Companies Market
Investigation (mandatory use of competitive tender processes
and Audit Committee Responsibilities) Order 2014, which
requires FTSE 350 companies to put their statutory audit
services out to tender no less frequently than every ten years.
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Rathbone Brothers Plc Report and accounts 2020
Governance| External audit effectiveness and appointment
We place great importance on the quality, effectiveness, and
independence of the external audit process. In order to review
the external audit process, including the performance of the
external auditors, feedback is gathered from both committee
members and management. This process was undertaken by
internal audit. We also reviewed the annual FRC Audit Quality
Inspection report prepared on our external auditor and
discussed this report with the audit partner.
Auditor independence and non-audit services
We discussed the independence of the external auditor, the
nature of non-audit services supplied by it and non-audit
fee levels relative to the audit fee. As a result of the EU Audit
Directive and Audit Regulations, the non-audit services policy
was updated and approved. The revised policy includes
prohibited services and sets a fee guide that aims to achieve
a cap of 70% of the statutory audit fee in any year by 2022
following the appointment of a new auditor. The committee’s
prior approval is only required where the fee for an individual
non-audit service is expected to exceed £50,000 and it is on
the list of pre-approved services.
Non-audit fees, excluding services required by national
legislation, payable to the auditor in 2020 were £178,000.
This represents 33% of the three-year average statutory audit
fee of £536,000.
Whistleblowing policy
I act as the group’s Whistleblowing Policy champion. The group
continues to place a high priority on employees’ understanding
of the process to enable them to speak out with confidence when
appropriate. Historically, the committee has overseen the group’s
whistleblowing arrangements, but this responsibility was
transferred to the full board in line with the new Corporate
Governance Code.
Looking forward
As well as considering the standing items of business, the
committee will also focus on the following areas during 2021:
— the induction and transition of responsibilities to the new
chief internal auditor
— regular review of the Internal Audit Plan to ensure it responds
to control changes as the COVID-19 pandemic evolves and
working practices respond accordingly.
Approval
In light of its work, the committee was content with the
effectiveness of the group’s processes governing financial and
regulatory reporting and internal controls, its ethical standards
and its relationships with regulators.
This report, in its entirety, has been approved by the committee
and the board of directors and signed on its behalf by:
Prior to undertaking any non-audit service, Deloitte also
completes its own independence confirmation processes,
which are approved by the engagement partner. To provide the
committee with oversight in this area, it submits six-monthly
reports on the non-audit services it has provided.
James Dean
Chairman of the audit committee
3 March 2021
Following a formal assessment of the external auditor’s
independence and objectivity, the committee concluded
that Deloitte continued to be independent and objective.
We agreed the external auditor’s fees (which are shown in note 8
to the financial statements) and reviewed the audit engagement
letter. We also had discussions with the external auditor with no
management present to provide an opportunity for any concerns
to be raised and discussed.
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Nomination committee report
Nomination committee report
Nomination committee chairman’s
annual statement
This report sets out an overview of the committee’s roles and
responsibilities and its key activities during the year.
The nomination committee’s primary focus this year has been
on succession planning, taking an active role in overseeing talent
management and various diversity initiatives. The committee
plays an increasingly broad role in ensuring the effective operation
and development of the board, the executive team and the wider
workforce. All are important in the delivery of our strategy.
Chairman succession
As stated in last year’s report, I will be retiring from the board
as I have served over nine years as a director, which exceeds
the tenure requirements of the UK corporate governance code.
The nomination committee duly appointed a sub-committee
(of which I was not a member) to lead the appointment process.
The sub-committee, in consultation with the chief executive,
prepared and approved a detailed specification for the role of
chairman which included the skills, experience, knowledge
and characteristics required to lead the board.
As part of the search process, the sub-committee decided to
engage an external search firm and approved the appointment of
Sapphire Partners (“Sapphire”). Sapphire are not connected to the
company in any way and are a signatory to the voluntary code
of conduct for executive search firms. To facilitate this process,
Sapphire undertook detailed discussions with each member of
the board in order to seek their views on the desired attributes,
experience and qualities for the role of chair as well as board
dynamics and the company’s culture.
A detailed search was conducted by Sapphire, as a result of which
a long list of candidates was prepared from which a shortlist of
potential candidates was derived. Shortlisted candidates were
discussed in detail and interviews were undertaken by Sapphire,
members of the sub-committee and the chief executive.
Following detailed discussions and careful consideration, the
sub-committee concluded and recommended to the board that
Clive Bannister be appointed to the board with effect from 12
January 2021 as a non-executive director and assume the role
of chairman, subject to regulator approval, with effect from the
conclusion of the 2021 Annual General Meeting, when I will step
down from the board. This recommendation was approved by
the board and announced on 12 January 2021.
Board succession
As part of its ongoing consideration of non-executive succession
planning, the committee led the search to identify a successor to
Jim Pettigrew as senior independent director as Jim indicated his
intention not to seek re-election at the 2021 AGM. Following a
rigourous process, on the recommendation of the committee,
the board has appointed Colin Clark to take on the role of senior
independent director, subject to regulatory approval.
Membership and attendance
Director
M P Nicholls (chairman)
C M Clark
J W Dean
T L Duhon
S F Gentleman
J N Pettigrew
Meetings attended (eligible to attend)
2(2)
2(2)
2(2)
2(2)
2(2)
2(2)
Roles and responsibilities
The responsibilities of the committee include reviewing the
composition (including the skills, knowledge, experience
and diversity) of the board and making recommendations
to the board for the appointment of directors. The board
as a whole then decides on any such appointment.
The committee also has wider responsibilities for
succession planning and the leadership needs of the
organisation, both executive and non-executive, to
ensure the continued ability of the firm to implement
its strategy and compete effectively in the marketplace.
Full terms of reference for the committee are reviewed
annually and are available on the company’s website.
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Governance| Talent and succession planning
The committee spent time during the year reviewing our talent
pipeline and considering the firm’s succession planning at board
and senior management level. This included a formal review
by the committee of senior management succession planning,
looking at the capability and potential of incumbents in key roles
and the succession pipeline, emergency cover arrangements and
external market for those roles. In addition, talent management
and succession planning for roles below board level has
continued to be an important focus for the committee. Once
again this year, it has monitored activities and initiatives to
develop the group’s talent pipeline and improve gender and
other diversity among senior management. The committee
reviewed the skills and experience of the non-executive
directors to ensure that the board continues to be able to
perform its role effectively.
Diversity
In relation to board diversity, we aim to have a board that
represents a wide range of skills and experiences and we value
a diversity of outlook, approach and style. A balanced board is
better equipped to consider matters from a broader perspective,
understanding the views of our shareholders as well as other
stakeholders and therefore makes decisions that fully take into
consideration a wide range of issues. A board needs a range of
skills and experience including knowledge of industry, culture of
the firm, challenges of change, and the regulatory environment
we operate in. It needs some members with a long corporate
memory and others who bring fresh insights from other fields
and backgrounds. There needs to be both support and challenge
on the board as well as a balance of gender and commercial
experience. When selecting new board members, we take these
factors into account as well as professional background. A new
board member needs to work well with their fellow colleagues
but also to be able to provide constructive challenge.
Throughout 2020, over 33% of our board was female which
ensures that we have exceeded the minimum requirements
of the Hampton-Alexander review. However, the committee
recognises that, due to the relatively small size of the board,
the appointment or departure of a single director can have a
significant impact on its ability to achieve recommendations in
relation to the composition and diversity of the board as a whole
at a particular point in time. The committee recognises that there
is more to do in other areas, such as ethnicity and socio-
economic background.
The committee expanded its remit last year to oversee certain
policies and practices across the wider workforce and this
includes monitoring our talent pipeline to ensure we have a
diverse succession pool. Diversity is more than just gender-based
and the committee considers this important issue in the wider
context, considering ethnicity and social and educational
background. Among other things, the committee discussed
the group’s approach to recruitment, training and development
programmes for employees across the group and management’s
work with diversity and inclusion campaign groups. The
committee believes that a wide range of experiences,
backgrounds, perspectives, skills and knowledge combine to
contribute towards a high performing organisation which is
better able to support and delivery the firm’s strategy. During
the year, the committee has ensured that the firm’s diversity
and inclusion framework was a key element of the people
section of our strategy.
In line with the UK Corporate Governance Code, the committee
discloses that the gender balance of those in senior management
(being the members of the Executive Committee and the
company secretary) and their direct reports at 31 December 2020
was 25% female and 75% male. More detail on the firm’s approach
to diversity and inclusion can be found in the Responsible
Business Report on pages 60 to 62.
Our board
Board
composition
Board
diversity
Board
tenure
Chairman
Executive directors
Independent non-executive directors
12%
25%
63%
Male
Female
5
3
0-2 years
3-5 years
6-8 years
9+ years
rathbones.com
33%
33%
17%
17%
101
Nomination committee report continued
Non-executive directors’ skills
As mentioned above, a key responsibility of the committee is to
ensure that the board maintains a balance of skills, knowledge
and experience appropriate to the operation of the business
and as required to deliver the strategy. During the year, the
committee considered and was satisfied by the skillset and
experience of the firm’s independent non-executive directors,
including their extensive experience in financial services.
Independence and conflicts of interest
It is of the utmost importance that the board of a financial
services firm has high-quality, experienced non-executive
directors with the skills and integrity to undertake senior
positions. At Rathbones, we are fortunate to have such non-
executives. I maintain a dialogue with each of them on potential
conflicts of interest and time commitments. I am quite satisfied
that in each case any conflicts of interest are likely to be rare
and will be handled appropriately by the individual concerned.
Membership and meetings
The committee’s membership was unchanged during the
year. The composition of the committee satisfies the relevant
requirements of the UK Corporate Governance Code. In addition,
the chief executive and group finance director attend meetings
by invitation.
Board effectiveness review
A formal and rigorous evaluation of the committee’s
effectiveness was undertaken during the year as part of the
internal board effectiveness review. The review found that the
committee operated well during the year. Please see page 86 for
more detail.
Looking forward
I look forward to working with Clive on a smooth and successful
transition. The committee will continue to keep under review a
succession timetable for both executives and non-executives.
We will continue to monitor the development of management
talent below group executive committee level, encourage greater
diversity, and challenge management to develop the talent that
exists in the firm.
Mark Nicholls
Chairman of the nomination committee
3 March 2021
102
Rathbone Brothers Plc Report and accounts 2020
Governance| Remuneration committee report
Remuneration committee chairman’s
annual statement
On behalf of the board, I am pleased to present the directors’
remuneration report for the year ended 31 December 2020.
2020 has been an extraordinary year due to COVID-19 and
the impact it has had on the firm, and also on the decisions
of the remuneration committee. Nevertheless, the committee
continued with its usual activities during the year and, in light of
CRD V which become effective on 1 January 2021, we undertook
an extensive review of the remuneration policy. This review was
conducted to ensure that our remuneration policy remained fit
for purpose, aligned to our business strategy, and supported the
interests of shareholders and clients.
As part of this process, we wrote to and consulted with our top 20
shareholders and I had the opportunity to meet with a number
of them to discuss our proposed revisions to our remuneration
policy that will apply for the next three years. Their feedback
has been very helpful in informing the committee’s view.
2020 performance and remuneration outcomes
Our remuneration framework is closely aligned with the financial
performance of the group, which has performed resiliently in
2020 despite the volatility in investment markets and FUM
reached £54.7 billion at 31 December 2020 and profit before
tax was £43.8m with an underlying operating margin of 25.3%.
Consequently, these financial outcomes are directly reflected in
the respective elements of the Executive Incentive Plan (“EIP”).
Positive progress was made during the year on the non-financial
objectives which cover critical project performance, stakeholder
measures and client experience. We have set out in more detail
the EIP results for 2020 on page 120.
Executive Incentive Plan (EIP) outcomes
The EIP performance metrics are chosen by the committee as
key indicators of performance used by the firm and investors.
The committee reviews the specific metrics on an annual basis
at the beginning of each financial year to ensure the nature and
weightings are appropriate to ensure alignment between the
interests of our executive directors, our strategy and the interests
of our stakeholders. These targets are set to encourage stretching
levels of performance and to align with the firm’s annual budget.
The board considered a number of factors when setting
and approving the final budget for 2020. This resulted in the
remuneration committee approving a profit target balancing
expected investment market conditions with the impact of
planned investments which were critical to the execution of
our strategy. As a result, and as stated at the launch of our new
strategy in 2019, our underlying operating margin target range
was consistent with mid-twenties market guidance. A reduction
in our net organic growth target was felt to be more realistic, and
the committee were comfortable that these targets were equally
as stretching as those in previous years. The three-year financial
targets which were disclosed in 2018 and, account for half of the
overall award, remained unchanged. In addition, good progress
was made during the year on the non-financial objectives which
address the firm’s critical projects, stakeholder measures and
client experience.
Membership and attendance
Director
S F Gentleman (chairman)
C M Clark
J W Dean
T L Duhon
M P Nicholls
J N Pettigrew
Meetings attended (eligible to attend)
5(5)
5(5)
5(5)
5(5)
5(5)
4(5)
Roles and responsibilities
The committee’s responsibilities are to:
— Determine and set the firm’s remuneration philosophy,
ensuring that it is aligned with the business plans and
risk appetite
— Approve the remuneration policy for executive
directors for final approval by shareholders and
make remuneration decisions within the policy
— Approve total annual remuneration for executive
directors based on achievements against objectives
set by the committee
— Review total annual remuneration for executive
committee members and material risk takers
Full terms of reference for the committee are reviewed
annually and are available on the company’s website.
rathbones.com
103
Remuneration committee report continued
Given the strong alignment between our remuneration
framework and the financial performance of the firm, the
financial outcomes for 2020 are directly reflected in the
respective elements of the EIP. As explained in last year’s
directors’ remuneration report, we had to make some
adjustments to our statutory results for EIP purposes in order
to fairly reflect the S&J transaction. In summary, the board
approved that the acquisition be de-risked by ensuring a
substantial proportion of the consideration paid for S&J was
deferred and subject to the sellers remaining in employment.
This meant that the deferred consideration was treated as an
expense in the profit and loss accounts rather than as a capital
payment and was therefore at odds with the commercial
substance of the transaction. As a result, the basic earnings per
share (EPS) and return on capital employed (ROCE) figures have
been adjusted to fairly reflect this situation, exactly as outlined
last year. There have been no further adjustments to the EIP.
The EIP vesting outcome for 2020 was 56.7% (2019: 47%) which
reflects the financial measures and overall business performance
for the year. We have set out in more detail the EIP results for
2020 on page 120.
A new remuneration policy for 2021
The current remuneration policy has worked well over the past
three years. In particular, it has consistently delivered incentive
pay outs that have been well aligned to performance, and to the
experience of our shareholders. However, as we indicated in last
year’s report, the committee have spent time during the year
considering the impact of CRD V which became effective for our
business from 1st January 2021. This regulation will impact the
business in a number of ways but the clear implication for our
remuneration policy is that our incentives must be reduced
from a 300% cap to no more than 200% of fixed pay (subject
to shareholder approval).
In line with our now established three-year cycle, a new
remuneration policy is being put forward to our shareholders
for approval at our AGM in May 2021. In setting this policy,
the priorities for the committee have been to ensure that
remuneration structures and performance measures:
— support the future strategy of our business, reflecting the
need for investment at different times in the market cycle
and the opportunities for inorganic growth that may arise;
— align the reward received by our executive directors and
the experience and interests of our shareholders;
— continue to comply with regulations and industry
best practice.
Proposed changes to our remuneration policy
A summary of the proposed changes to our remuneration policy
is detailed below:
Fixed pay:
— consolidated fixed pay to include the current pension
allowance of 12%, with no increases in the absolute level
of fixed pay;
Annual bonus:
— maximum opportunity of 135% of fixed pay
— at least 60% of the award will be based on financial measures.
For 2021, the financial measures will be underlying profit
before tax and growth with equal weighting applied to
these measures
— the remainder of the award will be focused on strategic
measures that are determined by the committee each year
— 50% of the award will be deferred in shares for three years.
Restricted Stock Plan (RSP):
A maximum and normal grant of 65% of fixed pay with a
three-year vesting and an additional two year holding period.
The award vests subject to the assessment of robust performance
underpins, over a three year period.
Rationale for change
The committee considered a wide range of alternative structures
as well as taking into account the external environment on pay,
shareholder views and feedback from the business and
participants. In considering these factors, a summary of the
committee’s key rationale for proposing the above structure
is as follows:
— Simple structure: Alignment to Rathbones strategy where a
simpler structure, with an annual award of shares, is the most
effective way to align the pay of executives with the long term
returns for shareholders.
— No increase in fixed pay: A key principle for the committee
was that total pay should be broadly maintained at target,
when moving from an EIP with a 300% of salary maximum,
to a new 2:1 cap under CRD V. With this principle in mind,
and in support of the recognition by executive directors
of the sensitivities of salary increases in this environment,
introducing an RSP enabled us to balance these considerations
without making any increases to fixed pay.
— Quantum: In determining appropriate quantum for the bonus
and RSP, we started with the current quantum of the short
term and long term elements of our EIP. We used the quantum
of the short term element for the annual bonus and applied a
discount of 50% on the long term element to determine the
RSP quantum. This results in a 6% drop in total pay at target,
and an 18% drop at maximum.
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Rathbone Brothers Plc Report and accounts 2020
Governance| — Alignment with long-term performance: As a wealth
management business there is a strong link between the
performance of Rathbones and the wider equity markets. The
committee felt that an RSP structure, and a high shareholding
(including post-employment), would be a more effective way
of aligning the remuneration of executives with shareholder
returns. A de-leveraged structure with long term shareholdings
was felt to better align executives with long term performance.
— RSP Underpins: The use of performance underpins allows the
committee to assess whether performance justifies the vesting
of each tranche of awards. The underpins selected allow the
Committee to assess performance, taking into account returns
to shareholder via dividends, core financial performance
(through ROCE), any operational factors (which could include
any aspect of overall profitability) as well as any risk/
compliance factors.
The committee are confident that the changes to the new
Remuneration Policy will support the long term growth and
success of Rathbones and are therefore in shareholders’ best
interests. The committee strongly believes that the proposed
Remuneration Policy:
— simplifies the overall remuneration structure, materially
lowers the maximum potential value of remuneration, as
well as moderately reducing the total remuneration at target
— protects against any “payment for failure” through the selection
of robust performance underpins
— allows the executive directors to be nimble in the
implementation of the strategy.
The company consulted extensively with major shareholders
and their representative bodies on remuneration issues,
including the development of this new directors’ remuneration
policy. The consultation was well received by investors and their
feedback helped inform the final scheme design. While we did
not consult explicitly with employees on this new policy, the
committee took account of remuneration policies elsewhere
in the group.
Fees and salaries
The 2021 budget for salary increases for employees across the
firm was set at around 1.5%, no increases are being made for
executive directors in 2021. This means that neither executive
director has received a fixed pay increase since their
appointment to their current roles in early 2019. The committee
will continue to keep fixed pay levels under review, taking into
account workforce pay and policies as per the Code, the firm’s
performance and the views of shareholders. In conducting any
review of fixed pay levels the committee will take into account
the continued development of both executives since their
appointment. The remuneration arrangements of other firms
of similar size and complexity are also reviewed for guidance.
The chairman’s fee was also reviewed during the year and it
is proposed to increase it in 2021 as it had not been changed
since 2018.
Full details of remuneration arrangements are provided
on page 118.
Conclusion
I hope that you find the information in my annual statement
and the directors’ remuneration report clear and useful. The
remuneration landscape continues to be the subject of many
political and regulatory policy changes and, as these evolve,
the committee will ensure that our policy and practices remain
compliant, balancing the need to remain performance-driven and
competitive. I welcome any feedback you may have during the
year and hope to receive your support for the approval of the
remuneration report.
I would like to thank shareholders for the support they have
given this year, and I hope you will recognise and approve of the
substantive changes that have been made and support our 2020
DRR at the 2021 AGM.
Sarah Gentleman
Chairman of the remuneration committee
Our new remuneration policy will have immediate effect, subject
to approval from our shareholders.
3 March 2021
Full details of the proposed changes to our policy are set out
below, with further details presented on pages 112 to 116.
rathbones.com
105
Remuneration committee report continued
Remuneration summary for 2020
The below sets out a summary of our EIP outcomes for 2020, for further information see page 118
Executive Incentive Plan
performance targets
Executive Incentive Plan
achievement summary 2020
One-year financial
(30% of award)
— Underlying profit before tax
compared to the budget
— Net organic growth in funds under
management and administration
compared to the target
— Underlying operating profit
margin compared to target range
Three-year financial
(50% of award)
— Compound annual growth in
EPS over three years
— Average underlying ROCE over
three years
Non-financial metrics
(20% of award)
— Performance relating to delivery
of strategic objectives
— Assessed and approved by
remuneration committee
Annual profit before tax
Total net organic growth
Underlying profit margin
Non-financial
strategic measures
% of award
Achieved
10%
10%
10%
10%
10%
8%
20% 15.6%
EPS growth
Underlying ROCE average
% of award
Achieved
25%
25%
6.4%
6.7%
One-year
measures
Three-year
measures
Remuneration outcomes (£’000)
5
6
9
,
1
3
9
3
,
1
8
5
3
,
1
8
1
3
,
1
4
3
9
2
1
9
4
3
5
8
5
3
Paul Stockton
Jennifer Mathias
Minimum
Target
Maximum
Actual
106
Rathbone Brothers Plc Report and accounts 2020
Governance| Proposed remuneration policy
The diagram below illustrates how our proposed Remuneration Policy will operate. Pages 112-116 set out how
this differs from our current Policy. In summary the proposed Policy:
– Reduces the proportion of variable pay in order to comply with the 2:1 cap under CRD V
– Increases the proportion of variable pay delivered in shares
– Reduces total pay at target (by 6%) and at maximum (by 18%)
– Consolidates and simplifies fixed pay, with no change in absolute levels
Illustration of proposed policy
Pre grant
cond’s
Shares
(100%)
Performance
underpin
Shares
2 year holding
period
Shares
Shares
Shares
Shares
(50%)
Cash
(50%)
RSP
(65%
fixed)
Bonus
(135%
fixed)
Fixed
pay
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Summary of proposed policy:
— Annual bonus – with one year
performance conditions; and
— Restricted Stock award with
minimum performance underpin.
1) Bonus Award
— 135% of fixed pay at maximum
— 50% in cash, 50% deferred into
shares with 3 year pro-rata vesting
— Assessed against financial metrics
(minimum 60%) and non financial
metrics (maximum 40%).
2) Restricted Share Award
— 65% of fixed pay annual grant
— Three year vesting period with
a 2 year holding period
— Vesting based on continued
employment and underpin conditions
designed to avoid payment for failure.
Overview of change in quantum vs current Policy
Illustration of impact of changes for CEO
Current
as % salary
Current
as % fixed pay
Formuliac 50%
discount on long
term element
Final Proposal
150%
150%
134%
134%
134%
67%
135%
65%
t
n
e
r
r
u
C
d
e
s
o
p
o
r
P
Target
477
57
859
Maximum
477
57
1,431
Target
Maximum
534
534
433
347
721
347
0
75%
150%
225%
300%
0
500
1,000
1,500
2,000
Short term measures
Long term measures
Bonus
RSP
Base
Pension
EIP
Fixed pay
Bonus
RSP
rathbones.com
107
Remuneration committee report continued
Directors’ remuneration policy
The directors’ remuneration policy (“Policy”) outlined below is proposed for shareholder approval at the AGM in
May 2021, it will apply for a period of three years from the date of the 2021 AGM unless a revised Policy is put to
shareholders before then.
Fixed pay
Purpose and
link to strategy
The core, fixed
component of the
package designed to
enable the recruitment
and retention of high-
calibre individuals.
Benefits
Purpose and
link to strategy
Benefits are typically
provided to directors to
be generally consistent
with other employees
and to complement the
remuneration package
to ensure that it is
sufficiently competitive.
Operation
Opportunity
Fixed pay is reviewed annually on
1 April and is compared to fixed
pay (consisting of base salary +
pension) levels in other
companies of similar size and
complexity to ensure that a
competitive rate is being paid.
Adjustments may be made at
other times to reflect a change
of responsibility.
There is no maximum fixed pay,
but percentage increases will
normally be no higher than the
general level of increase for the
wider employee population,
unless there are special
circumstances such as a material
change of responsibilities or
where a salary is significantly
below market median and is
being brought into line.
Operation
Opportunity
Benefits make up a
small percentage of total
remuneration costs.
Benefits are set by the committee
and may include, for example:
— private medical insurance for
directors and their dependants
— death in service cover
— Share Incentive Plan free
and matching shares
— Save As You Earn scheme
— annual medicals
— limited legal and professional
advice on company-related
matters
— relocation costs.
Applicable
performance
measures
Not applicable.
Recovery
Not applicable.
Applicable
performance
measures
Not applicable.
Recovery
Not applicable.
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Rathbone Brothers Plc Report and accounts 2020
Governance| Annual Bonus
Purpose and
link to strategy
The Annual Bonus
rewards short term
performance through
the achievement of
corporate and individual
goals and aligns the
interests of shareholders
and directors through
the use of deferral.
The performance
measures as described
have been selected to
support the controlled
delivery of our business
strategy as set out in the
strategic report.
Opportunity
The maximum
Annual Bonus
award is 135%
of fixed pay.
Target
performance is
60% of maximum.
Threshold
performance is
25% of maximum.
Operation
Up to 50% of the Annual
Bonus is paid in cash
and the remainder (at
least 50%) is deferred
into Rathbones shares,
which vest over a
three year period
in equal tranches
of 1/3 per annum.
The committee
may award dividend
equivalents on deferred
shares in respect of
dividends declared
during the deferral
period. If dividend
equivalents cannot
be awarded due to
regulations, the number
of deferred bonus
shares to be awarded
may be based on a
share price discounted
by reference to an
expected dividend yield
over the vesting period.
The committee retains
discretion to make
changes to the Annual
Bonus if required by
regulations including
but not limited to the
amount deferred, length
of the deferral period,
proportion paid in
instruments such as
shares or funds and
introduction of
holding periods.
Recovery
All unvested awards
will normally lapse on
termination of office unless
the termination was as a
“good leaver”. A ‘good’
leaver is a director who
leaves on retirement, due
to ill-health or disability, on
the sale of the business or
in any other circumstances
where the committee
determines good leaver
treatment is appropriate.
Treatment for a good
leaver is defined below
Malus and/or clawback can
be applied at any time up
to 7 years from the date of
grant in the case of share
awards and 7 years from
the payment of cash on
cash awards. The vesting
schedule for the share
awards is 1/3 per annum
over 3 years.
Malus and/or clawback
can be applied in certain
specified circumstances
including: gross
misconduct, material
misstatement of results,
where there has been
an error relating to the
determination of variable
pay, material adverse
event as determined by
the committee, material
failure of risk management,
reputational damage, or
corporate failure.
Applicable
performance measures
The Annual Bonus is
based on the remuneration
committee’s assessment of
financial and non-financial
performance against a
balanced scorecard of
measures, which are aligned
to the company’s strategy.
No less than 60% of the
Annual Bonus will be based
on financial measures. The
remainder will be based on
non-financial performance
measured against
strategic objectives.
The performance metrics and
range of outcomes for each
financial measure are set
by the committee and
reviewed annually.
Additional considerations
The remuneration committee
may make an adjustment
when determining the level of
the Annual Bonus, including
to zero if appropriate, to
take account of any of the
following material events:
— underlying financial
performance
— risk management
or regulatory
compliance issues
— personal performance
The remuneration committee
may also make an adjustment
when determining the level of
vesting of deferred shares if
there is a material downturn
in financial performance.
This ability to override
formulaic outcomes when
determining bonus outcomes
is in addition to the malus
and/or clawback provisions
to adjust awards.
rathbones.com
109
Remuneration committee report continued
Restricted Stock Plan (RSP)
Purpose and
link to strategy
The RSP provides a
simple structure to
align the interests
of shareholders and
directors in creating long
term shareholder value.
Recovery
All unvested awards
will normally lapse on
termination of office unless
the termination was as a
“good leaver”. A ‘good’
leaver is a director who
leaves on retirement, due
to ill-health or disability, on
the sale of the business or
in any other circumstances
where the committee
determines good leaver
treatment is appropriate.
Treatment for a good
leaver is defined below
Malus and/or clawback can
be applied at any time up
to 7 years from the date
of grant.
Malus and/or clawback
can be applied in certain
specified circumstances
including: gross
misconduct, material
misstatement of results,
where there has been
an error relating to the
determination of variable
pay, material adverse
event as determined by
the committee, material
failure of risk management,
or corporate failure.
Operation
Opportunity
The maximum
RSP award is 65%
of fixed pay.
The committee
will review
performance prior
to grant, taking
individual and
overall business
performance into
account. Subject
to satisfactory
individual
and business
performance the
typical grant
will be 65%
of fixed pay.
Awards are
granted based
on satisfactory
personal and
group financial
performance in
the year prior
to grant.
The committee
has the discretion
to adjust the
number of shares
vesting taking into
account business,
individual and
wider company
performance.
An annual award of
Rathbones shares,
which vest after three
years subject to
achievement of an
underpin. An additional
holding period of at
least two years will
apply following vesting.
Notional dividends
accrued on RSP awards
to the extent that the
underpin is met, may
be delivered as shares
or cash at the discretion
of the committee at
the same time as the
delivery of vested
shares. If dividend
equivalents with respect
to the vesting period
cannot be awarded
due to regulations, the
number of shares to
be awarded may be
based on a share price
discounted by reference
to an expected dividend
yield over the vesting
period.
The committee has
the discretion to make
changes to its RSP
policy where required
under regulations
including but not
limited to the length
of the vesting period
and retention period.
Applicable
performance measures
The RSP is not subject to any
performance measures but
based on the remuneration
committee’s assessment of
performance relative to
an underpin.
The committee will take into
account the following factors
(amongst others) when
determining whether to
exercise its discretion to
adjust the number of
shares vesting:
— total dividends paid relative
to our generally progressive
dividend policy;
— return on Capital Employed
(ROCE) achieved relative to
Weighted Average Cost of
Capital (WACC) over the
performance period; and/or
— maintenance of satisfactory
operational performance
and risk compliance
and internal control
environments over the
performance period.
Additional considerations
The remuneration committee
may make an adjustment
when determining the level
of vesting of the award,
including to zero if
appropriate, to take account
of any material downturn in
financial performance. This
ability to override formulaic
outcomes when determining
RSP outcomes is in addition
to the malus and/or clawback
provisions to adjust awards.
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Rathbone Brothers Plc Report and accounts 2020
Governance| Shareholding requirements
In order to align the interests of executive directors and shareholders, the executive directors are required to acquire and retain a
holding in shares or rights to shares equivalent to the value of 250% of fixed pay for the CEO and 200% of fixed pay for the CFO within
five years of the date of appointment. Shares that count towards these guidelines include shares that are owned outright, vested and
not exercised EIP, SIP and RSP awards and unvested deferred bonus awards. Awards count towards the shareholding requirement on
a notional net of tax basis if relevant.
In addition a post-cessation shareholding requirement applies. Executive directors are required to hold 100% of the in employment
requirement (or the executive’s actual shareholding on cessation if lower) for two years following cessation. This requirement can be
disapplied in certain exceptional personal circumstances (e.g. death or disability).
Chairman and other non-executive directors
Base fee
Purpose and
link to strategy
To enable the
recruitment of high-
calibre non-executive
directors with the
appropriate skills
and experience.
Operation
Opportunity
Base fees are reviewed
annually by the board on
1 April and are compared
to fees in other
companies of similar
size and complexity to
ensure that the market
rate is being paid.
Adjustments may be
made at other times
to reflect a change of
responsibility. Fees
are paid in cash.
The base fee for the
chairman in 2020 was
£180,000. This was
increased to £195,000 on
1 January 2021. The base
fee for the other non-
executive directors in
2020 was £60,000. This
was retained at £60,000
on 1 January 2021.
Applicable
performance measures
Recovery
Not applicable.
Not applicable.
Additional responsibility fee
Purpose and
link to strategy
To recognise the
additional responsibility
involved in chairing a
committee (audit, group
risk and remuneration)
or being the senior
independent director.
Operation
Opportunity
Additional responsibility
fees are reviewed
annually by the board
on 1 January.
The additional
responsibility fee
remained unchanged
and payable at £15,000
per annum.
Applicable
performance measures
Recovery
Not applicable.
Not applicable.
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111
Remuneration committee report continued
Key changes to the remuneration policy
A summary of the proposed changes to our policy is provided below:
Fixed remuneration
Salary
Pension
Benefits
Current policy
Reviewed annually on
1 January. % increases
are normally in line
with wider workforce.
Maximum 12% of
base salary
Additional benefits set by
the committee and make
up a small percentage of
total remuneration costs.
Variable remuneration
Proposed policy
Previous pension allowance
(of 12% of salary) is consolidated
with base salary into a single
fixed pay figure.
No separate pension allowance
is provided.
No change.
Rationale
To simplify the operation of our remuneration
structure, given pensions are awarded as a cash
allowance and the current rate of 12% is already
aligned with the wider workforce. This also allows
us to demonstrate compliance with the 2:1 cap
on variable.
Not applicable.
Maximum
opportunity
Current policy
Maximum opportunity
of 300% of base salary
(equivalent to 268% of
fixed pay).
Proposed policy
Annual bonus – Maximum
opportunity of 135% of fixed pay
RSP – Maximum opportunity of
65% of fixed pay.
Deferral
60% of the EIP award
deferred over a five-year
period, vesting in equal
tranches per annum.
Annual bonus – At least 50% of
the annual bonus is deferred
over a three-year period, vesting
in equal tranches per annum.
RSP – Award vests after three
years and subject to an additional
two-year holding period.
Performance
measures
No less than 70% of the
EIP will be based on
financial measures.
The remainder will be
based on non-financial
performance measured
against strategic
objectives.
Target pay-out is 60%
of maximum.
Annual bonus – No less than 60%
of the Annual Bonus will be based
on financial measures. The
remainder will be based on
non-financial performance
measured against strategic
objectives.
Target pay-out is 60%
of maximum.
RSP – Vesting of the award is
subject to achievement of
an underpin.
Rationale
Separating our current incentive into two distinct
elements is more in line with market practice. The
Annual bonus replaces the short term element of
our previous EIP structure and the RSP replaces the
long term element.
This approach allows the committee to respond
to variable pay cap under CRD V (UK banking
regulations) through deleveraging the current
package rather than increasing fixed pay.
The same short-term quantum of our previous EIP
structure is maintained and the long-term quantum
of our previous EIP structure is reduced by 50%.
Under our previous EIP structure, deferring a
significant portion into shares is a key element
of the current package that should be maintained.
The committee believes the RSP provides a simpler
and strategically aligned approach to the Rathbones
business model. Bonus deferral in combination with
a significantly reduced long term award of restricted
shares provided direct alignment to shareholders
returns over the longer term. In all performance
scenarios a greater proportion of variable pay
is delivered in shares than under our
current structure.
This maintains the same short-term element of our
previous EIP structure as a standalone incentive
whilst assessing performance against stretching
one-year targets.
As an Investment and Wealth Management
company the very nature of our business model
requires us to deliver returns to our clients. At the
same time our performance as a business is heavily
influenced by the markets with challenges in
forecasting over a longer period. We believe robust
one year measures are the best way to assess
managements performance.
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Rathbone Brothers Plc Report and accounts 2020
Governance| Variable remuneration continued
Current policy
Proposed policy
Performance
measures
(continued)
Leaver
provisions
Malus/
clawback
Default approach is that
all unvested awards are
forfeited for a bad leaver,
and vest in full at the
normal time for a
good leaver.
Applies at any time up to
seven years from grant
of shares.
Bad leaver provisions
remain unchanged.
Good leavers will receive a
pro rata award
Applies at any time up to seven
years from grant of shares with
enhanced malus/clawback
trigger events.
Other
Shareholding
requirements
Current policy
200% of base salary within
five years of appointment.
Retain 200% of base salary
in the first year post-
cessation and 100% of
base salary in the second
year post-cessation.
Proposed policy
Increased shareholding from
200% of base salary to 200% of
fixed pay (250% of fixed pay for
the CEO) to be maintained for
two years post cessation.
Rationale
Our growth strategy is based on growing both
organically and inorganically through acquisitions.
This provides significant complexity to both our
long term targeting setting and assessment of
outcomes, as seen most recently with S&J. Moving
to an RSP structure ensures that management are
accountable for the success an failure of any M&A
through the absolute returns to shareholders rather
than based on adjustments to incentive targets.
The comprehensive underpin allows the committee
to assess performance and reduce the vesting
(including to nil) for material adverse outcomes,
taking into account returns to shareholder via
dividends, core financial performance (through
ROCE), any operational factors (which could
include any aspect of overall profitability)
as well as any risk/compliance factors.
To align with best practice
To align with emerging best practice.
Rationale
To align with emerging best practice and to increase
alignment with shareholder interests.
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113
Remuneration committee report continued
Potential remuneration received under the
proposed remuneration policy
— Fixed Pay levels are £534,000 for CEO and £358,000 for the
Finance Director. Benefits are included at the same value as
paid in 2020.
— Target opportunity includes fixed pay, 60% of maximum
bonus (81% of fixed pay) and 100% vesting of RSP
(65% of fixed pay).
— Maximum opportunity includes fixed pay, 100% of maximum
bonus (135% of fixed pay) and 100% vesting of RSP (65% of
fixed pay).
— Maximum opportunity with 50% share price growth includes
maximum pay and 50% share increase on RSP shares over the
vesting period.
Chief Executive (£'000)
Minimum
Target
Maximum
Maximum
+50% share
price growth
534
2
2
£536
534
2
433
347 £1,316
534
2
534
2
721
347 £1,604
721
521 £1,778
0
500
1,000
1,500
2,000
Fixed pay
Benefits
Annual Bonus
Restricted Stock Plan
Finance Director (£'000)
Minimum
358
1 £359
Target
358
1
290
233
£882
Maximum
Maximum
+50% share
price growth
358
1
483
233 £1,075
358
1
483
349 £1,191
0
500
1,000
1,500
2,000
Fixed pay
Benefits
Annual Bonus
Restricted Stock Plan
Definition of performance metrics
The Annual Bonus performance metrics chosen by the
committee are key indicators of performance used by the
business and shareholders. Financial measures incentivise the
delivery of strong financial performance for our shareholders in
the relevant financial year, whilst non-financial measures link
executive performance to the delivery of key strategic initiatives
and projects that support the firm’s business plan. For the 2021
Annual Bonus, performance metrics will be profit before tax,
FUMA growth and strategic measures which are the three core
KPIs. The committee reviews the specific choice of performance
metrics for the Annual Bonus on an annual basis at the beginning
of each financial year to ensure that the nature and weighting
of these remain appropriate to ensure alignment between the
interests of our executive directors, our business strategy and the
interests of our clients and shareholders. Further details on how
the specific choice of measures for the 2021 Annual Bonus links
to our strategic goals is provided in the At a Glance section above.
The targets for these measures are considered annually by
the committee and are set to encourage stretching levels of
performance without inadvertently motivating inappropriate
behaviour. Rathbones will prospectively disclose the targets
on a retrospective basis as these are considered
commercially sensitive.
The use of discretion
The committee may make minor amendments to the policy set
out above (for regulatory, exchange control, tax or administrative
purposes or to take account of a change in legislation) without
obtaining shareholder approval for that amendment. In relation
to the new plan, the committee retains discretion when selecting
participants, determining the treatment of leavers, agreeing
the timing of awards and reviewing the balanced scorecard of
performance measures, targets and weightings. The committee
reserves the right to retrospectively adjust performance
measures and targets if events (for example, a major acquisition)
make them inappropriate. Adjustments will not be made to make
the conditions materially easier to satisfy.
The committee reserves the right to make any remuneration
payments, and payments for loss of office (including exercising
any discretions available to it in connection with such payments)
notwithstanding that they are not in line with the policy set out
above, where the terms of the payment were agreed (i) before
the policy came into effect or (ii) at a time when the relevant
individual was not a director of the company and, in the opinion
of the committee, the payment was not in consideration for
the individual becoming a director of the company. For these
purposes ‘payments’ include awards of variable remuneration
and, in relation to an award over shares, the associated terms
‘agreed’ at the time the award is granted.
Consultation
The company consulted extensively with major shareholders
and their representative bodies on remuneration issues,
including in the development of this new directors’ remuneration
Policy. While we did not consult explicitly with employees on
this new Policy, the committee took account of remuneration
policies elsewhere in the group.
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Rathbone Brothers Plc Report and accounts 2020
Governance| Appointment of new directors
For new executive and non-executive directors, the structure of
the package offered will mirror that provided to current directors
under the new directors’ remuneration policy. The package
quantum will depend on the role and the experience and
background of the new director. Advice from our remuneration
consultants will be taken to ensure that the package is in line
with median market levels for companies of similar size and
complexity. Any future variable award will be made within the
135% maximum for Annual Bonus and 65% maximum for RSP
(subject to shareholder approval).
The company may pay compensation to new directors for
remuneration the individual has forfeited in order to take up the
role with Rathbones. Rathbones will ensure that these awards
are no more generous in either amount or terms than the awards
they replace. These awards may be structured differently from
awards made under our standard directors’ remuneration policy
in order to best reflect the remuneration being forfeited.
Non-executive directors have a letter of appointment rather than
a contract of employment and these are available for inspection
at the AGM. As with all other directors, they are required to stand
for re-election annually in accordance with the UK Corporate
Governance Code. The effectiveness of the non-executive
directors is subject to an annual assessment. Any term beyond
six years is subject to particularly rigorous review and takes into
account the need for progressive refreshing of the board. The
executive directors are responsible for determining the fees
of the non-executive directors.
Non-executive director
M P Nicholls
C M Clark
J W Dean
T L Duhon
S F Gentleman
J N Pettigrew
Date of appointment
01 Dec 2010
24 Oct 2018
01 Nov 2013
02 Jul 2018
21 Jan 2015
06 Mar 2017
Notice period
1 month
1 month
1 month
1 month
1 month
1 month
Length of service at
31 December 2020
10 years
2 years
7 years
2 years
5 years
3 years
Service contracts and letter of appointment
It is company policy that service contracts should not normally
contain notice periods of more than 12 months. Details of the
notice periods in the contracts of employment of executive
directors serving during the year are as shown below.
Payments for loss of office
Compensation payments will be determined on a case-by-case
basis in the light of current market practice. Compensation will
include loss of salary and other contractual benefits (as stated
above), but mitigation will be applied where appropriate.
Executive director
R P Stockton
J E Mathias
Date of contract
01 May 2019
27 Sept 2018
Notice period
12 months
6 months
Any entitlement to Annual Bonus, deferred shares and RSP
awards will depend on whether the individual is treated as
a good or bad leaver, in line with the table opposite.
There are no provisions within the contracts to provide
automatic payments in excess of payment in lieu of notice
upon termination by the company and no predetermined
compensation package exists in the event of termination of
employment. Payment in lieu of notice would include fixed
pay and benefits. There are no provisions for the payment of
liquidated damages or any statements in respect of the duty of
mitigation. In the event of entering into a termination agreement,
the board will take steps to impose a legal obligation on the
director to mitigate any loss incurred. There are no clauses in
contracts amending employment terms and conditions on a
change of control. Executive directors’ contracts of service, which
include details of remuneration, are available for inspection at
the company’s registered office and will be available for
inspection at the AGM.
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115
Remuneration committee report continued
Status
Good leaver Leave for reasons including
Definition
retirement, ill health, sale
of the business and any
other reason as the
committee determines.
Treatment
Annual Bonus will be awarded pro-rata in the year of departure, subject
to performance.
All unvested deferred shares will be delivered in line with the existing vesting
schedule. The committee has the ability to accelerate vesting to the date of
departure in certain exceptional circumstances (e.g. death or disability)
The default approach is that all unvested RSP awards will vest at their normal vesting
date, subject to the assessment of the underpin and pro-rated for time served. Under
the rules of the plan the committee has the ability to accelerate vesting and/or
disapply pro-rating in exceptional circumstances.
No RSP awards will be made in the year of departure, unless the committee decides
otherwise at its absolute discretion.
Annual Bonus will not be awarded in the year of departure.
All unvested awards will normally lapse.
Bad leaver
Leave for other reasons
unless the committee
determines otherwise.
Other directorships
The board believes that the firm can benefit from experience
gained when executive directors hold non-executive
directorships. Executive directors are permitted to hold
external appointments and to receive payments provided
such appointments are agreed by the board in advance, there
are no conflicts of interests and the appointment does not
lead to deterioration in the executive’s performance.
Consideration of remuneration across the firm
The committee provides oversight of remuneration structures
across the firm, including members of the group executive
committee, material risk takers and the risk and compliance
teams. In addition, the committee reviews on an annual basis
total remuneration costs across the firm in light of its short
and longer term financial targets and ongoing sustainability.
The committee is well aware of the remuneration structures
across the firm and takes these into consideration when
taking decisions on remuneration for executive directors.
Consideration of shareholders’ views
The remuneration committee has consulted extensively with
shareholders and proxy advisors during 2020, in developing this
Remuneration Policy. The committee greatly values engagement
with our shareholders and their views have been taken into
account in finalising the design of the Policy presented here.
Legacy arrangements
Authority is given to the committee to honour previous
remuneration awards or arrangements entered into with current
or former directors (such as the payment of a pension or the
unwinding of legacy share schemes). Details of any payments
will be set out in the annual report on remuneration as they arise.
Difference between directors’ remuneration policy
and other employees
All employees, including executive directors, benefit from fixed
and variable pay, pension and non-cash benefits. The company
operates a number of variable remuneration schemes within
the group, some fully discretionary, others with mechanistic
elements in addition to a discretionary element. Membership of
such schemes is defined by status and job type. Only executive
committee members are eligible to benefit from the RSP awards.
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Rathbone Brothers Plc Report and accounts 2020
Governance| Annual report on remuneration
This part of the directors’ remuneration report explains how we
have implemented our remuneration policy during the year. This
annual report on remuneration is subject to an advisory vote at
the 2021 AGM, and the financial information in this part of the
remuneration report has been audited where indicated.
chairman, the chief executive and finance director attend some
or all of each meeting. The chief risk officer also advises the
committee on matters relating to remuneration, and attends
meetings as required. The company secretary acts as secretary
and, with the chairman, agrees the agenda for each meeting.
Role of remuneration committee
The role of the committee is to set the overarching principles of
the remuneration policy and provide oversight on remuneration
across the firm. Details of the committee’s responsibilities and
composition are noted above. At the invitation of the committee
At the end of each meeting, there is an opportunity for private
discussion between committee members without the presence
of management. No committee member or attendee is present
when matters relating to his or her own remuneration
are discussed.
Committee activity in 2020/21
Below is a summary of the key issues that the committee considered at each of its meetings during
the year.
February 2020
— Review information on wider workforce pay including
salary budgets and forecast incentive outcomes
— Review annual risk report on variable pay targets to
ensure alignment with the firm’s risk appetite
— Assess and approve the 2019 EIP award for executive
directors and members of the executive committee
— Review and approve EIP performance targets for 2020
— Review and approve the directors’ remuneration report
for shareholder approval
September 2020
— Annual review of the remuneration policy statement
— Propose new remuneration structures for executive
directors and initiate a shareholder consultation
— Review progress against financial and non-financial EIP
targets for the current year
December 2020
— Discuss shareholder feedback following consultation on
the proposed changes to the firm’s Remuneration Policy
— Review and approve executive director, GEC members’
— Finalise and approve the firm’s proposed
and Company Secretary’s salaries for 2021
Remuneration policy
April 2020
— Annual review of remuneration for material risk takers
across the firm
— Review the implications of CRD V on the firm’s
Remuneration policy
— Review and discuss shareholder and proxy agency feedback
on the directors’ remuneration report
— Review progress against financial and non-financial EIP
targets for 2020
— Review and approve the committee’s terms of reference
— Re-appointment of the advisers to the committee
February 2021
— Review information on wider workforce pay including
salary budgets and forecast incentive outcomes
— Review regulatory developments on remuneration and their
— Review and approve executive director, GEC members’
implications for the firm
July 2020
— Review of Executive Director Remuneration policy
— Review remuneration of Material Risk Takers in the firm
and company secretary’s salaries for 2021
— Review annual risk report on variable pay targets to
ensure alignment with the firm’s risk appetite
— Assess and approve the 2020 EIP award for executive
directors and members of the executive committee
— Approve annual bonus performance targets for 2021
— Review and approve the directors’ remuneration report
for shareholder approval
rathbones.com
117
Remuneration committee report continued
Single total figure of remuneration for each executive director (audited)
The table below sets out a single figure for the total remuneration received by each executive director for the year ended 31 December
2020 and the prior year:
Taxable
benefits and
allowances
£’000
Salary
£’000
Other
£’000
EIP award for the
year – cash
£’000
EIP award for the
year – unvested
deferred shares
£’000
Pensions
£’000
SIP
£’000
SAYE
£’000
Total
£’000
Total
fixed pay
£’000
Total
variable pay
£’000
R P Stockton
2020
2019
J E Mathias1
2020
2019
477
441
320
240
3
2
4
1
–
–
–
50
325
248
218
135
487
373
327
203
57
53
38
29
4
4
–
–
5
4
5
–
1,358
1,125
912
658
537
496
362
320
821
629
550
338
1.
In 2019, Jennifer Mathias received a £50,000 award as part of her appointment in lieu of forfeiting a cash bonus from her previous employer on joining the firm. She received no further
buy-outs as part of her appointment.
Taxable benefits
Taxable benefits and allowances represent the provision of private medical insurance for executive directors and their dependants
and contractual travel expenses for the executive directors.
Executive Incentive Plan
The Executive Incentive Plan (EIP) was approved by shareholders at the 2015 AGM and subsequently at the 2018 AGM. The overall
maximum award level achievable under the existing policy is 300% of base salary, with 60% of awards made in deferred shares,
which must be held for a minimum period of five years.
Executive Incentive Plan award 2020
Performance is assessed using a combination of measures that are detailed below:
One-year financial
Three-year financial
Non-financial strategic
Total
Weight % % of base salary
90
150
60
300
30
50
20
100
1) One-year financial
The one-year financial performance measures are three key performance indicators actively used by the business, which are closely
aligned to strategy. The one-year financial measures and achievement levels are provided below:
% of base salary
Threshold 75% of
base salary
On target 180%
of base salary
Maximum 300%
of base salary
Actual
Speirs & Jeffrey
adjusted
Weighted payout
(% of base salary)
Financial one-year
Annual profit before tax (£m)
Total net organic growth in funds under
management and administration (%)
Underlying operating margin (%)
30.0
30.0
30.0
90.0
61.3
2.0
23.5
68.1
2.5
24.1
74.9
3.0
26.5
43.8
3.0
25.3
76.1
3.0
25.3
30.0
30.0
24.0
84.0
The organic growth in funds under management and administration covers both our Investment Management and Funds businesses.
2) Three-year financial
The three-year financial performance measures and achievement levels are provided below:
% of base salary
Threshold 75% of
base salary
On target 180%
of base salary
Maximum 300%
of base salary
Actual
Speirs & Jeffrey
adjusted1
Weighted payout
(% of base salary)
Financial three-year
EPS growth (% CAGR)
ROCE average (%)
Total one- and three-year financial
75.0
75.0
150.0
240.0
5.0
14.0
10.0
17.0
15.0
20.0
(18.8)
14.4
5.1
14.2
19.2
20.1
39.3
123.3
1. The adjustments for Speirs & Jeffrey are disclosed on page 104, and in further detail in report and accounts 2018 directors’ remuneration report. The key adjustment impacting the EIP
outcomes for 2020 is the costs in relation to deferred consideration payable to the sellers of Speirs & Jeffrey. As a means of de-risking the transaction, these payments are subject to the
sellers remaining in employment until the end of the deferral period and are therefore treated as an expense under accounting standards. For the purposes of assessing the EIP, costs of
£24.1million have been reclassified as a capital item (as if paid upon completion of the transaction), to more fully reflect the commercial substance of the transaction
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Rathbone Brothers Plc Report and accounts 2020
Governance| 3) Non-financial strategic
The non-financial strategic measures are designed to drive strategic goals. Details of the performance measures, assessment and
outcomes are detailed below:
Strategic objective
Client and
Advisor
proposition
Objective
— Development and launch of
the firm’s MyRathbones portal;
— Developing the firm’s
ESG proposition;
— Successful launch of
Rathbones Select;
— Growth of the firm’s
research capability.
Delivering
Growth
Inspiring our
People
— Continued growth of Rathbone
Unit Trust Management,
distribution and, Vision
Independent Financial Planning;
— Actively manage investment
management team capacity;
— Launch of the advisor to
advisor proposition.
— Launch the firm’s values and
redesign the performance
management framework;
— Refreshed the firm’s recruitment
process and diversity plans;
— Develop the firm’s future talent
and initiate the graduate
recruitment programme.
Extent to which
objective has been met
Largely
achieved
Partially
achieved
Achieved
Performance in 2020
— MyRathbones portal was launched on schedule,
for new clients and those in selected offices;
— The firm’s ESG investment propositions were
advanced during the year and the ESG data projects
were implemented;
— Rathbones Select was launched during the year although
slightly behind schedule.
— Redesign of the Research team was completed,
with material recruitment and expansion of the team.
The research universe was expanded considerably,
and material used extensively during the pandemic.
— 24 new investment managers were added in 2020.
— The Funds business had an exceptional year with gross
inflows of £3.5bn compared to of £2.3bn of inflows in
2019. Vision continued to grow during the year achieving
FUM of £2.2bn compared to £1.9bn in prior year;
— Net organic growth, excluding Funds, was below target
— Fund growth and delivery of integration targets in
respect of the acquired S&J business were on track;
— Successfully launched the advisor to advisor service
with non-RUTM distribution flows c.50% of target.
— Staff engagement survey score was 91% (2019: 86%).
There were material improvements in most categories
including change and communication;
— The firm’s values were embedded across the firm via a
refreshed appraisal process. This resulted in a thorough
talent assessment/succession planning throughout
the business;
— An assessment of the firm’s talent pool was completed
and the new Graduate Academy was completed for 2020
with a 60:40 female/male gender split, which supports
wider diversity goals and targets;
Operating
Efficiently
— Implement changes on
client on-boarding;
— CPO appointed and team reorganisation completed.
— Analogue Mifid 2 on-boarding process launched in line
Achieved
with plan;
Risk
Management
— Implement a progressive IT
platform and deliver smaller
change initiatives;
— Create an improvement road map
for operational processes.
— Maintain all services and operations in home
working environment;
— IT change activity completed on budget and schedule;
— IT stability significantly increased resulting in a
reduction in events requiring action.
— Ongoing momentum on
— Redesigned suitability governance and the suitability
Achieved
suitability and improvements
in documentation quality;
— Refresh SMR regime;
— Conclusion of legacy
operational issues;
— Proactive review of investment
risk management.
management committee;
— SMR framework reviewed and updated;
— Successfully managed legacy operational matters with
no significant new risk issues in the year;
— Liquidity reviews completed and risks managed on an
ongoing basis, which were fully reported to the group
risk committee with no concerns raised.
rathbones.com
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Remuneration committee report continued
Total 2020 EIP award
In addition to the above specific measures, the committee also considered direct client feedback, investment performance and other
feedback from the risk and audit committees. After taking this into account, the committee concluded that an overall score for this
element of the EIP of 15.6% out of 20% was appropriate, which corresponds to 46.8% of base salary.
Target
Financial — one-year total
Financial — three-year trailing
Non-financial strategic measures
Total award
Director
R P Stockton
J E Mathias
Weighting
30%
50%
20%
100%
Award achieved
28.0%
13.1%
15.6%
56.7%
Total award
(£)
811,377
544,320
Delivered in cash
(£)
324,551
217,728
Deferred in shares
(£)
486,826
326,592
Pensions
Paul Stockton and Jennifer Mathias are paid a cash allowance of 12% of salary and neither are in receipt of a defined benefit pension.
All executive directors are eligible to participate in the Rathbone 1987 Scheme for death in service benefits.
Share Incentive Plan (SIP)
This benefit is the value of the SIP matching and free share awards made in the year. All employees may contribute up to £150 per
month to buy partnership shares with contributions matched on a one-for-one basis by the company. Free share awards are linked
to EPS growth.
Save As You Earn (SAYE)
This benefit is the value of the discount on SAYE options granted during the year.
Payments for loss of office (audited)
There were no payments made to directors for loss of office during the year except as disclosed in last year’s annual report.
Payments to past directors (audited)
There were no payments made to directors for loss of office during the year.
Implementation of the remuneration policy in 2021
Subject to being approved by shareholders at the 2021 AGM, the remuneration policy on pages 107-116 will apply. The Committee
intends to implement this policy as follows:
Fixed pay
No fixed pay increases. Fixed pay levels for 2021 are £534,000 for the CEO and £358,000 for the group finance director.
Fixed pay will next be reviewed at 1st January 2022, in line with the Policy.
120
Rathbone Brothers Plc Report and accounts 2020
Governance| Annual bonus
Annual bonus for 2021 will have maximum value of 135% of fixed pay with measures and weightings as follows:
Financial
– Underlying Profit Before Tax
– Total net organic growth in FUM
Strategic measures aligned to our core strategic pillars:
– Enriching the client, adviser proposition & experience
– Supporting and delivering growth
– Inspiring our people
– Operating more efficiently
– Risk management
Weight % of base salary
30%
30%
40%
40.5%
40.5%
54%
100%
135%
The targets under the financial metrics are deemed to be commercially sensitive and will be disclosed following the end of the
performance period in next year’s DRR.
RSP
The RSP will be granted following the AGM (subject to approval) at 65% of fixed pay. The RSP will vest after three years, subject to
the assessment of a performance underpin at the end of 2023. The Committee will take into account the following factors when
determining whether to exercise its discretion to adjust the number of shares vesting:
— total dividends paid over the three year period relative to our generally progressive dividend policy;
— return on Capital Employed (ROCE) achieved relative to Weighted Average Cost of Capital (WACC) over the three year period;
— maintenance of satisfactory operational performance and risk compliance; and
— internal control environments over the performance period.
Directors’ interests in shares (audited)
The table below sets out details of the directors’ shareholdings and outstanding share awards that are subject to vesting conditions:
Executive directors
R P Stockton
J E Mathias
Total
Beneficially owned shares
Subject to relevant holding period
Private shares
83,641
–
83,641
SIP1
3,350
–
3,350
Total
86,991
–
86,991
EIP
49,233
13,233
62,466
SIP (not yet
beneficially
owned)1
686
–
686
SAYE
1,658
1,658
3,316
Total
51,577
14,891
66,468
1. SIP matching and free shares held for less than three years may be forfeited in certain circumstances and so are not considered to be beneficially owned
rathbones.com
121
Remuneration committee report continued
Shareholding guidelines
In order to align the interests of executive directors and shareholders, with effect from 1 January 2018, the executive directors are
required to acquire and retain a holding in shares or rights to shares equivalent to the value of 200% of basic salary within five years
of the date of appointment, or the date of adoption of the policy. Shares that count towards these guidelines include shares that are
owned outright, vested and not exercised EIP and SIP awards.
Share ownership versus policy
J E Mathias
R P Stockton
115%
534%
0%
100%
200%
300%
400%
500%
Beneficially owned
Conditional
Remuneration policy
Executive Incentive Plan
At 1 January
2020
During 2020
At 31 December 2020
Type of security
Face value of
award at
grant1
(£)
Number of
securities
originally
granted
Number of
unvested
securities
Vested but
unexercised
(subject to sales
restriction
period)
Securities
granted2
Nil paid options
Conditional shares
Conditional shares
Conditional shares
Conditional shares
272,722
232,105
226,485
376,157
372,435
4,894
12,229
6,061
10,103
8,864
7,091
16,376 16,376
24,326
–
–
–
–
24,326
2,445
2,021
1,773
3,276
–
Vested but
unexercised
(subject to sales
restriction
period)
Normal
exercise date
(end of sales
restriction period)3
9,780 22/03/2021
6,063 21/03/2022
3,546 23/03/2023
3,276 22/03/2024
– 23/03/2025
Unvested
securities
2,449
4,040
5,318
13,100
24,326
Conditional shares
202,608
13,233
–
13,233
–
13,233
– 23/03/2025
Executive directors/
Grant date
R P Stockton
22/03/2016
22/03/2017
23/03/2018
22/03/2019
23/03/2020
J E Mathias
23/03/2020
1. Exercise price is nil
2. The number of shares awarded is calculated based on the 20-day average share price on the day prior to grant. Share price on award was £15.31
3. Awards vest in five equal tranches (1, 2, 3, 4 and 5 years from grant). All shares must be held until the fifth anniversary of the grant (the normal exercise date). There are no further
performance conditions on these shares
Share Incentive Plan
R P Stockton
J E Mathias
Total
At 1 January
2020
Total number of
SIP shares1
3,633
–
3,633
During 2020
Partnership
shares acquired
113
–
113
Matching
shares acquired
113
–
113
Dividend
shares acquired
177
–
177
Free shares
received
–
–
–
At 31 December
2020
Total number of
SIP shares1
4,036
–
4,036
1. SIP matching and free shares held for less than three years may be forfeited in certain circumstances and so are not considered to be beneficially owned
Save As You Earn outstanding options
Number of shares
Executive directors
R P Stockton
J E Mathias
Total
122
Grant date
28/04/17
18/04/19
21/04/20
21/04/20
At 1 January
2020
710
248
–
–
958
Granted in
2020
–
–
1,658
1,658
3,316
Exercised in
2020
–
–
–
–
–
Lapsed in
2020
710
248
–
–
958
At 31
December
2020
Earliest exercise
Latest exercise
date
date
– 01/06/20 01/12/20
– 01/06/22 01/12/22
1,658 01/06/23 01/12/23
1,658 01/06/23 01/12/23
3,316
Market price
on grant (p)
2,373
2,266
1,356
1,356
Exercise price
(p)
1,899
1,813
1,085
1,085
Rathbone Brothers Plc Report and accounts 2020
Governance| Performance graph
The chart below shows the company’s total shareholder return (TSR) against the FTSE All Share Index for the 10 years to
31 December 2020. TSR is calculated assuming that dividends are reinvested on receipt. The FTSE All Share Index has been
selected as a comparator as it is a suitably broad market index and has been used as a performance comparator for long-term
incentive plan (LTIP) cycles since 2005-07.
Performance graph (unaudited)
200
150
100
50
0
-50
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Rathbone Brothers Plc — TSR
FTSE All Share Index — TSR
Chief executive officer single figure
During the 10 years to 31 December 2020, Andy Pomfret was chief executive until 28 February 2014. Philip Howell was chief executive
until 9 May 2019 when he was succeeded by Paul Stockton.
Year
2020
2019
2019
2018
2017
2016
2015
2014
2014
2013
2012
2011
Chief executive
Paul Stockton
Paul Stockton
Philip Howell
Philip Howell
Philip Howell
Philip Howell
Philip Howell
Philip Howell
Andy Pomfret
Andy Pomfret
Andy Pomfret
Andy Pomfret
Chief executive
single figure
of total
remuneration
£’000
1,358
1,125
467
1,389
1,104
1,398
1,608
999
342
1,204
1,046
678
EIP award or
short-term bonus
as % of maximum
opportunity
57
47
52
59
64
66
78
89
n/a
59
38
46
Long-term
incentive vesting
as % of maximum
opportunity
–
–
–
–
–
67
100
n/a
96
100
100
–
rathbones.com
123
Remuneration committee report continued
Annual percentage change in the remuneration of the directors and employees
The table below shows the percentage year-on-year change in salary, benefits and bonus in 2020 for the directors compared with the
average Rathbones employee.
Mark Nicholls
Paul Stockton
Jennifer Mathias
Jim Pettigrew
James Dean
Sarah Gentleman
Terri Duhon
Colin Clark
Average percentage change for board members
Average pay based on all Rathbones employees
Salary
0%
0%
0%
7.1%
7.1%
7.1%
7.1%
9.1%
1.9%
3.6%
Benefits
0%
7.1%
5.5%
0%
0%
0%
0%
0%
6.4%
12.3%
Annual bonus
0%
27%
17.5%
0%
0%
0%
0%
0%
23%
11.9%
Chief executive and employee pay ratio
Year
1 January to 31 December 2020
1 January to 31 December 2019
Method
B
B
25th percentile pay ratio
43:1
42:1
Median (50th percentile) pay ratio
23:1
23:1
75th percentile pay ratio
11:1
13:1
The chief executive pay ratio provides a comparison of total remuneration paid to the chief executive in the year ended 31 December
2020 with total remuneration paid to the three employees whose pay is at the 25th, 50th and 75th percentile of the group’s UK
workforce (P25, P50 and P75 respectively). Where multiple employees are at these percentiles we have selected the most
representative job role from across the group.
The pay data for the chief executive is taken from the total single figure of remuneration on page 118 of this report for Paul Stockton
for the year ended 31 December 2020. The three employees have been identified from our 2020 gender pay gap data under ‘Option B’
of the three methodologies provided under the regulations, as the equivalent figures to the single figure table for each of the group’s
UK employees (‘Option A’) are not available at the time of producing this report.
Total pay for P25, P50 and P75 has been based on actual earnings for the financial year. Variable remuneration has been calculated
using the group’s forecast financial performance. Total pay and benefits for the three employees includes the following: base salary,
employer pension contributions, taxable benefits, bonuses, share-based payment awards and profit share. The total pay and benefits
for these individuals is as follows:
— P25 43:1 (£31,701)
— P50 23:1 (£60,249)
— P75 11:1 (£125,467)
The change in ratios since the prior year is due to a change in the CEO’s remuneration, and a change in the employees selected at each
quartile. The group believes the median pay ratio for the year to be consistent with the group’s pay, reward and progression policies
for its UK workforce.
The committee will review these ratios on an annual basis.
Chairman and non-executive directors’ fees (audited)
Chairman
M P Nicholls
Non-executive directors
J W Dean
J N Pettigrew
S F Gentleman
T L Duhon
C M Clark
Total
2020
£’000
2019
£’000
180
75
75
75
75
60
540
180
70
70
70
70
55
515
124
Rathbone Brothers Plc Report and accounts 2020
Governance| Non-executive directors’ share interests
The interest of the directors in the ordinary shares of the company are set out below:
Chairman
M P Nicholls
Non-executive directors
C M Clark
J W Dean
T L Duhon
S F Gentleman
J N Pettigrew
Total
Private shares
SIP
Total
4,251
749
5,000
–
1,000
–
100
–
5,351
–
–
–
–
–
749
–
1,000
–
100
–
6,100
Relative importance of spend on pay
The chart below shows the relationship between total employee remuneration, profit after tax and dividend distributions for 2020
and 2019. The reported profit after tax has been selected by the directors as a useful indicator when assessing the relative importance
of spend on pay.
Relative importance of spend on pay (£m)
10%
2
.
5
9
1
6
.
7
7
1
1%
7
.
6
2
9
.
6
2
5%
8
.
7
3
0
.
6
3
Total staff
costs
Profit after
tax
Dividends
paid
2020
2019
rathbones.com
125
Remuneration committee report continued
Statement of shareholder voting
At the 2018 AGM, shareholders approved the remuneration policy, to apply for three years from the date of the AGM. At the 2020
AGM, shareholders also approved the remuneration report that was published in the 2019 report and accounts and the results are
detailed on the opposite page.
Votes on remuneration
Remuneration
policy
(2018 AGM)
1.04%
14.93%
0.63%
Annual report
on remuneration
(2019 AGM)
15.67%
Annual report
on remuneration
(2020 AGM)
1.00%
11.18%
85.07%
84.33%
88.82%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Votes withheld
Votes cast against
Votes cast in favour
Votes cast in favour
Votes cast against
Total votes cast
Votes withheld
Annual report on
remuneration
(2020 AGM)
88.82%
11.18%
78.46%
5,093
Annual report on
remuneration
(2019 AGM)
84.33%
15.67%
82.41%
348,910
Remuneration
policy
(2018 AGM)
85.07%
14.93%
79.17%
428,216
Advisers to the committee and their fees
PwC were appointed as advisers to the committee in August 2017. They are members of the Remuneration Consultants Group and
advise the committee on a range of matters including remuneration package assessments, scheme design and reporting best practice.
PwC also provide professional services in the ordinary course of business, including advisory work to the group. The committee is of
the opinion that the advice received is objective and independent. PwC’s fees are charged on a time cost basis and fees for services to
the remuneration committee were £146,400 in 2020. The appointment of advisers is reviewed annually.
Evaluating the performance of the committee
The annual evaluation of the committee’s effectiveness was undertaken as part of the board’s internal evaluation process during
the year. The committee and senior management attendees were invited to respond to questions on the content, management, and
quality and focus of discussion during meetings. I am pleased that responses indicated that the committee is performing well with
no particular concerns.
Approval
The remuneration committee report, incorporating both the remuneration policy and annual report on remuneration, has been
approved by the board.
Signed on behalf of the board
Sarah Gentleman
Chairman of the remuneration committee
3 March 2021
126
Rathbone Brothers Plc Report and accounts 2020
Governance| Directors’ report
The directors present their report for the year ended 31 December 2020.
The directors’ report includes the following sections of the annual report and accounts which forms part of the directors’ report:
Section
Strategic report
Financial statements
Responsibility statements
Corporate governance statements
DTR Rule
DTR 4.1.5R
DTR 4.1.5R
DTR 4.1.5R
DTR 7.2
Page
2-74
114-223
130
76
Statement by the directors under section 172 Companies Act 2006 in performance of their statutory duties
Directors consider that they have acted in the way they consider, in good faith, would be most likely to promote the success of the
company for the benefit of its members as a whole, and in doing so having regard to the stakeholders and matters set out in section
172(1)(a-f) of the Act in the decisions taken during the year ended 31 December 2020. This is demonstrated in the strategic report
on page 10.
Annual General Meeting (AGM)
The 2021 AGM will be held on Thursday 6 May 2021 at 2pm at 8 Finsbury Circus, London EC2M 7AZ. Full details of all resolutions and
notes are set out in the separate notice of AGM.
Group results and company dividends
The Rathbone Brothers Plc group profit after taxation for the year ended 31 December 2020 was £26,652,000 (2019: £26,923,000).
The directors recommend the payment of a final dividend of 47.0p per share, if approved by shareholders at 2021 AGM, be paid on
11 May 2021 to shareholders on the register on 23 April 2021.
Interim dividend
Final dividend
Total
* Subject to shareholder approval at the AGM on 6 May 2021
See note 12 to the financial statements.
2020
2019
Pence
25.0
47.0*
72.0*
£m
13.5
25.2*
38.7*
Pence
25.0
45.0
70.0
£m
13.5
24.2
37.7
The company operates a generally progressive dividend policy subject to market conditions. The aim is to increase the dividend
in line with the growth of the business over each economic cycle. This means that there may be periods where the dividend is
maintained but not increased and periods where profits are retained rather than distributed to maintain retained reserves and
regulatory capital at prudent levels through troughs and peaks in the cycle.
Substantial shareholdings
As at 31 December 2020, the company had received notifications in accordance with the Financial Conduct Authority’s Disclosure and
Transparency Rule 5 of the following interests:
Shareholder
Lindsell Train Ltd.
Heronbridge Investment Management
Aviva Investors
MFS Investment Management
BlackRock
Vanguard Group
Baillie Gifford & Co
Holding at
03 March 2021
7,332,912
3,942,497
3,734,410
3,681,762
2,734,490
2,420,194
2,221,794
% held at
03 March 2021
12.76
6.86
6.50
6.40
4.76
4.21
3.86
rathbones.com
127
Directors’ report continued
Share capital
The company’s share capital comprises one class of ordinary shares of 5p each. At 31 December 2020, 57,486,413 shares were in issue
(2019: 55,361,986). No shares were held in treasury. Details of the movements during the year are set out in note 30 to the financial
statements. The shares carry no rights to fixed income and each share carries the right to one vote at general meetings. All shares are
fully paid.
There are no specific restrictions on the size of a shareholding or on the transfer of shares, which are both covered by the provisions of
the Articles of Association and prevailing legislation.
New issues of share capital
Under section 551 of the Companies Act 2006, the board currently has the authority to allot 18,802,653 shares (approximately one
third of the issued share capital at 31 March 2020). The existing authorities given to the company at the last AGM to allot shares will
expire at the conclusion of the forthcoming AGM. Details of the resolutions renewing these authorities are included in the notice
of AGM.
Awards under the company’s employee share plans are satisfied from a combination of shares held either in treasury or in the
employee benefit trust and by newly issued shares. During the year, the company issued 264,627 shares to satisfy share awards
and issued 859,800 shares to the company’s employee benefit trust, to satisfy future awards under the group’s share-based
payment schemes.
Purchase of own shares
Following the 2020 AGM, resolution to purchase own shares, the board currently has the authority to buy back up to 2,820,000 shares
under certain stringent conditions. During the year, the company did not utilise this authority but the board considers it would be
appropriate to renew it. We intend to seek shareholder approval for the continued authority to purchase own shares at the
forthcoming AGM in line with current investor sentiment.
Details of the resolution renewing the authority are included in the notice of AGM.
Employee share trust
On 4 April 2017, Equiniti Trust (Jersey) Limited was appointed as trustee of the second employee benefit trust. The trust is
independent and holds shares for the benefit of employees and former employees of the group. The trustee has agreed to satisfy
awards under the Executive Incentive Plan, Share Incentive Plan and the Savings Related Share Option Plan. As part of these
arrangements, the company issued shares to the trust to enable the trustee to satisfy these awards. Further details are set out
in note 32 to the financial statements. During the year, the number of shares issued by trust totalled 38,335 ordinary shares.
In addition, under the rules of the Rathbone Share Incentive Plan, shares are held in trust for participants by Equiniti Share Plan
Trustees Limited (‘the Trustee’). Voting rights are exercised by the Trustee on receipt of the participant’s instructions. If no such
instruction is received by the Trustee then no vote is registered. No person has any special rights of control over the company’s
share capital and all issued shares are either fully or nil paid.
Appointment and removal of directors
Regarding the appointment and replacement of directors, the company is governed by the company’s Articles of Association,
the UK Corporate Governance Code, the Companies Act 2006 and related legislation.
Directors
All those who served as directors at any time during the year are listed on page 85. Clive Bannister is our Charmain designate and will
assume the role of Chairman following the 2021 AGM, and subject to regulatory approval. The directors’ interests in the share capital
of the company at 31 December 2020 are set out on pages 121-122 of the remuneration committee report.
Insurance and indemnification of directors
The company has put in place insurance to cover its directors and officers against the costs of defending themselves in civil legal
action taken against them in that capacity and any damages awarded. The company has granted indemnities, which are uncapped,
to its directors and to the company secretary by way of deed. Qualifying third-party indemnity provisions, as defined by section 234
of the Companies Act 2006, were therefore in place throughout 2020 and remain in force at the date of this report.
Employees
Details of the company’s employment practices, its policy regarding the employment of disabled persons and its employee
involvement practices can be found in our people report on pages 59-63.
128
Rathbone Brothers Plc Report and accounts 2020
Governance| Responsible business
Information about greenhouse gas emissions and our approach to operating as a responsible business are set out in the responsible
business report on pages 52-74.
Financial instruments and risk management
The risk management objectives and policies of the group are set out in note 33 to the financial statements.
Auditor
The audit committee reviews the appointment of the external auditor and its relationship with the group, including monitoring the
group’s use of the auditor for non-audit services. Note 7 to the financial statements sets out details of the auditor’s remuneration.
Deloitte LLP was appointed as external auditor at the 2020 AGM. Having reviewed the independence and effectiveness of the external
auditor, the audit committee has recommended to the board that the existing auditor, Deloitte LLP, be reappointed and a resolution
appointing them as auditor and authorising the directors to set their remuneration will be proposed at the 2021 AGM.
The directors in office at the date of signing of this report confirm that, so far as they are aware, there is no relevant audit information
of which the auditor is unaware and that each director has taken all steps that he or she ought to have taken to make him or herself
aware of any relevant audit information and to establish that the auditor is aware of that information.
Going concern
Details of the group’s business activities, results, cash flows and resources, together with the risks it faces and other factors likely to
affect its future development, performance and position are set out in the chairman’s statement, chief executive’s review, financial
performance and segmental review. In addition, note 1.5 to the financial statements provides further details.
The group companies are regulated by the Prudential Regulation Authority (PRA) and/or the Financial Conduct Authority (FCA)
and perform annual capital adequacy assessments, which include the modelling of certain extreme stress scenarios. The company
publishes Pillar 3 disclosures annually on its website, which provide detail about its regulatory capital resources and requirements.
In July 2015, Rathbone Investment Management issued £20 million of 10-year subordinated loan notes to finance future growth.
The group has no other external borrowings.
The directors believe that the company is well placed to manage its business risks successfully despite the continuing uncertain
economic and political outlook. As the directors have a reasonable expectation that the company has adequate resources to continue
in operational existence for the foreseeable future, they continue to adopt the going concern basis of accounting in preparing the
annual financial statements.
Charitable donations
As at 31 December 2020, the group made total charitable donations of £467,000 representing 1.1% of group pre-tax profits (2019:
£360,000, representing 0.9% of group pre-tax profits). It also included the matching of employee donations made through the tax
efficient Give As You Earn (GAYE) payroll giving scheme. In 2020, Rathbones employees made payments totalling £201,700 (2019:
£195,000) through this scheme, which is administered by the Charities Aid Foundation. The company matched employee donations
of up to £200 per month made through GAYE and, in 2020, donated £166,000 (2019: £158,000) to causes chosen by employees
through this method.
Political donations
No political donations were made during the year (2019: nil).
Post-balance sheet events
Details of post-balance sheet events are set out in note 39 to the financial statements.
Approved and authorised for issue by the board of directors
Ali Johnson
Company Secretary
3 March 2021
Registered office: 8 Finsbury Circus, London EC2M 7AZ
rathbones.com
129
Directors’ report continued
Statement of directors’ responsibilities
in respect of the report and accounts
The directors are responsible for preparing the report and accounts 2020, and the group and parent company financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that
law they are required to prepare the group financial statements in accordance with International Financial Reporting Standards as
adopted by the European Union (IFRS as adopted by the EU) and applicable law and have elected to prepare the parent company
financial statements on the same basis.
Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group
and parent company financial statements, the directors are required to:
— select suitable accounting policies and then apply them consistently
— make judgements and estimates that are reasonable, relevant and reliable
— state whether they have been prepared in accordance with IFRS as adopted by the EU
— assess the group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to
going concern
— use the going concern basis of accounting unless they either intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s
transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to
ensure that its financial statements comply with the Companies Act 2006.
They are responsible for such internal controls as they determine are necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a strategic report, directors’ report, directors’
remuneration report and corporate governance statement that comply with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s
website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in
other jurisdictions.
Responsibility statement of the directors in respect of the report and accounts
We confirm that to the best of our knowledge:
— the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken
as a whole
— the strategic report and directors’ report include a fair review of the development and performance of the business and the position
of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks
and uncertainties that they face.
We consider the report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary
for shareholders to assess the group’s position and performance, business model and strategy.
By order of the board
Paul Stockton
Chief Executive
3 March 2021
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Governance| Financial
statements
Independent auditor’s report to the
members of Rathbone Brothers Plc
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the company
financial statements
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142
146
203
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Independent auditor’s report to the members of Rathbone Brothers Plc
Independent auditor’s report to the
members of Rathbone Brothers Plc
Report on the audit of the financial statements
1. Opinion
In our opinion:
– the financial statements of Rathbone Brothers Plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of
the state of the group’s and of the parent company’s affairs as at 31 December 2020 and of the group’s profit for the year then ended;
– the group financial statements have been properly prepared in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006, and International Financial Reporting Standards (IFRSs) as adopted by the
European Union;
– the parent company financial statements have been properly prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006; and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
– the consolidated statement of comprehensive income;
– the consolidated and parent company balance sheets;
– the consolidated and parent company statements of changes in equity;
– the consolidated and parent company cash flow statements; and
– the related notes 1 to 60.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law
and international accounting standards in conformity with the requirements of the Companies Act 2006 and IFRSs as adopted
by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial
statements is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006.
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services provided
to the group and parent company for the year are disclosed in note 7 to the financial statements. We confirm that the non-audit services
prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters
Materiality
Scoping
Significant changes
in our approach
The key audit matters that we identified in the current year were:
– Impairment of client relationship intangibles and goodwill;
– Defined benefit scheme liability assumptions;
– Investment management fee revenue;
– Speirs and Jeffrey (“S&J”) deferred consideration.
These matters are consistent with the prior year.
The materiality that we used for the group financial statements was £3,915,500 which was determined on
the basis of 5% of normalised profit before tax.
The scope of our audit covered substantially the entire group, with both the Investment Management and
Funds business segments being subject to a full scope audit.
There were no significant changes in our audit approach.
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| Consolidated financial statements
– the parent company financial statements have been properly prepared in accordance with international accounting standards in
– Performing sensitivity analysis on the key assumptions applied to understand those that could give rise to a material uncertainty on the
4. Conclusions relating to going concern, principal risks and viability statement
Going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation
of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of
accounting included:
– Evaluating management’s judgement paper, identifying the assumptions applied in the going concern assessment and testing the
mechanical accuracy of the underlying forecast;
use of the going concern basis;
– Stress testing for the amount by which the FTSE would need to fall to cause a material uncertainty in the use of the going concern basis
and comparing this to historical falls in the FTSE to assess the likelihood of such an event occurring and causing a material uncertainty
for the group;
– Performing an analysis of the impact of negative interest rates over a long period of time to the financial forecasts for the group to assess
the likelihood of such an event occurring and causing a material uncertainty for the group;
– Assessing the regulatory capital and liquidity position of the group and performing a reverse stress test to determine the point at which a
material uncertainty on the use of the going concern basis may arise and assessing the likelihood of such an event occurring; and
– Checking consistency with the forecast assumptions applied in the going concern assessment across other forecasts within the Group.
– Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group’s and parent company’s ability to continue as a going concern for a
period of at least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the group has applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of
this report.
Independent auditor’s report to the
members of Rathbone Brothers Plc
Report on the audit of the financial statements
1. Opinion
In our opinion:
European Union;
– the financial statements of Rathbone Brothers Plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of
the state of the group’s and of the parent company’s affairs as at 31 December 2020 and of the group’s profit for the year then ended;
– the group financial statements have been properly prepared in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006, and International Financial Reporting Standards (IFRSs) as adopted by the
conformity with the requirements of the Companies Act 2006; and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
– the consolidated statement of comprehensive income;
– the consolidated and parent company balance sheets;
– the consolidated and parent company statements of changes in equity;
– the consolidated and parent company cash flow statements; and
– the related notes 1 to 60.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law
and international accounting standards in conformity with the requirements of the Companies Act 2006 and IFRSs as adopted
by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial
statements is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006.
2. Basis for opinion
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services provided
to the group and parent company for the year are disclosed in note 7 to the financial statements. We confirm that the non-audit services
prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
– Impairment of client relationship intangibles and goodwill;
– Defined benefit scheme liability assumptions;
– Investment management fee revenue;
– Speirs and Jeffrey (“S&J”) deferred consideration.
These matters are consistent with the prior year.
Materiality
Scoping
Significant changes
in our approach
The materiality that we used for the group financial statements was £3,915,500 which was determined on
the basis of 5% of normalised profit before tax.
The scope of our audit covered substantially the entire group, with both the Investment Management and
Funds business segments being subject to a full scope audit.
There were no significant changes in our audit approach.
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5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
5.1 Impairment of client relationship intangibles and goodwill
Key audit matter description
The group holds client relationship intangibles of £121.1 million (2019: £124.5 million) and goodwill of £96.9 million (2019: £90.4 million)
comprising both relationships acquired through business combinations and through acquisition of individual investment managers and
their client portfolios. We have identified this matter as a fraud risk, given the inherent judgement and level of estimation in the annual
impairment review.
As detailed in the summary of principal accounting policies in note 1 and note 2, client relationships are reviewed for indicators of
impairment at each balance sheet date and, if an indicator of impairment exists, an impairment test is performed. Goodwill is tested for
impairment at least annually, whether or not indicators of impairment exist. These judgements have also been considered by the Audit
Committee as set out on page 97.
For client relationship intangibles, in determining the appropriate impairment triggers for each portfolio, there is a degree of significant
management judgement. This assessment is based on movements in the value of funds under management and the loss of client
relationships in advance of the amortisation period.
For goodwill, the impairment assessment is performed by comparing the carrying amount of each cash generating unit (“CGU”) to its
recoverable amount from its value-in-use, calculated using a discounted cash flow method. In determining the value-in-use for the CGUs,
management is required to make assumptions in relation to an appropriate income growth rate, expenditure growth rate and the discount
rate. The discount rate, annual growth rate and terminal growth rate used were 12.2%, 5% and 1% respectively as disclosed in note 22.
How the scope of our audit responded to the key audit matter
We obtained an understanding of relevant controls in relation to the impairment review process for client relationship intangibles for both
acquired portfolios and individual relationships and for goodwill. We tested controls in place over Funds Under Management (“FUM”)
values which form the basis of the impairment assessment.
For client relationship intangibles, we specifically tested the calculations prepared by management as part of the impairment review
exercise to assess whether they meet the requirements of IAS 36 “Impairment of Assets”. Where the review indicated that an impairment
trigger had occurred, we assessed the relevant assumptions and judgements made by management in determining whether an
impairment needed to be recognised. We have challenged the key assumptions around the impairment triggers identified for
each portfolio, which we have assessed for reasonableness and evaluated the accuracy of the inputs used by management.
For goodwill, in order to challenge the appropriateness of the income and expenditure growth assumptions used in the value-in-use
calculation, we have back-tested the assumptions used by management against historical performance and checked for consistency with
forecasts used elsewhere in the business. We challenged the determination of the discount rate applied by benchmarking to appropriate
market rates of interest and recalculation. We have also independently re-performed management’s value-in-use calculation.
Focusing on those assumptions where the impairment test was most sensitive, we also performed sensitivity analysis to assess the risk
that reasonably possible changes in assumptions used by management could give rise to an impairment. We challenged with reference
to recent trading performance, taking into account the impact of Covid-19 and the group’s strategy.
Furthermore, we have performed a review of the disclosures included within the financial statements to determine whether all required
information has been included for client relationship intangibles and goodwill.
Key observations
Through our testing for client relationship intangibles and goodwill, we concluded that management’s approach and conclusion
was appropriate.
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| Consolidated financial statements
5. Key audit matters
5.2 Defined benefit pension scheme liability
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
5.1 Impairment of client relationship intangibles and goodwill
Key audit matter description
The group holds client relationship intangibles of £121.1 million (2019: £124.5 million) and goodwill of £96.9 million (2019: £90.4 million)
comprising both relationships acquired through business combinations and through acquisition of individual investment managers and
their client portfolios. We have identified this matter as a fraud risk, given the inherent judgement and level of estimation in the annual
impairment review.
As detailed in the summary of principal accounting policies in note 1 and note 2, client relationships are reviewed for indicators of
impairment at each balance sheet date and, if an indicator of impairment exists, an impairment test is performed. Goodwill is tested for
impairment at least annually, whether or not indicators of impairment exist. These judgements have also been considered by the Audit
Committee as set out on page 97.
For client relationship intangibles, in determining the appropriate impairment triggers for each portfolio, there is a degree of significant
management judgement. This assessment is based on movements in the value of funds under management and the loss of client
relationships in advance of the amortisation period.
For goodwill, the impairment assessment is performed by comparing the carrying amount of each cash generating unit (“CGU”) to its
recoverable amount from its value-in-use, calculated using a discounted cash flow method. In determining the value-in-use for the CGUs,
management is required to make assumptions in relation to an appropriate income growth rate, expenditure growth rate and the discount
rate. The discount rate, annual growth rate and terminal growth rate used were 12.2%, 5% and 1% respectively as disclosed in note 22.
How the scope of our audit responded to the key audit matter
We obtained an understanding of relevant controls in relation to the impairment review process for client relationship intangibles for both
acquired portfolios and individual relationships and for goodwill. We tested controls in place over Funds Under Management (“FUM”)
values which form the basis of the impairment assessment.
For client relationship intangibles, we specifically tested the calculations prepared by management as part of the impairment review
exercise to assess whether they meet the requirements of IAS 36 “Impairment of Assets”. Where the review indicated that an impairment
trigger had occurred, we assessed the relevant assumptions and judgements made by management in determining whether an
impairment needed to be recognised. We have challenged the key assumptions around the impairment triggers identified for
each portfolio, which we have assessed for reasonableness and evaluated the accuracy of the inputs used by management.
For goodwill, in order to challenge the appropriateness of the income and expenditure growth assumptions used in the value-in-use
calculation, we have back-tested the assumptions used by management against historical performance and checked for consistency with
forecasts used elsewhere in the business. We challenged the determination of the discount rate applied by benchmarking to appropriate
market rates of interest and recalculation. We have also independently re-performed management’s value-in-use calculation.
Focusing on those assumptions where the impairment test was most sensitive, we also performed sensitivity analysis to assess the risk
that reasonably possible changes in assumptions used by management could give rise to an impairment. We challenged with reference
to recent trading performance, taking into account the impact of Covid-19 and the group’s strategy.
Key audit matter description
The group has recognised a defined benefit pension scheme liability of £9.8m (2019: £8.0m). The net liability comprises assets of £155.6m
(2019: £151.1m) and liabilities of £165.4m (2019: £159.1m).
The calculation of the liability is sensitive to changes in underlying assumptions and is considered to be a key source of estimation
uncertainty for the group as detailed in note 2, disclosed in note 29 to the financial statements, and as considered by the Audit Committee
on page 97.
The key assumptions are in respect of the discount rate, inflation rate and mortality rate where small changes to these assumptions could
result in a material change to the valuation of the pension scheme liability.
How the scope of our audit responded to the key audit matter
In order to evaluate the appropriateness of the assumptions used by management, we obtained an understanding of relevant controls over
the appropriate determination of assumptions and the calculation of the liability to be recognised in the financial statements.
With the involvement of our in-house actuarial specialists, we made direct enquiries of the group’s actuary to review and challenge each of
the key assumptions used in the IAS 19 (“Employee Benefits”) pension valuation. In particular, we compared each assumption used by
management against independently determined benchmarks derived using market and other data.
Key observations
We concluded that each of the assumptions used by management to estimate the defined benefit pension scheme liability are consistent
with the requirements of IAS 19 and that the valuation of the defined pension scheme liability has been appropriately determined.
5.3 Investment management (‘IM’) fee revenue
Key audit matter description
As detailed in the summary of principal accounting policies in note 1 and in note 3, revenue comprises net investment management fee
income of £274.2m (2019: £260.2m), net commission income of £62.3m (2019: £51.1m), net interest income of £8.4m (2019: £16.4m) and fees
from advisory services and other income of £21.1m (2019: £20.3m).
Investment management (“IM”) fees from the IM segment account for approximately 80% of total revenue and are based on a percentage
of an individual client’s funds under management (“FUM”). Due to its many long standing client relationships and history of acquisitions,
the number of fee schedules managed by the group is high. This means that fee amendments can require a degree of manual intervention.
During the year, the group acquired the Barclays Wealth Court of Protection business (“Barclays Wealth”) and have migrated all clients onto
the group’s core technology platform. In October 2020, the group also migrated all Speirs & Jeffrey (“S&J”) clients onto the set rate card.
As a result, we identified a key audit matter relating to the risk that, whether due to error or fraud, incorrect fee rates could be used to
calculate investment management fees, or that manual amendments are inaccurate, incomplete or invalid.
How the scope of our audit responded to the key audit matter
We tested controls over the calculation of investment management fees. This included controls relating to the set-up of client fee rates,
rate card amendments, the valuation of FUM and the system generated investment management fees, including associated IT controls.
We used data analytics to recalculate the system generated amount for the total fee population. We agreed a sample of client fee rates
through to client contracts and the value of FUM to third party sources.
We inspected evidence of authority and rationale for a sample of manual fee rate amendments made to system generated fees.
Furthermore, we have performed a review of the disclosures included within the financial statements to determine whether all required
information has been included for client relationship intangibles and goodwill.
We also performed specific testing on the migration of Barclays Wealth clients onto the group’s core technology platform, and the
migration of S&J clients onto the set rate card, to check that their fees were calculated in line with their contractual terms.
Key observations
was appropriate.
Through our testing for client relationship intangibles and goodwill, we concluded that management’s approach and conclusion
Key observations
We concluded that the investment management fee revenue is appropriately recognised for the year ended 31 December 2020.
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5.4 Speirs & Jeffrey deferred consideration
Key audit matter description
On 31 August 2018, the group acquired a 100% equity interest in S&J.
The consideration includes a variable element which is dependent on certain operational and financial targets linked to the value of
S&J Funds Under Management (“FUM”) which is determined to be “Qualifying” under the terms of the sale and purchase agreement.
The determination of the total deferred consideration is set based on the qualifying FUM as at the first tranche date of 31 December 2020
and the second tranche date of 31 December 2021. If qualifying FUM does not exceed £4.5bn no deferred consideration is payable.
The expected pay-out of the consideration is accrued over the period from acquisition up until pay-out in 2022, with the P&L charge spread
over this period.
The first tranche date has now elapsed, with S&J achieving total qualifying FUM of £5.1bn as at 31 December 2020, resulting in total
consideration of £35.0m through to the first tranche date, with a total expense charge of £15.8m in 2020. In order to determine the level of
qualifying FUM, the group have had to assess a significant volume of individual client accounts to understand if the required operational
and financial targets have been met.
For the second tranche date of 31 December 2021, there remains significant management judgement involved in estimating the level of
qualifying FUM. The assumptions underpinning this estimate are considered to be a key source of estimation uncertainty for the Group,
as detailed in note 2, disclosed in note 8 to the financial statements and considered by the Audit Committee on page 97. For the second date,
management have updated their estimate of the expected pay-out of the consideration and have prospectively adjusted the P&L charge.
The disclosure in respect of this critical accounting estimate for deferred consideration payable, as set out in note 2, shows the sensitivity,
for each £100m movement in qualifying FUM, to the eventual amount that could be payable.
Therefore, we have identified a key audit matter relating to the risk that, whether due to error or fraud, management’s calculation of the
pay-out to 31 December 2020 and estimate of the pay-out to 31 December 2021, may be materially misstated.
How the scope of our audit responded to the key audit matter
For the first tranche date of 31 December 2020, we obtained understanding of relevant controls over the underlying data used to determine
the final value of qualifying FUM and controls around the calculation of the final consideration due.
For the first tranche date, we also challenged management on whether the increase in estimate should be recognised as a prior period
adjustment, considering the number of highly sensitive assumptions to the estimate, which were largely out of the group’s control and
were not foreseeable as at the prior year-end.
We selected a sample of client accounts from the S&J FUM listing and agreed through to contract and external client communication. We
then assessed if the client account met the operational and financial targets to be deemed qualifying FUM. We have also reviewed minutes
of meetings of those charged with governance, to follow through the decision making process and verify the governance process that has
taken place.
For the second tranche date of 31 December 2021, we obtained an understanding of controls over the determination of the key assumptions
used in the FUM conversion model.
We performed sensitivity analysis to understand which assumptions the estimate is most sensitive to and therefore, have an increased risk
of material misstatement. We considered empirical evidence available, including the outcome of the first tranche date qualifying FUM and
benchmarked against the investment management market, to challenge on the potential impact of external factors in achieving the group’s
estimate of qualifying FUM.
We also held targeted meetings with management and key personnel within the business, including a sample of Investment Managers, to
challenge the appropriateness of the qualifying FUM estimate for 31 December 2021.
We independently re-performed the calculation of the deferred consideration estimate through to 31 December 2021 and we assessed the
appropriateness of the related disclosures including the sensitivity assumptions for the range of estimates included in the disclosure.
Key observations
Given the sensitivity of the underlying assumptions to the estimate calculated as at 31 December 2019, we do not consider the increase in
estimate for first tranche date to require a prior period adjustment.
We have concluded satisfactorily that the group’s calculation of the pay-out to 31 December 2020 is not materially misstated. Furthermore,
we have concluded that the assumptions used by management to estimate the pay-out as at 31 December 2021 are appropriate.
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The expected pay-out of the consideration is accrued over the period from acquisition up until pay-out in 2022, with the P&L charge spread
Materiality
Group financial statements
£3,915,500 (2019: £3,580,000)
Parent company financial statements
£1,918,000 (2019: £1,754,000)
6. Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Basis for determining materiality
5% of normalised pre-tax profit.
Rationale for the benchmark applied
Pre-tax profit has been normalised to exclude the
non-recurring acquisition costs of £34.5m for the
year ended 31 December 2020.
Normalised profit before tax was used as the basis
for determining materiality as this is the key metric
used by members of the parent company and
other relevant stakeholders in assessing financial
performance. In determining normalised profit
before tax, we have removed from statutory profit
before tax, the business acquisition and integration
costs on the basis that they are non-recurring and
provides a consistent basis for determining
materiality year on year.
Group materiality
£3.9m
1% of net assets, which is capped at 70% of
group materiality.
The parent company primarily holds
the investments in group entities and,
therefore, net assets is considered to
be the key focus for users of the
financial statements.
Normalised PBT
£78.3m
Component materiality range
£0.2m – £2.0m
Normalised PBT
Group materiality
Audit Committee reporting threshold
£0.2m
5.4 Speirs & Jeffrey deferred consideration
Key audit matter description
On 31 August 2018, the group acquired a 100% equity interest in S&J.
The consideration includes a variable element which is dependent on certain operational and financial targets linked to the value of
S&J Funds Under Management (“FUM”) which is determined to be “Qualifying” under the terms of the sale and purchase agreement.
The determination of the total deferred consideration is set based on the qualifying FUM as at the first tranche date of 31 December 2020
and the second tranche date of 31 December 2021. If qualifying FUM does not exceed £4.5bn no deferred consideration is payable.
over this period.
The first tranche date has now elapsed, with S&J achieving total qualifying FUM of £5.1bn as at 31 December 2020, resulting in total
consideration of £35.0m through to the first tranche date, with a total expense charge of £15.8m in 2020. In order to determine the level of
qualifying FUM, the group have had to assess a significant volume of individual client accounts to understand if the required operational
and financial targets have been met.
For the second tranche date of 31 December 2021, there remains significant management judgement involved in estimating the level of
qualifying FUM. The assumptions underpinning this estimate are considered to be a key source of estimation uncertainty for the Group,
as detailed in note 2, disclosed in note 8 to the financial statements and considered by the Audit Committee on page 97. For the second date,
management have updated their estimate of the expected pay-out of the consideration and have prospectively adjusted the P&L charge.
The disclosure in respect of this critical accounting estimate for deferred consideration payable, as set out in note 2, shows the sensitivity,
for each £100m movement in qualifying FUM, to the eventual amount that could be payable.
Therefore, we have identified a key audit matter relating to the risk that, whether due to error or fraud, management’s calculation of the
pay-out to 31 December 2020 and estimate of the pay-out to 31 December 2021, may be materially misstated.
How the scope of our audit responded to the key audit matter
For the first tranche date of 31 December 2020, we obtained understanding of relevant controls over the underlying data used to determine
the final value of qualifying FUM and controls around the calculation of the final consideration due.
For the first tranche date, we also challenged management on whether the increase in estimate should be recognised as a prior period
adjustment, considering the number of highly sensitive assumptions to the estimate, which were largely out of the group’s control and
were not foreseeable as at the prior year-end.
We selected a sample of client accounts from the S&J FUM listing and agreed through to contract and external client communication. We
then assessed if the client account met the operational and financial targets to be deemed qualifying FUM. We have also reviewed minutes
of meetings of those charged with governance, to follow through the decision making process and verify the governance process that has
taken place.
used in the FUM conversion model.
For the second tranche date of 31 December 2021, we obtained an understanding of controls over the determination of the key assumptions
We performed sensitivity analysis to understand which assumptions the estimate is most sensitive to and therefore, have an increased risk
of material misstatement. We considered empirical evidence available, including the outcome of the first tranche date qualifying FUM and
benchmarked against the investment management market, to challenge on the potential impact of external factors in achieving the group’s
estimate of qualifying FUM.
We also held targeted meetings with management and key personnel within the business, including a sample of Investment Managers, to
challenge the appropriateness of the qualifying FUM estimate for 31 December 2021.
We independently re-performed the calculation of the deferred consideration estimate through to 31 December 2021 and we assessed the
appropriateness of the related disclosures including the sensitivity assumptions for the range of estimates included in the disclosure.
Key observations
Given the sensitivity of the underlying assumptions to the estimate calculated as at 31 December 2019, we do not consider the increase in
estimate for first tranche date to require a prior period adjustment.
We have concluded satisfactorily that the group’s calculation of the pay-out to 31 December 2020 is not materially misstated. Furthermore,
we have concluded that the assumptions used by management to estimate the pay-out as at 31 December 2021 are appropriate.
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6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.
Performance
materiality
Basis and rationale
for determining
performance
materiality
Group financial statements
Parent company financial statements
70% (2019: 70%) of group materiality
70% (2019: 70%) of parent company materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate,
uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Group
performance materiality has been set at £2.7m for the year ended 31 December 2020, 70% of group materiality.
In determining performance materiality, we considered the following factors
– Our risk assessment, including our assessment of the group’s overall control environment and that we consider
it appropriate to rely on controls over a number of business processes;
– The performance of the group during 2020, in particular the resilience of the group’s results against the impact
of Covid-19 on the UK and global economy;
– Our past experience of the audit, which has indicated a low number of corrected and uncorrected
misstatements identified in prior periods.
6.3 Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £195,700 (2019: £180,000),
being 5% of group materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial
statements.
7. An overview of the scope of our audit
7.1 Identification and scoping of components
Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls and assessing
the risks of material misstatement at the group level.
The group consists of the main trading subsidiary Rathbone Investment Management Limited along with the following entities that we
have identified to be significant for the group audit; Rathbone Brothers plc, Rathbone Unit Trust Management Limited and Rathbone
Investment Management International Limited. All such entities were subject to a full scope audit.
Our full scope audits and audits of specified balances covered 97% of the group’s revenue, profit before tax and assets. Our audit of
Rathbones Investment Management Limited, the main trading subsidiary, used a component materiality of £2.9m.
All audit work was performed by the group engagement team.
7.2 Our consideration of the control environment
Based on our understanding of the group’s control environment, we elected to test controls, including the involvement of IT specialists to
assess the associated IT controls, in the following areas:
– Investment management fee income;
– Investment management commission income;
– Other operating income;
– Other operating costs; and
– Trade debtors and creditors.
The key IT systems relevant to the audit were the financial accounting system, the back office database and core IM business engine and
the front office application, with the former being applicable to all components within the group. The latter two are pivotal systems for
the provision of the investment management service and directly feed into the investment management fee and commission income
recognised. Therefore, they are particularly relevant for Rathbone Investment Management Limited and Rathbone Investment
Management International Limited.
Our IT specialists tested the operating effectiveness of the controls on the above systems, as well as supplementary systems and processes
within the group. We have taken a controls reliance approach to the back office database and front office application systems and therefore,
have taken a controls reliance approach to investment management fee and commission income.
We have not taken a controls reliance approach over the financial accounting system, as its operation involves a high degree of
manual intervention.
138
138
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| Consolidated financial statements
6.2 Performance materiality
8. Other information
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.
The other information comprises the information included in the annual report, other than the financial statements and
our auditor’s report thereon. The directors are responsible for the other information contained within the annual report.
Group financial statements
Parent company financial statements
70% (2019: 70%) of group materiality
70% (2019: 70%) of parent company materiality
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance conclusion thereon.
We have
nothing
to report in
this regard.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether
this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we are required to report that fact.
9. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue
as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
11.1 Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
– the nature of the industry and sector, control environment and business performance including the design of the group’s remuneration
policies, key drivers for directors’ remuneration, bonus levels and performance targets;
– results of our enquiries of management ,internal audit, and the audit committee about their own identification and assessment of the
risks of irregularities;
– any matters we identified having obtained and reviewed the group’s documentation of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
– the matters discussed among the audit engagement team and relevant internal specialists, including tax, valuations, pensions, IT and
industry specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud
and identified the greatest potential for fraud in the following areas; impairment of goodwill and client relationship intangibles, the
completeness and accuracy of investment management (“IM”) fee revenue and the determination of the estimate for the Speirs & Jeffrey
deferred consideration. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the
risk of management override of controls.
Rathbone Brothers Plc Report and accounts 2020
Rathbone Brothers Plc Report and accounts 2020
rathbones.com
139
139
Performance
materiality
Basis and rationale
for determining
performance
materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate,
uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Group
performance materiality has been set at £2.7m for the year ended 31 December 2020, 70% of group materiality.
In determining performance materiality, we considered the following factors
– Our risk assessment, including our assessment of the group’s overall control environment and that we consider
it appropriate to rely on controls over a number of business processes;
– The performance of the group during 2020, in particular the resilience of the group’s results against the impact
– Our past experience of the audit, which has indicated a low number of corrected and uncorrected
of Covid-19 on the UK and global economy;
misstatements identified in prior periods.
6.3 Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £195,700 (2019: £180,000),
being 5% of group materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial
statements.
7. An overview of the scope of our audit
7.1 Identification and scoping of components
the risks of material misstatement at the group level.
Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls and assessing
The group consists of the main trading subsidiary Rathbone Investment Management Limited along with the following entities that we
have identified to be significant for the group audit; Rathbone Brothers plc, Rathbone Unit Trust Management Limited and Rathbone
Investment Management International Limited. All such entities were subject to a full scope audit.
Our full scope audits and audits of specified balances covered 97% of the group’s revenue, profit before tax and assets. Our audit of
Rathbones Investment Management Limited, the main trading subsidiary, used a component materiality of £2.9m.
Based on our understanding of the group’s control environment, we elected to test controls, including the involvement of IT specialists to
All audit work was performed by the group engagement team.
7.2 Our consideration of the control environment
assess the associated IT controls, in the following areas:
– Investment management fee income;
– Investment management commission income;
– Other operating income;
– Other operating costs; and
– Trade debtors and creditors.
The key IT systems relevant to the audit were the financial accounting system, the back office database and core IM business engine and
the front office application, with the former being applicable to all components within the group. The latter two are pivotal systems for
the provision of the investment management service and directly feed into the investment management fee and commission income
recognised. Therefore, they are particularly relevant for Rathbone Investment Management Limited and Rathbone Investment
Management International Limited.
Our IT specialists tested the operating effectiveness of the controls on the above systems, as well as supplementary systems and processes
within the group. We have taken a controls reliance approach to the back office database and front office application systems and therefore,
have taken a controls reliance approach to investment management fee and commission income.
We have not taken a controls reliance approach over the financial accounting system, as its operation involves a high degree of
manual intervention.
138
Independent auditor’s report to the members of Rathbone Brothers Plc continued
We also obtained an understanding of the legal and regulatory frameworks that the group operates in, focusing on provisions of those laws
and regulations that:
– had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations
we considered in this context included the Prudential Regulatory Authority’s and Financial Conduct Authority’s regulations; the UK
Companies Act; the Listing Rules; pensions legislation; and tax legislation; and
– do not have a direct effect on the financial statements but compliance with which may be fundamental to the group’s ability to operate
or to avoid a material penalty. These included the group’s regulatory solvency requirements.
11.2 Audit response to risks identified
As a result of performing the above, we identified impairment of goodwill and client relationship intangibles, the completeness and
accuracy of investment management (“IM”) fee revenue recognition and the estimate of the Speirs & Jeffrey deferred consideration as a
key audit matter related to the potential risk of fraud. The key audit matters section of our report explains the matter in more detail and
also describes the specific procedures we performed in response to each key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
– reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant
laws and regulations described as having a direct effect on the financial statements;
– enquiring of management, the audit committee and in-house and external legal counsel concerning actual and potential litigation
and claims;
– performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement
due to fraud;
– reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with
HMRC, the Prudential Regulatory Authority and the Financial Conduct Authority; and
– in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies
Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
– the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the
audit, we have not identified any material misstatements in the strategic report or the directors’ report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the group’s compliance with the provisions of the UK Corporate Governance Code specified
for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
– the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 129;
– the directors’ explanation as to its assessment of the group’s prospects, the period this assessment covers and why the period is
appropriate set out on page 51;
– the directors’ statement on fair, balanced and understandable set out on page 130;
– the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 49;
– the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on
page 46; and
– the section describing the work of the audit committee set out on pages 95 to 99.
140
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Rathbone Brothers Plc Report and accounts 2020
| Consolidated financial statements
We also obtained an understanding of the legal and regulatory frameworks that the group operates in, focusing on provisions of those laws
and regulations that:
– had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations
we considered in this context included the Prudential Regulatory Authority’s and Financial Conduct Authority’s regulations; the UK
Companies Act; the Listing Rules; pensions legislation; and tax legislation; and
– do not have a direct effect on the financial statements but compliance with which may be fundamental to the group’s ability to operate
or to avoid a material penalty. These included the group’s regulatory solvency requirements.
11.2 Audit response to risks identified
As a result of performing the above, we identified impairment of goodwill and client relationship intangibles, the completeness and
accuracy of investment management (“IM”) fee revenue recognition and the estimate of the Speirs & Jeffrey deferred consideration as a
key audit matter related to the potential risk of fraud. The key audit matters section of our report explains the matter in more detail and
also describes the specific procedures we performed in response to each key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
– reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant
laws and regulations described as having a direct effect on the financial statements;
– enquiring of management, the audit committee and in-house and external legal counsel concerning actual and potential litigation
– performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement
and claims;
due to fraud;
– reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with
HMRC, the Prudential Regulatory Authority and the Financial Conduct Authority; and
– in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies
Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
– the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the
audit, we have not identified any material misstatements in the strategic report or the directors’ report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the group’s compliance with the provisions of the UK Corporate Governance Code specified
for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
– the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 129;
– the directors’ explanation as to its assessment of the group’s prospects, the period this assessment covers and why the period is
appropriate set out on page 51;
– the directors’ statement on fair, balanced and understandable set out on page 130;
– the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 49;
– the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on
– the section describing the work of the audit committee set out on pages 95 to 99.
page 46; and
140
14. Opinion on other matter prescribed by the Capital Requirements (Country-by-Country Reporting)
Regulations 2013
In our opinion the information given in note 40 to the financial statements for the financial year ended 31 December 2020 has been
properly prepared, in all material respects, in accordance with the Capital Requirements (Country-by Country Reporting) Regulations 2013.
15. Matters on which we are required to report by exception
15.1 Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have nothing to report
in respect of these matters.
– we have not received all the information and explanations we require for our audit; or
– adequate accounting records have not been kept by the parent company, or returns adequate for our
audit have not been received from branches not visited by us; or
– the parent company financial statements are not in agreement with the accounting records and returns.
15.2 Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures
of directors’ remuneration have not been made or the part of the directors’ remuneration report to
be audited is not in agreement with the accounting records and returns.
We have nothing to report
in respect of these matters.
16. Other matters which we are required to address
16.1 Auditor tenure
Following the recommendation of the audit committee, we were appointed by Shareholders on 9 May 2019 to audit the financial
statements for the year ended 31 December 2019 and subsequent financial periods. The period of total uninterrupted engagement
including previous renewals and reappointments of the firm is 2 years, covering the years ended 31 December 2019 and 31 December 2020.
16.2 Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).
17. Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Manbhinder Rana FCA (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
3 March 2021
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rathbones.com
141
141
Consolidated statement
of comprehensive income
for the year ended 31 December 2020
Interest and similar income
Interest expense and similar charges
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income
Net trading income
Other operating income
Operating income
Charges in relation to client relationships and goodwill
Acquisition-related costs
Other operating expenses
Operating expenses
Profit before tax
Taxation
Profit after tax
Profit for the year attributable to equity holders of the company
Other comprehensive income:
Items that will not be reclassified to profit or loss
Net remeasurement of defined benefit liability
Deferred tax relating to net remeasurement of defined benefit liability
Other comprehensive income net of tax
Total comprehensive income for the year net of tax attributable to equity holders of
the company
Dividends paid and proposed for the year per ordinary share
Dividends paid and proposed for the year
Earnings per share for the year attributable to equity holders of the company:
– basic
– diluted
The accompanying notes form an integral part of the consolidated financial statements.
Note
4
5
6
6
7
9
7
11
29
21
12
13
2020
£’000
14,976
(6,554)
8,422
378,240
(24,491)
353,749
(12)
3,929
366,088
(14,302)
(34,449)
(273,558)
(322,309)
43,779
(17,127)
26,652
26,652
(4,682)
1,668
(3,014)
2019
£’000
28,553
(12,141)
16,412
352,519
(23,547)
328,972
170
2,517
348,071
(15,964)
(33,057)
(259,398)
(308,419)
39,652
(12,729)
26,923
26,923
310
(53)
257
23,638
27,180
72.0p
38,728
70.0p
37,714
49.6p
47.6p
50.3p
48.7p
142
142
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Rathbone Brothers Plc Report and accounts 2020
Consolidated financial statements
Consolidated statement
of comprehensive income
for the year ended 31 December 2020
Interest and similar income
Interest expense and similar charges
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income
Net trading income
Other operating income
Operating income
Acquisition-related costs
Other operating expenses
Operating expenses
Profit before tax
Taxation
Profit after tax
Charges in relation to client relationships and goodwill
Profit for the year attributable to equity holders of the company
Other comprehensive income:
Items that will not be reclassified to profit or loss
Net remeasurement of defined benefit liability
Deferred tax relating to net remeasurement of defined benefit liability
Other comprehensive income net of tax
Total comprehensive income for the year net of tax attributable to equity holders of
the company
Dividends paid and proposed for the year per ordinary share
Dividends paid and proposed for the year
Earnings per share for the year attributable to equity holders of the company:
– basic
– diluted
The accompanying notes form an integral part of the consolidated financial statements.
2019
£’000
28,553
(12,141)
16,412
352,519
(23,547)
328,972
170
2,517
348,071
(15,964)
(33,057)
(259,398)
(308,419)
39,652
(12,729)
26,923
26,923
2020
£’000
14,976
(6,554)
8,422
378,240
(24,491)
353,749
(12)
3,929
366,088
(14,302)
(34,449)
(273,558)
7
(322,309)
11
(17,127)
43,779
26,652
26,652
Note
4
5
6
6
7
9
29
21
12
13
(4,682)
1,668
(3,014)
310
(53)
257
23,638
27,180
72.0p
38,728
70.0p
37,714
49.6p
47.6p
50.3p
48.7p
Consolidated statement
of changes in equity
for the year ended 31 December 2020
At 1 January 2019 (restated)
Profit for the year
Net remeasurement of defined benefit liability
Deferred tax relating to components of other
comprehensive income
Other comprehensive income net of tax
Dividends paid
Issue of share capital
Share-based payments:
– value of employee services
– cost of own shares acquired
– cost of own shares vesting
– tax on share-based payments
At 31 December 2019
Profit for the year
Net remeasurement of defined benefit liability
Deferred tax relating to components of other
comprehensive income
Other comprehensive income net of tax
Dividends paid
Issue of share capital
Share-based payments:
– value of employee services
– cost of own shares acquired
– cost of own shares vesting
– tax on share-based payments
At 31 December 2020
Note
29
21
12
30
31
31
29
21
12
30
31
31
Share
capital
£’000
Share
premium
£’000
2,760 205,273
Merger
reserve
£’000
56,785
Own
shares
£’000
Retained
earnings
£’000
Total
equity
£’000
(32,737) 232,059 464,140
26,923
26,923
310
310
–
–
–
–
58
5,666
14,971
(53)
257
(53)
257
(35,959)
(35,959)
20,695
2,818 210,939
71,756
19,387
(10,033)
799
19,387
(10,033)
–
(17)
(41,971) 241,851 485,393
26,652
26,652
(4,682)
(4,682)
(799)
(17)
–
–
56
4,153
–
–
1,668
(3,014)
1,668
(3,014)
–
(37,831)
(37,831)
4,209
43,635
(5,077)
304
43,635
(5,077)
–
(140)
(46,744) 270,849 513,827
(304)
(140)
2,874 215,092
71,756
The accompanying notes form an integral part of the consolidated financial statements.
142
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rathbones.com
rathbones.com
143
143
Consolidated balance sheet
as at 31 December 2020
Assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Investment securities:
– fair value through profit or loss
– amortised cost
Prepayments, accrued income and other assets
Property, plant and equipment
Right-of-use assets
Net deferred tax asset
Intangible assets
Total assets
Liabilities
Deposits by banks
Settlement balances
Due to customers
Accruals, provisions and other liabilities
Lease liabilities
Current tax liabilities
Subordinated loan notes
Retirement benefit obligations
Total liabilities
Equity
Share capital
Share premium
Merger reserve
Own shares
Retained earnings
Total equity
Total liabilities and equity
Note
2020
£’000
2019
£’000
14
15
16
17
17
18
19
20
21
22
23
24
25
27
28
29
30
30
30
31
1,802,706
90,373
159,430
166,221
107,559
651,427
98,714
14,846
44,856
3,342
231,144
3,370,618
893
95,412
2,561,767
112,071
56,124
971
19,768
9,785
2,856,791
2,874
215,092
71,756
(46,744)
270,849
513,827
3,370,618
1,932,997
52,520
177,832
138,412
105,967
600,261
95,390
15,432
49,480
2,636
227,807
3,398,734
28
57,694
2,668,645
93,263
61,004
4,766
19,927
8,014
2,913,341
2,818
210,939
71,756
(41,971)
241,851
485,393
3,398,734
The financial statements were approved by the board of directors and authorised for issue on 3 March 2021 and were signed on their
behalf by:
Paul Stockton
Chief Executive
Company registered number: 01000403
Jennifer Mathias
Finance Director
The accompanying notes form an integral part of the consolidated financial statements.
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Consolidated financial statements
Consolidated balance sheet
Consolidated statement of cash flows
as at 31 December 2020
for the year ended 31 December 2020
Assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Investment securities:
– fair value through profit or loss
– amortised cost
Prepayments, accrued income and other assets
Property, plant and equipment
Right-of-use assets
Net deferred tax asset
Intangible assets
Total assets
Liabilities
Deposits by banks
Settlement balances
Due to customers
Accruals, provisions and other liabilities
Lease liabilities
Current tax liabilities
Subordinated loan notes
Retirement benefit obligations
Total liabilities
Equity
Share capital
Share premium
Merger reserve
Own shares
Retained earnings
Total equity
behalf by:
Paul Stockton
Chief Executive
Total liabilities and equity
3,370,618
3,398,734
The financial statements were approved by the board of directors and authorised for issue on 3 March 2021 and were signed on their
Company registered number: 01000403
The accompanying notes form an integral part of the consolidated financial statements.
Jennifer Mathias
Finance Director
Note
2020
£’000
2019
£’000
14
1,802,706
1,932,997
15
16
17
17
18
19
20
21
22
23
24
25
27
28
29
30
30
30
31
90,373
159,430
166,221
107,559
651,427
98,714
14,846
44,856
3,342
893
95,412
112,071
56,124
971
19,768
9,785
2,874
215,092
71,756
(46,744)
270,849
513,827
52,520
177,832
138,412
105,967
600,261
95,390
15,432
49,480
2,636
28
57,694
93,263
61,004
4,766
19,927
8,014
2,818
210,939
71,756
(41,971)
241,851
485,393
231,144
227,807
3,370,618
3,398,734
2,561,767
2,668,645
2,856,791
2,913,341
Cash flows from operating activities
Profit before tax
Change in fair value through profit or loss
Net interest income
Impairment losses on financial instruments
Net charge for provisions
Loss/(profit) on disposal of property, plant and equipment
Depreciation, amortisation and impairment
Foreign exchange movements
Defined benefit pension scheme charges
Defined benefit pension contributions paid
Share-based payment charges
Interest paid
Interest received
Changes in operating assets and liabilities:
– net decrease/(increase) in loans and advances to banks and customers
– net increase in settlement balance debtors
– net increase in prepayments, accrued income and other assets
– net (decrease)/increase in amounts due to customers and deposits by banks
– net increase in settlement balance creditors
– net increase in accruals, deferred income, provisions and other liabilities
Cash generated from operations
Tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired
Purchase of property, plant, equipment and intangible assets
Purchase/(disposal) of right-of-use assets
Proceeds from sale of property, plant and equipment
Purchase of investment securities
Proceeds from sale and redemption of investment securities
Net cash (used in)/generated from investing activities
Cash flows from financing activities
Net (repurchase)/issue of ordinary shares
Dividends paid
Payment of lease liabilities
Interest paid
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes form an integral part of the consolidated financial statements.
Note
2020
£’000
2019
£’000
43,779
(1,881)
(8,422)
582
143
–
31,229
1,245
200
(3,111)
39,986
(5,300)
12,376
110,826
29,852
(37,852)
(722)
(106,013)
37,718
19,616
53,425
(21,410)
32,015
(12,048)
(13,294)
(238)
–
(886,847)
833,712
(78,715)
(868)
(37,831)
(4,880)
(1,060)
(44,639)
(91,339)
2,148,033
2,056,694
39,652
(410)
(16,412)
103
3,572
428
33,799
2,152
255
(3,128)
31,012
(11,421)
28,264
107,866
(31,076)
(12,765)
(13,725)
442,646
21,002
2,802
516,750
(17,133)
499,617
–
(17,705)
–
(239)
(754,958)
1,058,874
285,972
(4,340)
(35,959)
(4,623)
(1,171)
(46,093)
739,496
1,408,537
2,148,033
33
26
17
29
29
17
17
38
12
38
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Rathbone Brothers Plc Report and accounts 2020
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Notes to the consolidated financial statements
Notes to the consolidated
financial statements
1
Principal accounting policies
Rathbone Brothers Plc (‘the company’) is a public company limited by shares incorporated and domiciled in England and Wales under the
Companies Act 2006.
1.1 Basis of preparation
The consolidated and company financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted by the EU. The company financial statements are presented on pages 203 to 222.
The financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair
value (notes 1.12 and 1.16). The principal accounting policies adopted are set out in this note and, unless otherwise stated, have been applied
consistently to all periods presented in the consolidated financial statements.
1.2 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the company and entities controlled by the company
(its subsidiaries), together ‘the group’, made up to 31 December each year.
The group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability
to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is obtained, and
no longer consolidated from the date that control ceases; their results are included in the consolidated financial statements up to the date
that control ceases. Inter-company transactions and balances between group companies are eliminated on consolidation.
1.3 Developments in reporting standards and interpretations
Standards and interpretations affecting the reported results or the financial position
The following amendments to standards have been adopted in the current period, but have not had a significant impact on the amounts
reported in these financial statements:
– Amendments to References to Conceptual Framework in IFRS Standards
– Definition of a Business (Amendments to IFRS 3)
– Definition of Material (Amendments to IAS 1 and IAS 8)
– Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
– Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4).
Future new standards and interpretations
The following standard is effective for annual periods beginning after 1 January 2020 and earlier application is permitted; however, the
group has not early-adopted the amended standard in preparing these consolidated financial statements.
– COVID-19-Related Rent Concessions (Amendment to IFRS 16).
The below standards are not yet effective and have not yet been endorsed by the EU:
– IFRS 17 Insurance Contracts
– Classification of liabilities as current or non-current (Amendments to IAS 1)
– Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28).
None of these standards are expected to have a material impact on the group’s financial statements.
1.4 Business combinations
Business combinations are accounted for using the acquisition method. The consideration for each acquisition is measured at the
aggregate of the fair values (at the date of exchange) of assets acquired, liabilities assumed and equity instruments issued by the
group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.
Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration
arrangement, measured at its acquisition date fair value. Subsequent changes in such fair values may arise as a result of additional
information obtained after this date about facts and circumstances that existed at the acquisition date. Provided they arise within
12 months of the acquisition date, these changes are measurement period adjustments and are reflected against the cost of acquisition.
Changes in the fair value of contingent consideration resulting from events occurring after the acquisition date are charged to profit or
loss or other comprehensive income, except for obligations that are classified as equity, which are not remeasured. Such changes are
irrespective of the 12-month period from acquisition.
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| Consolidated financial statements
Notes to the consolidated
financial statements
Rathbone Brothers Plc (‘the company’) is a public company limited by shares incorporated and domiciled in England and Wales under the
1
Principal accounting policies
Companies Act 2006.
1.1 Basis of preparation
The consolidated and company financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted by the EU. The company financial statements are presented on pages 203 to 222.
The financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair
value (notes 1.12 and 1.16). The principal accounting policies adopted are set out in this note and, unless otherwise stated, have been applied
consistently to all periods presented in the consolidated financial statements.
1.2 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the company and entities controlled by the company
(its subsidiaries), together ‘the group’, made up to 31 December each year.
The group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability
to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is obtained, and
no longer consolidated from the date that control ceases; their results are included in the consolidated financial statements up to the date
that control ceases. Inter-company transactions and balances between group companies are eliminated on consolidation.
1.3 Developments in reporting standards and interpretations
Standards and interpretations affecting the reported results or the financial position
reported in these financial statements:
– Amendments to References to Conceptual Framework in IFRS Standards
– Definition of a Business (Amendments to IFRS 3)
– Definition of Material (Amendments to IAS 1 and IAS 8)
– Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
– Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4).
Future new standards and interpretations
– COVID-19-Related Rent Concessions (Amendment to IFRS 16).
The below standards are not yet effective and have not yet been endorsed by the EU:
– IFRS 17 Insurance Contracts
– Classification of liabilities as current or non-current (Amendments to IAS 1)
The following standard is effective for annual periods beginning after 1 January 2020 and earlier application is permitted; however, the
group has not early-adopted the amended standard in preparing these consolidated financial statements.
– Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28).
None of these standards are expected to have a material impact on the group’s financial statements.
1.4 Business combinations
Business combinations are accounted for using the acquisition method. The consideration for each acquisition is measured at the
aggregate of the fair values (at the date of exchange) of assets acquired, liabilities assumed and equity instruments issued by the
group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.
Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration
arrangement, measured at its acquisition date fair value. Subsequent changes in such fair values may arise as a result of additional
information obtained after this date about facts and circumstances that existed at the acquisition date. Provided they arise within
12 months of the acquisition date, these changes are measurement period adjustments and are reflected against the cost of acquisition.
Changes in the fair value of contingent consideration resulting from events occurring after the acquisition date are charged to profit or
loss or other comprehensive income, except for obligations that are classified as equity, which are not remeasured. Such changes are
irrespective of the 12-month period from acquisition.
1.5 Going concern
The directors have, at the time of approving the financial statements, a reasonable expectation that the company and the group have
adequate resources to continue in operational existence. In forming this view, the directors have considered the company’s and the
group’s prospects for a period of at least 12 months, taking into consideration the potential impacts of the COVID-19 pandemic on market
volatility, net organic growth and additional costs of maintaining operational resilience. As a result, the directors continue to adopt the
going concern basis of accounting in preparing the financial statements.
1.6 Foreign currencies
The functional and presentational currency of the company and its subsidiaries is sterling.
Transactions in currencies other than the relevant group entity’s functional currency are recorded at the rates of exchange prevailing on
the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are
retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in profit or loss for
the year.
1.7
Income
Net interest income
Interest income or expense is recognised within net interest income using the effective interest method.
The effective interest method is the method of calculating the amortised cost of a financial asset or liability (or group of assets and
liabilities) and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate
that exactly discounts the expected future cash payments or receipts through the expected life of the financial instrument, or
when appropriate, a shorter period, to:
The following amendments to standards have been adopted in the current period, but have not had a significant impact on the amounts
– the gross carrying amount of the financial asset; or
– the amortised cost of the financial liability.
The application of the method has the effect of recognising income (or expense) receivable (or payable) on the instrument evenly in
proportion to the amount outstanding over the period to maturity or repayment. In calculating effective interest, the group estimates
cash flows considering all contractual terms of the financial instrument but excluding the impact of future credit losses.
Dividends received from money market funds are included in net interest income when received.
Net fee and commission income
Portfolio or investment management fees, commissions receivable or payable and fees from advisory services are recognised on
a continuous basis over the period that the related service is provided.
Commission charges for executing transactions on behalf of clients are recognised when the transaction is dealt.
Initial charges receivable from the sale of unit holdings in the group’s collective investment schemes and related rebates are recognised
at the point of sale.
The group has made an assessment as to whether the work performed to earn such fees constitutes the transfer of services and, therefore,
fulfils any performance obligation(s). If so, then these fees can be recognised when the relevant performance obligation has been satisfied;
if not, then the fees can only be recognised in the period in which the services are provided.
A breakdown of the timing of revenue recognition can be found in note 3.
Net trading income
Net trading income comprises net dealing profits on the sale and redemption of units in the Funds business and is recognised
when received.
Dividend income
Dividend income from final dividends on equity securities is accounted for on the date the security becomes ex-dividend. Interim
dividends are recognised when received.
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Notes to the consolidated financial statements continued
1
Principal accounting policies continued
1.8 Leases
The group applied IFRS 16 with effect from 1 January 2019, using the modified retrospective approach.
The group has applied the practical expedient to grandfather the definition of a lease at the date of transition. Therefore, this policy applies
to all contracts entered into on or after 1 January 2019.
At inception of a contract, the group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract
conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract
conveys the right to control the use of an identified asset, the group uses the definition of a lease in IFRS 16.
The group recognises a right-of-use asset and a lease liability at the inception date of the lease. The right-of-use asset is initially measured at
cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date,
plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying
asset or the site on which it is located, less any lease incentives received.
The right-of-use assets are subsequently depreciated on a straight-line basis over the shorter of the expected life of the asset and the lease
term, adjusted for any remeasurements of the lease liability. At the end of each reporting period, the right-of-use assets are assessed for
indicators of impairment in accordance with IAS 36.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted
using the interest rate implicit in the lease or, if that rate cannot be readily determined, the group’s incremental borrowing rate. The group
uses its incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability comprise the following:
– fixed payments, including in-substance fixed payments
– variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date
– amounts expected to be payable under a residual value guarantee
– the exercise price under a purchase option that the group is reasonably certain to exercise, lease payments in an optional renewal period
if the group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the group is
reasonably certain not to terminate early.
The group’s incremental borrowing rate is derived with reference to the group’s subordinated loan notes (note 28), which is the only
external financing on the consolidated balance sheet.
The lease liability is subsequently measured by adjusting the carrying amount to reflect the interest charge, the lease payments made and
any reassessment or lease modifications. The lease liability is remeasured if the group changes its assessment of whether it will exercise
a purchase, extension or termination option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset,
or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
Where the group is an intermediate lessor in a sub-lease, it accounts for its interests in the head lease and the sub-lease separately.
It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference
to the underlying asset.
1.9 Share-based payments
The group engages in equity-settled and cash-settled share-based payment transactions in respect of services received from its employees.
Equity-settled awards
For equity-settled share-based payments, the fair value of the award is measured by reference to the fair value of the shares or share
options granted on the grant date. The cost of the employee services received in respect of the shares or share options granted is
recognised in profit or loss over the vesting period, with a corresponding credit to equity.
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| Consolidated financial statements
1
Principal accounting policies continued
1.8 Leases
The group applied IFRS 16 with effect from 1 January 2019, using the modified retrospective approach.
The group has applied the practical expedient to grandfather the definition of a lease at the date of transition. Therefore, this policy applies
to all contracts entered into on or after 1 January 2019.
At inception of a contract, the group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract
conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract
conveys the right to control the use of an identified asset, the group uses the definition of a lease in IFRS 16.
The group recognises a right-of-use asset and a lease liability at the inception date of the lease. The right-of-use asset is initially measured at
cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date,
plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying
asset or the site on which it is located, less any lease incentives received.
The right-of-use assets are subsequently depreciated on a straight-line basis over the shorter of the expected life of the asset and the lease
term, adjusted for any remeasurements of the lease liability. At the end of each reporting period, the right-of-use assets are assessed for
indicators of impairment in accordance with IAS 36.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted
using the interest rate implicit in the lease or, if that rate cannot be readily determined, the group’s incremental borrowing rate. The group
uses its incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability comprise the following:
– fixed payments, including in-substance fixed payments
The fair value of the awards or options granted is determined using a binomial pricing model, which takes into account the current share
price, the risk-free interest rate, the expected volatility of the company’s share price over the life of the option or award, any applicable
exercise price and other relevant factors. Only those vesting conditions that include terms related to market conditions are taken into
account in estimating fair value. Non-market vesting conditions are taken into account by adjusting the number of shares or share
options included in the measurement of the cost of employee services so that, ultimately, the amount recognised in profit or loss reflects
the number of vested shares or share options, with a corresponding adjustment to equity. Where vesting conditions are related to market
conditions, the charges for the services received are recognised regardless of whether or not the market-related vesting condition is met,
provided that any non-market vesting conditions are also met. Shares purchased and issued are charged directly to equity.
Cash-settled awards
For cash-settled share-based payments, a liability is recognised for the services received to the balance sheet date, measured at the fair
value of the liability. At each subsequent balance sheet date and at the date on which the liability is settled, the fair value of the liability
is remeasured with any changes in fair value recognised in profit or loss.
1.10 Taxation
Current tax
Current tax is the expected tax payable or receivable on net taxable income for the year. Current tax is calculated using tax rates enacted
or substantively enacted by the balance sheet date, together with any adjustment to tax payable or receivable in respect of previous years.
Deferred tax
Deferred tax is accounted for under the balance sheet liability method in respect of temporary differences using tax rates (and laws) that
have been enacted or substantively enacted by the balance sheet date and are expected to apply when the liability is settled or when the
asset is realised. Deferred tax liabilities are recognised for all temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which deductible temporary differences may be utilised, except where the
temporary difference arises:
– variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date
– from the initial recognition of goodwill;
– amounts expected to be payable under a residual value guarantee
– from the initial recognition of other assets and liabilities in a transaction, which affects neither the tax profit nor the accounting profit,
– the exercise price under a purchase option that the group is reasonably certain to exercise, lease payments in an optional renewal period
if the group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the group is
reasonably certain not to terminate early.
other than in a business combination; or
– in relation to investments in subsidiaries and associates, where the group is able to control the reversal of the temporary difference and it
is the group’s intention not to reverse the temporary difference in the foreseeable future.
The group’s incremental borrowing rate is derived with reference to the group’s subordinated loan notes (note 28), which is the only
external financing on the consolidated balance sheet.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the group intends
to settle its current tax assets and liabilities on a net basis.
The lease liability is subsequently measured by adjusting the carrying amount to reflect the interest charge, the lease payments made and
any reassessment or lease modifications. The lease liability is remeasured if the group changes its assessment of whether it will exercise
a purchase, extension or termination option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset,
or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
Where the group is an intermediate lessor in a sub-lease, it accounts for its interests in the head lease and the sub-lease separately.
It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference
to the underlying asset.
1.9 Share-based payments
Equity-settled awards
The group engages in equity-settled and cash-settled share-based payment transactions in respect of services received from its employees.
For equity-settled share-based payments, the fair value of the award is measured by reference to the fair value of the shares or share
options granted on the grant date. The cost of the employee services received in respect of the shares or share options granted is
recognised in profit or loss over the vesting period, with a corresponding credit to equity.
Current and deferred tax are recognised, in the same or a different period:
– in other comprehensive income if they relate to items recognised in other comprehensive income
– directly in retained earnings if they relate to items recognised directly in retained earnings.
1.11 Cash and cash equivalents
Cash comprises cash in hand.
Cash equivalents comprise money market funds which are realisable on demand and loans and advances to banks with a maturity of less
than three months from the date of acquisition.
For the purposes of the consolidated statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined
above, net of outstanding bank overdrafts.
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Notes to the consolidated financial statements continued
1
Principal accounting policies continued
1.12 Financial assets
Initial recognition and measurement
Financial assets, excluding trade debtors, are initially recognised when the group becomes party to the contractual provisions of the asset.
Trade debtors are recognised when cash is advanced to the borrowers.
Financial assets are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition (except those
assets classified at fair value through profit or loss). Trade debtors without a significant financing component are initially measured at the
transaction price.
Financial assets are not reclassified subsequent to their initial recognition unless the group changes its business model for managing
financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change
in the business model.
Classification and subsequent measurement
Financial assets are classified and measured in the following categories:
– amortised cost
Financial assets are measured at amortised cost if their contractual terms give rise to cash flows that are solely payments of principal
and interest on the principal amount outstanding and they are held within a business model whose objective is to hold assets to collect
contractual cash flows.
Assets are measured at amortised cost using the effective interest rate method (note 1.7), less any impairment losses. Interest income,
foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in
profit or loss.
– at fair value through other comprehensive income (FVOCI)
Debt instruments are measured at FVOCI if their contractual terms give rise to cash flows that are solely payments of principal and
interest on the principal amount outstanding and they are held within a business model whose objective is both to hold assets to collect
contractual cash flows and to sell the assets.
For debt instruments, interest income is calculated using the effective interest method. For equity instruments, dividends are recognised
as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. All other gains and
losses on assets at FVOCI are recognised in OCI.
– at fair value through profit or loss (FVTPL)
All equity instruments are measured at FVTPL unless, provided the instrument is not held for trading, the group irrevocably elects to
measure the instrument at FVOCI. This election is made on an investment-by-investment basis.
All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. On initial
recognition, the group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised
cost or FVOCI at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Net gains and losses, including any interest or dividend income, are recognised in profit or loss.
Business model assessment
The group assesses the objective of the business model in which a financial asset is held at a portfolio level. The information
considered includes:
– the objectives for the portfolio and how those tie in to the current and future strategy of the group
– how the performance of the portfolio is evaluated and reported to the group’s management
– the risks that affect the performance of the business model (and the financial assets held within that business model) and how those
risks are managed
– how group employees are compensated, e.g. whether compensation is based on the fair value of the assets managed or the contractual
cash flows collected
– the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future
sales activity.
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| Consolidated financial statements
1
Principal accounting policies continued
1.12 Financial assets
Initial recognition and measurement
transaction price.
in the business model.
– amortised cost
contractual cash flows.
profit or loss.
Financial assets, excluding trade debtors, are initially recognised when the group becomes party to the contractual provisions of the asset.
Trade debtors are recognised when cash is advanced to the borrowers.
Financial assets are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition (except those
assets classified at fair value through profit or loss). Trade debtors without a significant financing component are initially measured at the
Financial assets are not reclassified subsequent to their initial recognition unless the group changes its business model for managing
financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change
Classification and subsequent measurement
Financial assets are classified and measured in the following categories:
Financial assets are measured at amortised cost if their contractual terms give rise to cash flows that are solely payments of principal
and interest on the principal amount outstanding and they are held within a business model whose objective is to hold assets to collect
Assets are measured at amortised cost using the effective interest rate method (note 1.7), less any impairment losses. Interest income,
foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in
– at fair value through other comprehensive income (FVOCI)
Debt instruments are measured at FVOCI if their contractual terms give rise to cash flows that are solely payments of principal and
interest on the principal amount outstanding and they are held within a business model whose objective is both to hold assets to collect
contractual cash flows and to sell the assets.
losses on assets at FVOCI are recognised in OCI.
– at fair value through profit or loss (FVTPL)
All equity instruments are measured at FVTPL unless, provided the instrument is not held for trading, the group irrevocably elects to
measure the instrument at FVOCI. This election is made on an investment-by-investment basis.
All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. On initial
recognition, the group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised
cost or FVOCI at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Net gains and losses, including any interest or dividend income, are recognised in profit or loss.
Business model assessment
considered includes:
risks are managed
cash flows collected
sales activity.
The group assesses the objective of the business model in which a financial asset is held at a portfolio level. The information
– the objectives for the portfolio and how those tie in to the current and future strategy of the group
– how the performance of the portfolio is evaluated and reported to the group’s management
– the risks that affect the performance of the business model (and the financial assets held within that business model) and how those
– how group employees are compensated, e.g. whether compensation is based on the fair value of the assets managed or the contractual
– the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future
Payments of principal and interest criterion
In assessing whether the contractual cash flows are solely payments of principal and interest, the group considers:
– the contractual terms of the instrument, checking consistency with basic lending criteria
– the impact of the time value of money
– features that would change the amount or timing of contractual cash flows
– other factors, such as prepayment or extension features.
Derecognition
Financial assets are derecognised when the contractual rights to receive cash flows have expired or the group has transferred substantially
all the risks and rewards of ownership.
Impairment of financial assets
The group recognises loss allowances for expected credit losses (ECLs) on financial assets measured at amortised cost and FVOCI and loan
commitments held off balance sheet.
A financial asset will attract a loss allowance equal to either:
– 12-month ECLs (losses resulting from possible defaults within the next 12 months); or
– lifetime ECLs (losses resulting from possible defaults over the remaining life of the financial asset).
The latter applies if there has been a significant deterioration in the credit quality of the asset; albeit lifetime ECLs will always be recognised
for assets without a significant financing component.
The maximum period considered when estimating ECLs is the maximum contractual period over which the group is exposed to credit risk.
The group measures loss allowances at an amount equal to lifetime ECLs, except for treasury book and investment management loan book
exposures for which credit risk has not increased significantly since initial recognition, which are measured at 12-month ECLs.
Loss allowances for trust and financial planning debtors are always measured at an amount equal to lifetime ECLs.
When assessing whether the credit risk of a financial asset has increased significantly between the reporting date and initial recognition,
quantitative and qualitative indicators are used. More detail can be found at note 33.
For debt instruments, interest income is calculated using the effective interest method. For equity instruments, dividends are recognised
as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. All other gains and
Measurement of ECLs
Treasury book and investment management loan book
The group has developed a detailed model for calculating ECLs on its treasury book and investment management loan book (which
includes loan commitments held off balance sheet). The group has applied considerable judgement in developing three different
economic scenarios: a base case, an upside and a downside.
The base case is assigned a 60% probability of occurring with the upside and downside each assigned a 20% probability of occurring.
The economic scenarios are based on the projections of GDP, inflation, unemployment rates, house price indices, financial markets and
interest rates as set out in the banking system stress testing scenario published annually by the PRA.
Management adjust the projections for the economic variables in arriving at the upside and downside scenarios.
Under each resultant scenario, an ECL is forecast for each exposure in the treasury book and investment management loan book. The ECL
is calculated based on management’s estimate of the probability of default, the loss given default and the exposure at default of each
exposure taking into account industry credit loss data, the group’s own credit loss experience, the expected repayment profiles of the
exposures and the level of collateral held. Industry credit loss information is drawn from data on credit defaults for different categories of
exposure published by the Council of Mortgage Lenders and Standard & Poor’s.
The model adopts a staging allocation methodology, primarily based on changes in the internal and/or external credit rating of exposures
to identify significant increases in credit risk since inception of the exposure.
The group has not rebutted the presumption that if an exposure is more than 30 days past due, the associated credit risk has
significantly increased.
More detail on the group’s staging criteria is provided in note 33.
ECLs are discounted back to the balance sheet date at the effective interest rate of the asset.
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Trust and financial planning debtors
The group’s trust and financial planning debtors are generally short term and do not contain significant financing components. Therefore,
the group has applied a practical expedient by using a provision matrix to calculate lifetime ECLs based on actual credit loss experience
over the past four years.
Credit-impaired financial assets
At each reporting date, the group assesses whether financial assets carried at amortised cost and FVOCI are credit-impaired. A financial
asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset
have occurred. The group’s definition of default is given in note 33.
Presentation of impairment
Loss allowances for financial assets measured at amortised cost and FVOCI are deducted from the gross carrying amount of the assets.
Impairment losses related to the group’s treasury book and investment management loan book are presented in ‘interest expense and
similar charges’ and those related to all other financial assets (including trust and financial planning debtors) are presented under ‘other
operating expenses’. No losses are presented separately on the statement of the comprehensive income and there have been no
reclassifications of amounts previously recognised under IAS 39.
1.13 Property, plant and equipment
All property, plant and equipment is stated at historical cost, which includes directly attributable acquisition costs, less accumulated
depreciation and impairment losses. Depreciation is charged so as to write off the cost of assets to their estimated residual value over their
estimated useful lives, using the straight-line method, on the following bases:
– leasehold improvements: over the lease term
– plant, equipment and computer hardware: over three to 10 years.
The assets’ residual lives are reviewed, and adjusted if appropriate, at each balance sheet date. Gains and losses on disposals are determined
by comparing proceeds with the carrying amount and these are included in profit or loss.
1.14 Intangible assets
Goodwill
Goodwill arises through business combinations and represents the excess of the cost of acquisition over the group’s interest in the fair
value of the identifiable assets, liabilities and contingent liabilities of a business at the date of acquisition.
Goodwill is recognised as an asset and measured at cost less accumulated impairment losses. It is allocated to groups of cash-generating
units, which represent the lowest level at which goodwill is monitored for internal management purposes. Cash-generating units are
identified as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from
other assets or groups of assets, and are no larger than the group’s operating segments, as set out in note 3.
On disposal of a subsidiary the attributed amount of goodwill that has not been subject to impairment is included in the determination of
the profit or loss on disposal.
Goodwill arising on acquisitions before 1 January 2004, being the date of the group’s transition to IFRS, has been retained at the previous
UK GAAP carrying amounts and is tested for impairment annually.
Client relationships
Client relationships acquired as part of a business combination are initially recognised at fair value (note 1.4). Determining whether a
transaction that involves the purchase of client relationships is treated as a business combination or a separate purchase of intangible
assets requires judgement. The factors that the group takes into consideration in making this judgement are set out in note 2.1.
Individually purchased client relationships are initially recognised at cost. Where a transaction to acquire client relationship intangibles
includes an element of variable deferred consideration, an estimate is made of the value of consideration that will ultimately be paid. The
client relationship intangible recognised on the balance sheet is adjusted for any subsequent change in the value of deferred consideration.
Note 2.1 sets out the approach taken by the group where judgement is required to determine whether payments made for the introduction
of client relationships should be capitalised as intangible assets or charged to profit or loss.
Client relationships are subsequently carried at the amount initially recognised less accumulated amortisation, which is calculated using
the straight-line method over their estimated useful lives (normally 10 to 15 years, but not more than 15 years).
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Trust and financial planning debtors
over the past four years.
Credit-impaired financial assets
The group’s trust and financial planning debtors are generally short term and do not contain significant financing components. Therefore,
the group has applied a practical expedient by using a provision matrix to calculate lifetime ECLs based on actual credit loss experience
At each reporting date, the group assesses whether financial assets carried at amortised cost and FVOCI are credit-impaired. A financial
asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset
have occurred. The group’s definition of default is given in note 33.
Presentation of impairment
Loss allowances for financial assets measured at amortised cost and FVOCI are deducted from the gross carrying amount of the assets.
Impairment losses related to the group’s treasury book and investment management loan book are presented in ‘interest expense and
similar charges’ and those related to all other financial assets (including trust and financial planning debtors) are presented under ‘other
operating expenses’. No losses are presented separately on the statement of the comprehensive income and there have been no
reclassifications of amounts previously recognised under IAS 39.
1.13 Property, plant and equipment
All property, plant and equipment is stated at historical cost, which includes directly attributable acquisition costs, less accumulated
depreciation and impairment losses. Depreciation is charged so as to write off the cost of assets to their estimated residual value over their
estimated useful lives, using the straight-line method, on the following bases:
– leasehold improvements: over the lease term
– plant, equipment and computer hardware: over three to 10 years.
The assets’ residual lives are reviewed, and adjusted if appropriate, at each balance sheet date. Gains and losses on disposals are determined
by comparing proceeds with the carrying amount and these are included in profit or loss.
1.14 Intangible assets
Goodwill
Goodwill arises through business combinations and represents the excess of the cost of acquisition over the group’s interest in the fair
value of the identifiable assets, liabilities and contingent liabilities of a business at the date of acquisition.
Goodwill is recognised as an asset and measured at cost less accumulated impairment losses. It is allocated to groups of cash-generating
units, which represent the lowest level at which goodwill is monitored for internal management purposes. Cash-generating units are
identified as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from
other assets or groups of assets, and are no larger than the group’s operating segments, as set out in note 3.
On disposal of a subsidiary the attributed amount of goodwill that has not been subject to impairment is included in the determination of
Goodwill arising on acquisitions before 1 January 2004, being the date of the group’s transition to IFRS, has been retained at the previous
UK GAAP carrying amounts and is tested for impairment annually.
the profit or loss on disposal.
Client relationships
Client relationships acquired as part of a business combination are initially recognised at fair value (note 1.4). Determining whether a
transaction that involves the purchase of client relationships is treated as a business combination or a separate purchase of intangible
assets requires judgement. The factors that the group takes into consideration in making this judgement are set out in note 2.1.
Individually purchased client relationships are initially recognised at cost. Where a transaction to acquire client relationship intangibles
includes an element of variable deferred consideration, an estimate is made of the value of consideration that will ultimately be paid. The
client relationship intangible recognised on the balance sheet is adjusted for any subsequent change in the value of deferred consideration.
Note 2.1 sets out the approach taken by the group where judgement is required to determine whether payments made for the introduction
of client relationships should be capitalised as intangible assets or charged to profit or loss.
Client relationships are subsequently carried at the amount initially recognised less accumulated amortisation, which is calculated using
the straight-line method over their estimated useful lives (normally 10 to 15 years, but not more than 15 years).
Computer software and software development costs
Costs incurred to acquire and bring to use computer software licences are capitalised and amortised through profit or loss over their
expected useful lives (three to four years).
Costs that are directly associated with the production of identifiable and unique software products controlled by the group are recognised
as intangible assets when the group is expected to benefit from future use of the software and the costs are reliably measurable. Other costs
of producing software are charged to profit or loss as incurred. Computer software development costs recognised as assets are amortised
using the straight-line method over their useful lives (not exceeding four years).
1.15 Impairment of goodwill and intangible assets
At each balance sheet date, the group reviews the carrying amounts of its intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order
to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other
assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is
the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the time value of money.
Goodwill is tested for impairment at least annually. For the purposes of impairment testing, goodwill is allocated to groups of cash-
generating units. The carrying amount of each group of cash-generating units is compared to its value in use, calculated using a discounted
cash flow method. If the recoverable amount of the group of cash-generating units is less than the carrying amount of the group of units,
the impairment loss is allocated first to reduce the carrying amount of the goodwill allocated to that group of units and then to the other
assets of the group of units pro rata on the basis of the carrying amount of each asset in the group of units.
Client relationship intangibles are tested for impairment by comparing the fair value of funds under management and administration for
each individually acquired client relationship (or, for client relationships acquired with a business combination, each acquired portfolio
of clients) with their associated amortised value. An example of evidence of impairment would be lost client relationships. In determining
whether a client relationship is lost, the group considers factors such as the level of funds withdrawn and the existence of other retained
family relationships. When client relationships are lost, the full amount of unamortised cost is recognised immediately in profit or loss
and the intangible asset is derecognised.
If the recoverable amount of any asset other than goodwill or client relationships is estimated to be less than its carrying amount, the
carrying amount of the asset is reduced to its recoverable amount.
Any impairment loss is recognised immediately in profit or loss.
1.16 Financial liabilities
Initial recognition and measurement
Financial liabilities are initially recognised at fair value plus transaction costs that are directly attributable to its issue.
Classification and subsequent measurement
Financial liabilities are classified as measured at amortised cost or at fair value through profit or loss.
The group has not designated any liabilities as fair value through profit or loss and holds no liabilities as held for trading. Financial liabilities
are measured at amortised cost using the effective interest method (note 1.7). Amortised cost is calculated by taking into account any issue
costs and any discounts or premiums on settlement. Interest expense and foreign exchange gains and losses are recognised in profit or
loss. Any gain or loss on derecognition is also recognised in profit or loss.
Derecognition
The group derecognises financial liabilities when its contractual obligations are discharged or cancelled, or expire.
1.17 Provisions and contingent liabilities
Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event and it is probable
that an outflow of economic benefits, that can be reliably estimated, will occur. Provisions are measured at the present value of the
expenditures expected to be required to settle the obligation, discounted using a pre-tax rate that reflects current market assessments
of the time value of money and the risks specific to the obligation.
Contingent liabilities are possible obligations that depend on the outcome of uncertain future events or those present obligations where
the outflows of resources are uncertain or cannot be measured reliably. Contingent liabilities are not recognised in the financial statements
but are disclosed unless the likelihood of crystallisation is judged to be remote.
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1.18 Retirement benefit obligations on retirement benefit schemes
The group’s net liability in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of
future benefit that employees have earned in return for their service in the current and prior years; that benefit is discounted to determine
its present value, and the fair value of any plan assets (at bid price) is deducted. Any asset resulting from this calculation is limited to the
present value of available refunds and reductions in future contributions to the plan.
The cost of providing benefits under defined benefit plans is determined using the projected unit credit method, with actuarial valuations
being carried out at each balance sheet date. Net remeasurements of the defined benefit liability are recognised in full in the period in
which they occur in other comprehensive income.
Past service costs or gains are recognised immediately in the period of a plan amendment.
The amount recognised in the balance sheet for death-in-service benefits represents the present value of the estimated obligation, reduced
by the extent to which any future liabilities will be met by insurance policies.
The company determines the net interest on the net defined benefit liability for the year by applying the discount rate used to measure the
defined benefit obligation at the beginning of the year to the net defined benefit liability.
Contributions to defined contribution retirement benefit schemes are charged to profit or loss as an expense as they fall due.
1.19 Segmental reporting
The group determines and presents operating segments based on the information that is provided internally to the group executive
committee, which is the group’s chief operating decision-maker. Operating segments are organised around the services provided to clients;
a description of the services provided by each segment is given in note 3. No operating segments have been aggregated in the group’s
financial statements.
Transactions between operating segments are reported within the income or expenses for those segments; intra-segment income and
expenditure is eliminated at group level. Indirect costs are allocated between segments in proportion to the principal cost driver for each
category of indirect costs that is generated by each segment.
1.20 Fiduciary activities
The group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals,
trusts, retirement benefit plans and other institutions. Such assets and income arising thereon are excluded from these financial
statements, as they are not assets of the group. Largely as a result of cash and settlement processing, the group holds money on behalf of
some clients in accordance with the Client Money Rules of the Financial Conduct Authority, the Jersey Financial Services Commission
and the Solicitors’ Accounts Rules issued by the Solicitors Regulation Authority, as applicable. Such monies and the corresponding
amounts due to clients are not shown on the face of the balance sheet as the group is not beneficially entitled to them.
1.21 Financial guarantees
The group provides a limited number of financial guarantees, which are backed by assets in clients’ portfolios. Financial guarantees are
initially recognised in the balance sheet at fair value. Guarantees are subsequently measured at the higher of the best estimate of any
amount to be paid to settle the guarantee and the amount initially recognised less cumulative amortisation, which is recognised over
the life of the guarantee.
1.22 Fair value measurement
The fair values of quoted financial instruments in active markets are based on current bid prices. If an active market for a financial asset
does not exist, the group establishes fair value by using valuation techniques. These include the use of recent arm’s-length transactions,
discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants.
The group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change
has occurred.
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1.18 Retirement benefit obligations on retirement benefit schemes
The group’s net liability in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of
future benefit that employees have earned in return for their service in the current and prior years; that benefit is discounted to determine
its present value, and the fair value of any plan assets (at bid price) is deducted. Any asset resulting from this calculation is limited to the
present value of available refunds and reductions in future contributions to the plan.
The cost of providing benefits under defined benefit plans is determined using the projected unit credit method, with actuarial valuations
being carried out at each balance sheet date. Net remeasurements of the defined benefit liability are recognised in full in the period in
which they occur in other comprehensive income.
Past service costs or gains are recognised immediately in the period of a plan amendment.
The amount recognised in the balance sheet for death-in-service benefits represents the present value of the estimated obligation, reduced
by the extent to which any future liabilities will be met by insurance policies.
The company determines the net interest on the net defined benefit liability for the year by applying the discount rate used to measure the
defined benefit obligation at the beginning of the year to the net defined benefit liability.
Contributions to defined contribution retirement benefit schemes are charged to profit or loss as an expense as they fall due.
1.19 Segmental reporting
financial statements.
The group determines and presents operating segments based on the information that is provided internally to the group executive
committee, which is the group’s chief operating decision-maker. Operating segments are organised around the services provided to clients;
a description of the services provided by each segment is given in note 3. No operating segments have been aggregated in the group’s
Transactions between operating segments are reported within the income or expenses for those segments; intra-segment income and
expenditure is eliminated at group level. Indirect costs are allocated between segments in proportion to the principal cost driver for each
category of indirect costs that is generated by each segment.
1.20 Fiduciary activities
The group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals,
trusts, retirement benefit plans and other institutions. Such assets and income arising thereon are excluded from these financial
statements, as they are not assets of the group. Largely as a result of cash and settlement processing, the group holds money on behalf of
some clients in accordance with the Client Money Rules of the Financial Conduct Authority, the Jersey Financial Services Commission
and the Solicitors’ Accounts Rules issued by the Solicitors Regulation Authority, as applicable. Such monies and the corresponding
amounts due to clients are not shown on the face of the balance sheet as the group is not beneficially entitled to them.
The group provides a limited number of financial guarantees, which are backed by assets in clients’ portfolios. Financial guarantees are
initially recognised in the balance sheet at fair value. Guarantees are subsequently measured at the higher of the best estimate of any
amount to be paid to settle the guarantee and the amount initially recognised less cumulative amortisation, which is recognised over
1.21 Financial guarantees
the life of the guarantee.
1.22 Fair value measurement
The fair values of quoted financial instruments in active markets are based on current bid prices. If an active market for a financial asset
does not exist, the group establishes fair value by using valuation techniques. These include the use of recent arm’s-length transactions,
discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants.
The group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change
has occurred.
2
Critical accounting judgements and key sources of estimation uncertainty
The group makes judgements and estimates that affect the application of the group’s accounting policies and reported amounts of assets,
liabilities, income and expenses within the next financial year. Estimates and assumptions are continually evaluated and are based on
historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The following key accounting policies involve critical judgements made in applying the accounting policy and involve estimations.
2.1 Client relationship intangibles (note 22)
Critical judgements
Client relationship intangibles purchased through corporate transactions
When the group purchases client relationships through transactions with other corporate entities, a judgement is made as to whether the
transaction should be accounted for as a business combination or as a separate purchase of intangible assets. In making this judgement, the
group assesses the assets, liabilities, operations and processes that were the subject of the transaction against the definition of a business
combination in IFRS 3. In particular, consideration is given to the scale of the operations subject to the transaction and whether ownership
of a corporate entity has been acquired, among other factors.
Payments to newly recruited investment managers
The group assesses whether payments made to newly recruited investment managers under contractual agreements represent payments
for the acquisition of client relationship intangibles or remuneration for ongoing services provided to the group. If these payments are
incremental costs of acquiring investment management contracts and are deemed to be recoverable (i.e. through future revenues earned
from the funds that transfer), they are capitalised as client relationship intangibles (note 22). Otherwise, they are judged to be in relation
to the provision of ongoing services and are expensed in the period in which they are incurred. Upfront payments made to investment
managers upon joining are expensed as they are not judged to be incremental costs for acquiring the client relationships.
Estimation uncertainty
Amortisation of client relationship intangibles
The group makes estimates as to the expected duration of client relationships to determine the period over which related intangible assets
are amortised. The amortisation period is estimated with reference to historical data on account closure rates and expectations that these
will continue in the future. During the year, client relationship intangible assets were amortised over a 10-to-15-year period.
Amortisation of £14,302,000 (2019: £15,369,000) was charged during the year. At 31 December 2020, the carrying value of client relationship
intangibles was £121,129,000 (2019: £124,456,000).
A reduction of three years in the amortisation period of those client relationship intangible assets currently amortised over 15 years would
increase the annual amortisation charge by £5.9 million.
2.2 Retirement benefit obligations (note 29)
Estimation uncertainty
The principal assumptions underlying the reported deficit of £9,785,000 (2019: £8,014,000 deficit) are set out in note 29.
In setting these assumptions, the group makes estimates about a range of long-term trends and market conditions to determine the value
of the surplus or deficit on its retirement benefit schemes, based on the group’s expectations of the future and advice taken from qualified
actuaries. Long-term forecasts and estimates are necessarily highly subjective and subject to risk that actual events may be significantly
different to those forecast. If actual events deviate from the assumptions made by the group then the reported surplus or deficit in respect
of retirement benefit obligations may be materially different.
The sensitivity of the retirement benefit obligations to changes in all of the underlying estimates are set out in note 29. Of these, the most
sensitive assumption is the discount rate used to measure the defined benefit obligation. Increasing the discount rate by 1.0% would
decrease the schemes’ liabilities by £15,689,000 (2019: £28,701,000). A 1.0% decrease would have an equal and opposite effect.
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2.3 Business combinations (note 8)
Critical judgement
Treatment and fair value of consideration transferred
On 31 August 2018, the group acquired the entire share capital of Speirs & Jeffrey (‘S&J’). The group accounted for the transaction as
a business combination.
As described in note 8 to the financial statements, the purchase price payable for the acquisition is split into a number of different parts.
The payment of certain elements has been deferred. At 31 December 2020, one element of the deferred consideration remained unvested
and subject to ongoing vesting conditions.
Vesting of the £25,000,000 initial share consideration is contingent on continued employment of the vendors and this amount is being
charged to profit or loss as a share-based payment for employee services over the vesting period.
Vesting of the earn-out consideration is payable in shares and is conditional on achieving certain operational and financial targets and the
continued employment of the vendors.
Estimation uncertainty
Valuation of the earn-out consideration and incentivisation awards
During the year, the group revised its valuation of the-earn out consideration and related incentivisation awards, which are dependent
on performance by the acquired business against certain operational and financial targets by 31 December 2020 and 31 December 2021.
The group estimates the total amount payable on these dates to be £44.7 million, based on agreed qualifying funds under management
of £5.1 billion at 31 December 2020, and forecast incremental qualifying funds under management of £0.5 billion at 31 December 2021.
As a result, accumulated charges of £35.3 million have been recognised since the acquisition in August 2018 with a corresponding credit
to equity. An additional £0.6 million has been recognised as a provision on the balance sheet in respect of incentivisation awards to be
settled in cash. The associated charge to profit or loss during the year was £23.1 million (note 8).
The value of incremental qualifying funds under management at the end of 2021 has been derived from a probability-weighted scenario
analysis, which considers assumptions of forecast client attrition, and the rate at which existing clients will convert from non-discretionary
to discretionary mandates.
In the prior year, the group’s results were based on forecast qualifying funds under management of £4.8 billion at the end of 2020, and
incremental qualifying funds under management of £48.0 million at the end of 2021. The material increase in forecast total qualifying funds
under management during the year is due to lower than expected client attrition following the application of the group’s standardised fee
rates, and a higher market level at 31 December 2020. The group recognised an additional charge of £15.9 million in profit or loss during the
period in relation to the increase in total forecast qualifying funds under management.
If qualifying funds under management at 31 December 2021 are £100 million higher or lower than management’s estimate then the
accumulated charges as at 31 December 2020 for earn-out consideration and incentivisation awards would be £1.25 million higher or lower
and the charge to profit or loss in 2020 would be £1.25 million higher or lower.
Under the terms of the agreements, the maximum possible payment for the second earn-out and incentivisation awards is capped at
£91,600,000; which represents incremental qualifying funds under management of approximately £3.7 billion at the end of 2021.
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3
Segmental information
2.3 Business combinations (note 8)
Critical judgement
Treatment and fair value of consideration transferred
On 31 August 2018, the group acquired the entire share capital of Speirs & Jeffrey (‘S&J’). The group accounted for the transaction as
a business combination.
As described in note 8 to the financial statements, the purchase price payable for the acquisition is split into a number of different parts.
The payment of certain elements has been deferred. At 31 December 2020, one element of the deferred consideration remained unvested
and subject to ongoing vesting conditions.
Vesting of the £25,000,000 initial share consideration is contingent on continued employment of the vendors and this amount is being
charged to profit or loss as a share-based payment for employee services over the vesting period.
Vesting of the earn-out consideration is payable in shares and is conditional on achieving certain operational and financial targets and the
continued employment of the vendors.
Estimation uncertainty
Valuation of the earn-out consideration and incentivisation awards
During the year, the group revised its valuation of the-earn out consideration and related incentivisation awards, which are dependent
on performance by the acquired business against certain operational and financial targets by 31 December 2020 and 31 December 2021.
The group estimates the total amount payable on these dates to be £44.7 million, based on agreed qualifying funds under management
of £5.1 billion at 31 December 2020, and forecast incremental qualifying funds under management of £0.5 billion at 31 December 2021.
As a result, accumulated charges of £35.3 million have been recognised since the acquisition in August 2018 with a corresponding credit
to equity. An additional £0.6 million has been recognised as a provision on the balance sheet in respect of incentivisation awards to be
settled in cash. The associated charge to profit or loss during the year was £23.1 million (note 8).
The value of incremental qualifying funds under management at the end of 2021 has been derived from a probability-weighted scenario
analysis, which considers assumptions of forecast client attrition, and the rate at which existing clients will convert from non-discretionary
to discretionary mandates.
In the prior year, the group’s results were based on forecast qualifying funds under management of £4.8 billion at the end of 2020, and
incremental qualifying funds under management of £48.0 million at the end of 2021. The material increase in forecast total qualifying funds
under management during the year is due to lower than expected client attrition following the application of the group’s standardised fee
rates, and a higher market level at 31 December 2020. The group recognised an additional charge of £15.9 million in profit or loss during the
period in relation to the increase in total forecast qualifying funds under management.
If qualifying funds under management at 31 December 2021 are £100 million higher or lower than management’s estimate then the
accumulated charges as at 31 December 2020 for earn-out consideration and incentivisation awards would be £1.25 million higher or lower
and the charge to profit or loss in 2020 would be £1.25 million higher or lower.
Under the terms of the agreements, the maximum possible payment for the second earn-out and incentivisation awards is capped at
£91,600,000; which represents incremental qualifying funds under management of approximately £3.7 billion at the end of 2021.
For management purposes, the group is organised into two operating divisions: Investment Management and Funds. Centrally incurred
indirect expenses are allocated to these operating segments on the basis of the cost drivers that generate the expenditure; principally, these
are the headcount of staff directly involved in providing those services from which the segment earns revenues, the value of funds under
management and administration and the segment’s total revenue. The allocation of these costs is shown in a separate column in the table
below, alongside the information presented for internal reporting to the group executive committee, which is the group’s chief operating
decision-maker.
31 December 2020
Net investment management fee income
Net commission income
Net interest income
Fees from advisory services and other income
Underlying operating income
Staff costs – fixed
Staff costs – variable
Total staff costs
Other direct expenses
Allocation of indirect expenses
Underlying operating expenses
Underlying profit before tax
Charges in relation to client relationships and goodwill (note 22)
Acquisition-related costs (note 9)
Segment profit before tax
Profit before tax attributable to equity holders of the company
Taxation (note 11)
Profit for the year attributable to equity holders of the company
Segment total assets
Unallocated assets
Total assets
Investment
Management
£’000
230,309
62,297
8,422
19,629
320,657
(83,673)
(56,414)
(140,087)
(33,371)
(67,753)
(241,211)
79,446
(14,302)
(32,433)
32,711
Funds
£’000
43,929
–
–
1,502
45,431
(4,118)
(12,015)
(16,133)
(8,693)
(7,521)
(32,347)
13,084
–
–
13,084
Indirect
expenses
£’000
–
–
–
–
–
(29,697)
(9,299)
(38,996)
(36,278)
75,274
–
–
–
(2,016)
(2,016)
Investment
Management
£’000
3,243,198
Funds
£’000
121,320
Total
£’000
274,238
62,297
8,422
21,131
366,088
(117,488)
(77,728)
(195,216)
(78,342)
–
(273,558)
92,530
(14,302)
(34,449)
43,779
43,779
(17,127)
26,652
Total
£’000
3,364,518
6,100
3,370,618
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Notes to the consolidated financial statements continued
3
Segmental information continued
31 December 2019
Net investment management fee income
Net commission income
Net interest income
Fees from advisory services and other income
Underlying operating income
Staff costs – fixed
Staff costs – variable
Total staff costs
Other direct expenses
Allocation of indirect expenses
Underlying operating expenses
Underlying profit before tax
Charges in relation to client relationships and goodwill (note 22)
Acquisition-related costs (note 9)
Segment profit before tax
Profit before tax attributable to equity holders of the company
Taxation (note 11)
Profit for the year attributable to equity holders of the company
Segment total assets
Unallocated assets
Total assets
Underlying operating income is equal to operating income for the year ended 31 December 2020 (2019: equal).
The following table reconciles underlying operating expenses to operating expenses:
Underlying operating expenses
Charges in relation to client relationships and goodwill (note 22)
Acquisition-related costs (note 9)
Operating expenses
Investment
Management
£’000
224,135
51,132
16,412
19,247
310,926
(78,562)
(49,711)
(128,273)
(40,392)
(63,842)
(232,507)
78,419
(15,964)
(28,246)
34,209
Funds
£’000
36,073
–
–
1,072
37,145
Indirect expenses
£’000
–
–
–
–
–
(3,783)
(8,710)
(12,493)
(7,299)
(7,099)
(26,891)
10,254
–
–
10,254
(28,477)
(8,353)
(36,830)
(34,111)
70,941
–
–
–
(4,811)
(4,811)
Total
£’000
260,208
51,132
16,412
20,319
348,071
(110,822)
(66,774)
(177,596)
(81,802)
–
(259,398)
88,673
(15,964)
(33,057)
39,652
39,652
(12,729)
26,923
Investment
Management
£’000
3,303,691
Funds
£’000
89,937
Total
£’000
3,393,628
5,106
3,398,734
2020
£’000
273,558
14,302
34,449
322,309
2019
£’000
259,398
15,964
33,057
308,419
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3
Segmental information continued
31 December 2019
Net investment management fee income
Net commission income
Net interest income
Fees from advisory services and other income
Underlying operating income
Staff costs – fixed
Staff costs – variable
Total staff costs
Other direct expenses
Allocation of indirect expenses
Underlying operating expenses
Underlying profit before tax
Acquisition-related costs (note 9)
Segment profit before tax
Charges in relation to client relationships and goodwill (note 22)
Profit before tax attributable to equity holders of the company
Taxation (note 11)
Profit for the year attributable to equity holders of the company
Segment total assets
Unallocated assets
Total assets
Underlying operating income is equal to operating income for the year ended 31 December 2020 (2019: equal).
The following table reconciles underlying operating expenses to operating expenses:
Underlying operating expenses
Charges in relation to client relationships and goodwill (note 22)
Acquisition-related costs (note 9)
Operating expenses
Funds
Indirect expenses
£’000
Investment
Management
£’000
224,135
51,132
16,412
19,247
310,926
£’000
36,073
–
–
1,072
37,145
Total
£’000
260,208
51,132
16,412
20,319
348,071
(78,562)
(49,711)
(3,783)
(8,710)
(28,477)
(110,822)
(8,353)
(66,774)
(128,273)
(12,493)
(36,830)
(177,596)
(34,111)
(81,802)
70,941
–
(40,392)
(63,842)
(232,507)
78,419
(15,964)
(28,246)
34,209
(7,299)
(7,099)
(26,891)
10,254
–
–
10,254
(4,811)
(4,811)
–
–
–
–
–
–
–
–
(259,398)
88,673
(15,964)
(33,057)
39,652
39,652
(12,729)
26,923
Total
£’000
3,393,628
5,106
3,398,734
2020
£’000
2019
£’000
273,558
259,398
14,302
34,449
15,964
33,057
322,309
308,419
Geographic analysis
The following table presents operating income analysed by the geographical location of the group entity providing the service:
United Kingdom
Jersey
Operating income
2020
£’000
353,712
12,376
366,088
2019
£’000
335,732
12,339
348,071
The following is an analysis of the carrying amount of non-current assets analysed by the geographical location of the assets:
United Kingdom
Jersey
Non-current assets
2020
£’000
286,409
4,437
290,846
2019
£’000
239,056
4,183
243,239
Timing of revenue recognition
The following table presents operating income analysed by the timing of revenue recognition of the operating segment providing
the service:
Products and services transferred at a point in time
Products and services transferred over time
Underlying operating income
2020
2019
Investment
Management
£’000
56,300
264,851
321,151
Funds
£’000
(12)
44,949
44,937
Investment
Management
£’000
53,599
257,327
310,926
Funds
£’000
172
36,973
37,145
Investment
Management
£’000
Funds
£’000
3,303,691
89,937
Major clients
The group is not reliant on any one client or group of connected clients for generation of revenues.
4 Net interest income
Interest income
Cash and balances with central banks
Fair value through profit or loss investment securities
Amortised cost investment securities
Loans and advances to banks
Loans and advances to customers
Interest expense
Banks and customers
Lease liabilities
Subordinated loan notes (note 28)
Credit impairment charges
Net interest income
2020
£’000
2019
£’000
4,640
471
5,093
1,401
3,371
14,976
(1,686)
(3,388)
(902)
(578)
(6,554)
8,422
11,383
1,299
8,557
3,328
3,986
28,553
(7,122)
(3,640)
(1,290)
(89)
(12,141)
16,412
With the exception of credit impairment charges, which are calculated as described in note 33, all net interest income is calculated using the
effective interest method (note 1.7).
A reconciliation of the interest expense on subordinated loan notes is provided in note 28.
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Notes to the consolidated financial statements continued
5 Net fee and commission income
Fee and commission income
Investment Management
Funds
Fee and commission expense
Investment Management
Funds
Net fee and commission income
2020
£’000
2019
£’000
327,699
50,541
378,240
308,119
44,400
352,519
(19,774)
(4,717)
(24,491)
353,749
(18,258)
(5,289)
(23,547)
328,972
6 Net trading and other operating income
Net trading income
Net trading expense of £12,000 comprised Funds net dealing losses. Net trading income of £170,000 recognised in 2019 related to box
profits, which ceased from mid-January 2019.
Other operating income
Other operating income of £3,929,000 (2019: £2,517,000) comprised gains and losses from fair value through profit or loss equity securities,
rental income from sub-leases on certain properties leased by group companies and sundry income.
7 Operating expenses
Staff costs (note 10)
Depreciation of property, plant and equipment (note 19)
Depreciation of right-of-use assets (note 20)
Amortisation of internally generated intangible assets (note 22)
Amortisation and impairment of purchased software (note 22)
Auditor’s remuneration (see below)
Impairment charges on loans and advances to customers (note 33)
Rental charge
Other
Other operating expenses
Charges in relation to client relationships and goodwill (note 22)
Acquisition-related costs (note 9)
Total operating expenses
A more detailed analysis of auditor’s remuneration is provided below:
Fees payable to the company’s auditor for the audit of the company’s annual financial statements
Fees payable to the company’s auditor and their associates for other services to the group:
– audit of the company’s subsidiaries pursuant to legislation
– audit-related assurance services
– other services
2020
£’000
195,216
4,382
4,860
1,197
6,488
897
5
1,815
58,698
273,558
14,302
34,449
322,309
2020
£’000
106
418
483
–
1,007
2019
£’000
177,596
4,036
4,895
919
7,985
968
4
2,147
60,848
259,398
15,964
33,057
308,419
2019
£’000
100
395
469
4
968
Of the above, audit-related services for the year incurred by the prevailing statutory auditor totalled £1,007,000 (2019: £899,000).
Fees payable in 2020 for the audit of the company’s annual financial statements include £110,000 (2019: £91,000) relating to prior-year
audit work. In the prior year, this was undertaken by the previous statutory auditor.
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5 Net fee and commission income
8 Business combinations
Net trading expense of £12,000 comprised Funds net dealing losses. Net trading income of £170,000 recognised in 2019 related to box
Other operating income of £3,929,000 (2019: £2,517,000) comprised gains and losses from fair value through profit or loss equity securities,
rental income from sub-leases on certain properties leased by group companies and sundry income.
Fee and commission income
Investment Management
Funds
Fee and commission expense
Investment Management
Funds
Net fee and commission income
6 Net trading and other operating income
Net trading income
profits, which ceased from mid-January 2019.
Other operating income
7 Operating expenses
Staff costs (note 10)
Depreciation of property, plant and equipment (note 19)
Depreciation of right-of-use assets (note 20)
Amortisation of internally generated intangible assets (note 22)
Amortisation and impairment of purchased software (note 22)
Auditor’s remuneration (see below)
Impairment charges on loans and advances to customers (note 33)
Rental charge
Other
Other operating expenses
Acquisition-related costs (note 9)
Total operating expenses
Charges in relation to client relationships and goodwill (note 22)
A more detailed analysis of auditor’s remuneration is provided below:
2020
£’000
2019
£’000
327,699
50,541
378,240
308,119
44,400
352,519
(19,774)
(4,717)
(24,491)
353,749
(18,258)
(5,289)
(23,547)
328,972
2020
£’000
2019
£’000
195,216
177,596
273,558
259,398
322,309
308,419
4,382
4,860
1,197
6,488
897
5
1,815
58,698
14,302
34,449
2020
£’000
106
418
483
–
1,007
4,036
4,895
919
7,985
968
4
2,147
60,848
15,964
33,057
2019
£’000
100
395
469
4
968
Speirs & Jeffrey
On 31 August 2018, the group acquired 100% of the ordinary share capital of Speirs & Jeffrey Limited (‘Speirs & Jeffrey’).
Contingent consideration
Contingent consideration of £15,000,000 was paid in May 2019, following the satisfaction of certain operational targets. Of this, £1,050,000
was treated as consideration in the acquisition accounting, as it was paid to vendors who were not required to remain in employment with
the group (note 26). The amount paid was equal to what was provided for as at the date of acquisition; therefore, no measurement period
adjustment has been reflected against the cost of acquisition. The remaining £13,950,000 was paid to vendors required to remain in
employment with the group until the targets were met. Hence, it has been treated as remuneration for post-combination services
and the grant date fair value charged to profit and loss. The contingent consideration payment was made 100% in shares (note 31).
Other deferred payments
The group continues to provide for the cost of other deferred and contingent payments to be made to vendors for the sale of the shares of
Speirs & Jeffrey, as well as related incentivisation awards for other staff. These payments require the vendors to remain in employment
with the group for the duration of the respective deferral periods. Hence, they are being treated as remuneration for post-combination
services and the grant date fair value is charged to profit and loss over the respective vesting periods.
During the year, the group replaced a share-based incentivisation award for support staff with a cash award. The accumulated charge
recognised in equity over the related vesting period has been reversed during the year, and a provision has been recognised at the year
end in respect of the cash award. The award is expected to be settled within one year.
The remainder of payments are to be made in shares and are being accounted for as equity-settled share-based payments under IFRS 2:
– initial share consideration was payable on completion. However, although the shares were issued on the date of acquisition, they do not
vest until the third anniversary of the acquisition date, subject to the vendors remaining employed until this date
– earn-out consideration and related incentivisation awards are payable in two parts in the third and fourth years following the acquisition
date. Payment is subject to the delivery of certain operational and financial performance targets.
Further details of each of these elements is as follows:
Initial share consideration
Earn-out consideration and incentivisation awards
Gross amount
£’000
25,000
44,680
Grant date
31 August 2018
31 August 2018
Grant date fair
value
Expected vesting date
£’000
23,462
31 August 2021
45,344 31 December 2020/21
The gross amount in respect of the earn-out consideration and incentivisation awards represents management’s best estimate as to the
extent to which the performance targets will be achieved (note 2.3).
The charge recognised in profit or loss for the year ended 31 December 2020 for the above elements is as follows:
Initial share consideration
Contingent consideration
Earn-out consideration and incentivisation awards
Other deferred awards
2020
£’000
9,215
–
23,042
–
32,257
2019
£’000
8,402
6,015
9,724
1,885
26,026
Fees payable to the company’s auditor for the audit of the company’s annual financial statements
Fees payable to the company’s auditor and their associates for other services to the group:
– audit of the company’s subsidiaries pursuant to legislation
– audit-related assurance services
– other services
Of the above, audit-related services for the year incurred by the prevailing statutory auditor totalled £1,007,000 (2019: £899,000).
Fees payable in 2020 for the audit of the company’s annual financial statements include £110,000 (2019: £91,000) relating to prior-year
audit work. In the prior year, this was undertaken by the previous statutory auditor.
Other deferred awards represent cash amounts paid one year following the acquisition date.
These costs are being reported as staff costs within acquisition-related costs (see note 9).
Barclays Wealth’s Personal Injury and Court of Protection business
On 3 April 2020, the group acquired the trade and assets of Barclays Wealth’s Personal Injury and Court of Protection business. The
acquired trade relates to the provision of discretionary investment management services to Personal Injury and Court of Protection clients.
Cash consideration of £12,048,000 was transferred on the date of acquisition. The sale and purchase agreement also comprises an
employee incentive plan that is payable in two tranches. The awards under this plan are considered to be directly attributable costs of
acquiring new client relationships, hence these costs have been capitalised in line with IFRS 15 (note 22).
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Notes to the consolidated financial statements continued
8
Business combinations continued
Identifiable assets acquired and liabilities assumed
The identifiable net assets of the acquired business at the acquisition date were as follows:
Intangible assets
Deferred tax liabilities
Total net assets acquired
Fair value
£’000
6,890
(1,309)
5,581
The fair value of the client relationship intangible assets has been measured using a multi-period earnings method (note 22). The model
uses estimates of client longevity and investment performance to derive a series of cash flows, which are discounted to a present value to
determine the fair value of the client relationships acquired. The deferred tax liability arises on recognition of the client relationship
intangible assets, and is equal to its carrying value.
Goodwill
Goodwill arising from the acquisition has been recognised as follows:
Total consideration (see above)
Fair value of identifiable net assets acquired (see above)
£’000
12,048
(5,581)
6,467
Goodwill of £6,467,000 arises as a result of the acquired workforce, expected future growth, and operational synergies arising post
integration. The group does not believe there are any key assumptions where reasonable changes could occur which could give rise to
a material adjustment in the carrying value.
9 Acquisition-related costs
Acquisition of Speirs & Jeffrey
Acquisition of Vision and Castle
Acquisition of Barclay’s Wealth Personal Injury and Court of Protection business
Acquisition-related costs
2020
£’000
34,273
–
176
34,449
2019
£’000
30,837
2,041
179
33,057
Costs relating to the acquisition of Speirs & Jeffrey
The group has incurred the following costs in relation to the 2018 acquisition of Speirs & Jeffrey, summarised by the following classification
within the income statement:
Acquisition costs:
– Staff costs (note 10)
– Legal and advisory fees
Integration costs
2020
£’000
2019
£’000
32,257
20
1,996
34,273
26,026
103
4,708
30,837
Non-staff acquisition costs of £20,000 (2019: £103,000) and integration costs of £1,996,000 (2019: £4,708,000) have not been allocated to a
specific operating segment (note 3).
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8
Business combinations continued
Identifiable assets acquired and liabilities assumed
The identifiable net assets of the acquired business at the acquisition date were as follows:
Costs relating to the acquisition of Vision Independent Financial Planning and Castle Investment Solutions
The group made the final payment in relation to the 2015 acquisition of Vision Independent Financial Planning and Castle Investment
Solutions at the end of 2019. The group has incurred the following costs in relation to the 2015 acquisition of Vision Independent Financial
Planning and Castle Investment Solutions, summarised by the following classification with the income statement:
The fair value of the client relationship intangible assets has been measured using a multi-period earnings method (note 22). The model
uses estimates of client longevity and investment performance to derive a series of cash flows, which are discounted to a present value to
determine the fair value of the client relationships acquired. The deferred tax liability arises on recognition of the client relationship
Intangible assets
Deferred tax liabilities
Total net assets acquired
intangible assets, and is equal to its carrying value.
Goodwill
Goodwill arising from the acquisition has been recognised as follows:
Total consideration (see above)
Fair value of identifiable net assets acquired (see above)
Goodwill of £6,467,000 arises as a result of the acquired workforce, expected future growth, and operational synergies arising post
integration. The group does not believe there are any key assumptions where reasonable changes could occur which could give rise to
a material adjustment in the carrying value.
9 Acquisition-related costs
Acquisition of Barclay’s Wealth Personal Injury and Court of Protection business
Costs relating to the acquisition of Speirs & Jeffrey
The group has incurred the following costs in relation to the 2018 acquisition of Speirs & Jeffrey, summarised by the following classification
Fair value
£’000
6,890
(1,309)
5,581
£’000
12,048
(5,581)
6,467
34,273
2020
£’000
–
176
34,449
2019
£’000
30,837
2,041
179
33,057
2020
£’000
2019
£’000
32,257
26,026
20
1,996
34,273
103
4,708
30,837
Acquisition of Speirs & Jeffrey
Acquisition of Vision and Castle
Acquisition-related costs
within the income statement:
Acquisition costs:
– Staff costs (note 10)
– Legal and advisory fees
Integration costs
Non-staff acquisition costs of £20,000 (2019: £103,000) and integration costs of £1,996,000 (2019: £4,708,000) have not been allocated to a
specific operating segment (note 3).
Staff costs
Interest expense
2020
£’000
–
–
–
2019
£’000
1,375
666
2,041
Amounts reported in staff costs relate to deferred payments to previous owners who were required to remain in employment with the
acquired companies until payment. The payment was settled at the end of 2019 (see note 26).
Costs relating to the acquisition of Barclays Wealth’s Personal Injury and Court of Protection business
On 3 April 2020, the group acquired the trade and assets of Barclays Wealth’s Personal Injury and Court of Protection business. The group
incurred professional services costs of £176,000 (2019: £179,000) in relation to the acquisition during the year.
10 Staff costs
Wages and salaries
Social security costs
Equity-settled share-based payments
Acquisition-related staff costs (note 9)
Pension costs (note 29):
– Defined benefit schemes
– Defined contribution schemes
Total staff costs
Acquisition-related staff costs
Underlying staff costs (note 3)
The average number of employees, on a full-time-equivalent basis, during the year was as follows:
Investment Management:
– investment management services
– advisory services
Funds
Shared services
2020
£’000
153,332
19,930
11,276
32,257
200
10,478
10,678
227,473
(32,257)
195,216
2019
£’000
139,577
18,652
9,328
26,026
255
9,784
10,039
203,622
(26,026)
177,596
2020
2019
996
123
37
379
1,535
979
118
35
377
1,509
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Notes to the consolidated financial statements continued
11
Income tax expense
Current tax:
– charge for the year
– adjustments in respect of prior years
Deferred tax (note 21):
– credit for the year
– adjustments in respect of prior years
2020
£’000
2019
£’000
18,247
(727)
16,809
(893)
(1,495)
1,102
17,127
(3,767)
580
12,729
The tax charge is calculated based on our best estimate of the amount payable as at the balance sheet date. Any subsequent differences
between these estimates and the actual amounts paid are recorded as adjustments in respect of prior years.
The tax charge on profit for the year is higher (2019: higher) than the standard rate of corporation tax in the UK of 19.0% (2019: 19.0%).
The differences are explained below:
Tax on profit from ordinary activities at the standard rate of 19.0% (2019: 19.0%) effects of:
– disallowable expenses
– share-based payments
– tax on overseas earnings
– adjustments in respect of prior year
– deferred payments to previous owners of acquired companies (note 9)
– other
– Effect of change in corporation tax rate on deferred tax
12 Dividends
Amounts recognised as distributions to equity holders in the year:
– final dividend for the year ended 31 December 2019 of 45.0p (2018: 42.0p) per share
– interim dividend for the year ended 31 December 2020 of 25.0p (2019: 25.0p) per share
Dividends paid in the year of 70.0p (2019: 67.0p) per share
Proposed final dividend for the year ended 31 December 2020 of 47.0p (2019: 45.0p) per share
2020
£’000
8,318
454
2,228
(225)
375
5,455
(49)
571
17,127
2019
£’000
7,534
537
410
(233)
(313)
4,508
22
264
12,729
2020
£’000
2019
£’000
24,316
13,515
37,831
25,213
22,433
13,526
35,959
24,188
An interim dividend of 25.0p per share was paid on 6 October 2020 to shareholders on the register at the close of business on 4 September
2020 (2019: 25.0p).
A final dividend declared of 47.0p per share (2019: 45.0p) is payable on 11 May 2021 to shareholders on the register at the close of business
on 23 April 2021. The final dividend is subject to approval by shareholders at the Annual General Meeting on 6 May 2021 and has not been
included as a liability in these financial statements.
13 Earnings per share
Earnings used to calculate earnings per share on the bases reported in these financial statements were:
Underlying profit attributable to shareholders
Charges in relation to client relationships and goodwill
(note 22)
Acquisition-related costs (note 9)
Profit attributable to shareholders
Pre-tax
£’000
92,530
(14,302)
(34,449)
43,779
2020
Taxation
£’000
(20,928)
2,717
1,084
(17,127)
Post-tax
£’000
71,602
Pre-tax
£’000
88,673
2019
Taxation
£’000
(17,535)
Post-tax
£’000
71,138
(11,585)
(33,365)
26,652
(15,964)
(33,057)
39,652
3,033
1,773
(12,729)
(12,931)
(31,284)
26,923
Basic earnings per share has been calculated by dividing profit attributable to shareholders by the weighted average number of shares in
issue throughout the year, excluding own shares, of 53,720,680 (2019: 53,566,271).
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11
Income tax expense
– adjustments in respect of prior years
Current tax:
– charge for the year
Deferred tax (note 21):
– credit for the year
– adjustments in respect of prior years
The differences are explained below:
– disallowable expenses
– share-based payments
– tax on overseas earnings
– adjustments in respect of prior year
2020
£’000
2019
£’000
18,247
(727)
16,809
(893)
(1,495)
1,102
17,127
(3,767)
580
12,729
2020
£’000
8,318
454
2,228
(225)
375
5,455
(49)
571
2019
£’000
7,534
537
410
(233)
(313)
4,508
22
264
17,127
12,729
2020
£’000
2019
£’000
24,316
13,515
37,831
25,213
22,433
13,526
35,959
24,188
The tax charge is calculated based on our best estimate of the amount payable as at the balance sheet date. Any subsequent differences
between these estimates and the actual amounts paid are recorded as adjustments in respect of prior years.
The tax charge on profit for the year is higher (2019: higher) than the standard rate of corporation tax in the UK of 19.0% (2019: 19.0%).
Tax on profit from ordinary activities at the standard rate of 19.0% (2019: 19.0%) effects of:
– deferred payments to previous owners of acquired companies (note 9)
– other
– Effect of change in corporation tax rate on deferred tax
12 Dividends
Amounts recognised as distributions to equity holders in the year:
– final dividend for the year ended 31 December 2019 of 45.0p (2018: 42.0p) per share
– interim dividend for the year ended 31 December 2020 of 25.0p (2019: 25.0p) per share
Dividends paid in the year of 70.0p (2019: 67.0p) per share
Proposed final dividend for the year ended 31 December 2020 of 47.0p (2019: 45.0p) per share
An interim dividend of 25.0p per share was paid on 6 October 2020 to shareholders on the register at the close of business on 4 September
2020 (2019: 25.0p).
A final dividend declared of 47.0p per share (2019: 45.0p) is payable on 11 May 2021 to shareholders on the register at the close of business
on 23 April 2021. The final dividend is subject to approval by shareholders at the Annual General Meeting on 6 May 2021 and has not been
included as a liability in these financial statements.
13 Earnings per share
Earnings used to calculate earnings per share on the bases reported in these financial statements were:
Pre-tax
£’000
2020
Taxation
£’000
Post-tax
£’000
Pre-tax
£’000
2019
Taxation
£’000
Post-tax
£’000
Underlying profit attributable to shareholders
92,530
(20,928)
71,602
88,673
(17,535)
71,138
Charges in relation to client relationships and goodwill
(note 22)
Acquisition-related costs (note 9)
Profit attributable to shareholders
(14,302)
(34,449)
43,779
2,717
1,084
(17,127)
(11,585)
(33,365)
26,652
(15,964)
(33,057)
3,033
1,773
39,652
(12,729)
(12,931)
(31,284)
26,923
Basic earnings per share has been calculated by dividing profit attributable to shareholders by the weighted average number of shares in
issue throughout the year, excluding own shares, of 53,720,680 (2019: 53,566,271).
Diluted earnings per share is the basic earnings per share, adjusted for the effect of contingently issuable shares under the Speirs & Jeffrey
initial share consideration and Executive Incentive Plan, employee share options remaining capable of exercise, and any dilutive shares to
be issued under the Share Incentive Plan, all weighted for the relevant period:
Weighted average number of ordinary shares in issue during the year – basic
Effect of ordinary share options/Save As You Earn
Effect of dilutive shares issuable under the Share Incentive Plan
Effect of contingently issuable shares under the Executive Incentive Plan
Effect of contingently issuable shares under Speirs & Jeffrey initial share consideration (note 8)
Diluted ordinary shares
Earnings per share for the year attributable to equity holders of the company:
– basic
– diluted
Underlying earnings per share for the year attributable to equity holders of the company:
– basic
– diluted
2020
53,720,680
231,259
73,990
929,457
1,006,522
55,961,908
2019
53,566,271
97,495
570
574,393
1,006,522
55,245,251
2020
2019
49.6p
47.6p
50.3p
48.7p
133.3p
127.9p
132.8p
128.8p
Underlying earnings per share is calculated in the same way as earnings per share, but by reference to underlying profit attributable
to shareholders.
14 Cash and balances with central banks
Cash in hand
Balances with central banks
Less impairment loss allowance
The fair value of balances with central banks is not materially different from their carrying amount.
Repayable:
– on demand
– within 1 year but over 3 months
Less impairment loss allowance
Amounts include balances:
– with variable interest rates
– which are non-interest-bearing
Less impairment loss allowance
The group’s exposure to credit risk arising from cash and balances with central banks is described in note 33.
2020
£’000
–
2019
£’000
1
1,803,434 1,933,218
(222)
1,802,706 1,932,997
(728)
2020
£’000
2019
£’000
1,798,000 1,930,000
3,219
(222)
1,802,706 1,932,997
5,434
(728)
1,798,000 1,930,000
3,219
(122)
1,802,706 1,932,997
5,434
(728)
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Notes to the consolidated financial statements continued
15 Loans and advances to banks
Current accounts
Fixed term deposits
Less impairment loss allowance
Repayable:
– on demand
– within 3 months or less excluding on demand
– within 1 year but over 3 months
Less impairment loss allowance
Amounts include loans and advances:
– with variable interest rates
– with fixed interest rates
– which are non-interest-bearing
Less impairment loss allowance
2020
£’000
149,432
10,000
(2)
159,430
2019
£’000
107,839
70,000
(7)
177,832
2020
£’000
2019
£’000
149,432
10,000
–
(2)
159,430
149,182
10,000
250
(2)
159,430
107,839
10,000
60,000
(7)
177,832
107,556
70,000
283
(7)
177,832
The fair value of loans and advances is not materially different to their carrying amount. Fair value has been calculated as the discounted
amount of estimated future cash flows expected to be received using current market rates.
Loans and advances to banks included in cash and cash equivalents at 31 December 2020 were £159,432,000 (note 38) (2019: £117,839,000).
The group’s exposure to credit risk arising from loans and advances to banks is described in note 33.
16 Loans and advances to customers
Overdrafts
Investment management loan book
Trust and financial planning debtors
Other debtors
Less impairment loss allowance
2020
£’000
6,384
157,957
1,425
557
(102)
166,221
2019
£’000
5,148
132,034
1,273
60
(103)
138,412
The fair value of loans and advances to customers is not materially different to their carrying amount. Fair value has been calculated as the
discounted amount of estimated future cash flows expected to be received using current market rates. Debtors arising from the trust and
financial planning businesses are non-interest-bearing.
Repayable:
– on demand
– within 3 months or less excluding on demand
– within 1 year but over 3 months
– within 5 years but over 1 year
Less impairment loss allowance
Amounts include loans and advances:
– with variable interest rates
– which are non-interest-bearing
Less impairment loss allowance
2020
£’000
2019
£’000
7,185
3,545
107
155,486
(102)
166,221
164,229
2,094
(102)
166,221
5,393
20,692
54,389
58,041
(103)
138,412
136,680
1,835
(103)
138,412
The group’s exposure to credit risk arising from loans and advances to customers is described in note 33.
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17
Investment securities
Fair value through profit or loss
Equity securities:
– listed
– unlisted
Money market funds:
– unlisted
Amortised cost
Debt securities:
– unlisted
Less impairment loss allowance
2020
£’000
2019
£’000
5,728
2,569
4,587
1,186
99,262
107,559
100,194
105,967
2020
£’000
2019
£’000
651,533
(106)
651,427
600,291
(30)
600,261
The fair value of loans and advances is not materially different to their carrying amount. Fair value has been calculated as the discounted
amount of estimated future cash flows expected to be received using current market rates.
Loans and advances to banks included in cash and cash equivalents at 31 December 2020 were £159,432,000 (note 38) (2019: £117,839,000).
The group’s exposure to credit risk arising from loans and advances to banks is described in note 33.
Debt securities comprise certificates of deposit and are all due to mature within one year (2019: all).
Fair value through profit or loss securities include money market funds and direct holdings in equity securities. Equity securities comprises
units in Rathbone Unit Trust Management managed funds and Euroclear shares. Equity securities do not bear interest. Money market
funds, which declare daily dividends that are in the nature of interest at a variable rate and which are realisable on demand, have been
included within cash equivalents (note 38).
The fair value of debt securities is disclosed in note 33.
The change in the group’s holdings of investment securities in the year is summarised below.
At 1 January 2019
Additions
Disposals (sales and redemptions)
Foreign exchange movements
Gain from changes in fair value
Increase in impairment loss allowance
At 1 January 2020
Additions
Disposals (sales and redemptions)
Foreign exchange movements
Gain from changes in fair value
Decrease in impairment loss allowance
At 31 December 2020
Fair value
Amortised
through
Total
cost
profit or loss
£’000
£’000
£’000
987,022
907,225
79,797
62,255
816,313
754,058
(35,276) (1,058,874) (1,094,150)
(3,371)
(2,152)
410
–
4
4
706,228
600,261
886,846
885,783
(833,712)
(833,295)
(1,631)
(1,245)
1,332
–
(77)
(77)
758,986
651,427
(1,219)
410
–
105,967
1,063
(417)
(386)
1,332
–
107,559
Included within amortised cost are additions of £1,063,000 (2019: £900,000) and £417,000 (2019: nil) of disposals of financial instruments
that are not classified as cash and cash equivalents.
18 Prepayments, accrued income and other assets
Work in progress
Prepayments and other assets
Accrued income
2020
£’000
3,526
16,191
78,997
98,714
2019
£’000
3,608
21,531
70,251
95,390
15 Loans and advances to banks
Current accounts
Fixed term deposits
Less impairment loss allowance
Repayable:
– on demand
– within 3 months or less excluding on demand
– within 1 year but over 3 months
Less impairment loss allowance
Amounts include loans and advances:
– with variable interest rates
– with fixed interest rates
– which are non-interest-bearing
Less impairment loss allowance
16 Loans and advances to customers
Overdrafts
Investment management loan book
Trust and financial planning debtors
Other debtors
Less impairment loss allowance
Repayable:
– on demand
– within 3 months or less excluding on demand
– within 1 year but over 3 months
– within 5 years but over 1 year
Less impairment loss allowance
Amounts include loans and advances:
– with variable interest rates
– which are non-interest-bearing
Less impairment loss allowance
2020
£’000
149,432
10,000
(2)
2019
£’000
107,839
70,000
(7)
159,430
177,832
2020
£’000
2019
£’000
149,432
107,839
10,000
–
(2)
10,000
60,000
(7)
159,430
177,832
149,182
107,556
10,000
70,000
250
(2)
283
(7)
159,430
177,832
157,957
132,034
2020
£’000
6,384
1,425
557
(102)
2019
£’000
5,148
1,273
60
(103)
166,221
138,412
2020
£’000
2019
£’000
7,185
3,545
107
155,486
(102)
5,393
20,692
54,389
58,041
(103)
166,221
138,412
164,229
136,680
2,094
(102)
1,835
(103)
166,221
138,412
The fair value of loans and advances to customers is not materially different to their carrying amount. Fair value has been calculated as the
discounted amount of estimated future cash flows expected to be received using current market rates. Debtors arising from the trust and
financial planning businesses are non-interest-bearing.
The group’s exposure to credit risk arising from loans and advances to customers is described in note 33.
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Notes to the consolidated financial statements continued
19 Property, plant and equipment
Cost
At 1 January 2019
Additions
Disposals
At 1 January 2020
Additions
Disposals
At 31 December 2020
Depreciation
At 1 January 2019
Charge for the year
Disposals
At 1 January 2020
Charge for the year
Disposals
At 31 December 2020
Carrying amount at 31 December 2020
Carrying amount at 31 December 2019
Carrying amount at 1 January 2019
Short term
leasehold
improvements
£’000
21,492
1,294
(1,077)
21,709
900
–
22,609
8,667
2,012
(848)
9,831
1,950
–
11,781
10,828
11,878
12,825
Plant and
equipment
£’000
21,101
1,761
(1,250)
21,612
2,896
(819)
23,689
17,088
2,211
(1,241)
18,058
2,432
(819)
19,671
4,018
3,554
4,013
Total
£’000
42,593
3,055
(2,327)
43,321
3,796
(819)
46,298
25,755
4,223
(2,089)
27,889
4,382
(819)
31,452
14,846
15,432
16,838
The group has considered the future impact of climate change when reviewing the useful economic lives of its property, plant and
equipment. No reasonably foreseeable change would result in a material change to the carrying amount of the assets.
There was no indication of impairment from the impact of COVID-19 during the year.
20 Right-of-use assets
Cost
At 1 January 2019
Additions
Disposals
Other movements
At 1 January 2020
Additions
Disposals
Other movements
At 31 December 2020
Depreciation and impairment
1 January 2019
Charge for the year
Disposals
Other movements
At 1 January 2020
Charge for the year
Other movements
At 31 December 2020
Carrying amount at 31 December 2020
Carrying amount at 31 December 2019
Property
£’000
Motor vehicles and
equipment
£’000
53,806
603
–
(134)
54,275
258
(42)
(23)
54,468
–
4,841
–
(19)
4,822
4,845
(42)
9,625
44,843
49,453
40
17
(40)
24
41
–
–
–
41
–
54
(40)
–
14
14
–
28
13
27
Total
£’000
53,846
620
(40)
(110)
54,316
258
(42)
(23)
54,509
–
4,895
(40)
(19)
4,836
4,859
(42)
9,653
44,856
49,480
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The group has considered the future impact of climate change when reviewing the useful economic lives of its property, plant and
equipment. No reasonably foreseeable change would result in a material change to the carrying amount of the assets.
There was no indication of impairment from the impact of COVID-19 during the year.
19 Property, plant and equipment
At 31 December 2020
Cost
At 1 January 2019
Additions
Disposals
Additions
Disposals
At 1 January 2020
Depreciation
At 1 January 2019
Charge for the year
Disposals
At 1 January 2020
Charge for the year
Disposals
At 31 December 2020
Carrying amount at 31 December 2020
Carrying amount at 31 December 2019
Carrying amount at 1 January 2019
20 Right-of-use assets
Cost
At 1 January 2019
Additions
Disposals
Other movements
At 1 January 2020
Additions
Disposals
1 January 2019
Charge for the year
Disposals
Other movements
At 1 January 2020
Charge for the year
Other movements
Other movements
At 31 December 2020
Depreciation and impairment
At 31 December 2020
Carrying amount at 31 December 2020
Carrying amount at 31 December 2019
Short term
leasehold
improvements
£’000
21,492
1,294
(1,077)
21,709
900
–
22,609
8,667
2,012
(848)
9,831
1,950
–
11,781
10,828
11,878
12,825
Plant and
equipment
£’000
21,101
1,761
(1,250)
21,612
2,896
(819)
23,689
17,088
2,211
(1,241)
18,058
2,432
(819)
19,671
4,018
3,554
4,013
Property
£’000
Motor vehicles and
equipment
£’000
53,806
603
–
(134)
54,275
258
(42)
(23)
4,841
–
–
(19)
4,822
4,845
(42)
9,625
44,843
49,453
40
17
(40)
24
41
–
–
–
–
54
(40)
–
14
14
–
28
13
27
Total
£’000
42,593
3,055
(2,327)
43,321
3,796
(819)
46,298
25,755
4,223
(2,089)
27,889
4,382
(819)
31,452
14,846
15,432
16,838
Total
£’000
53,846
620
(40)
(110)
54,316
258
(42)
(23)
–
4,895
(40)
(19)
4,836
4,859
(42)
9,653
44,856
49,480
54,468
41
54,509
There was no indication of impairment of the group’s right-of-use assets as a result of COVID-19 during the year.
The group recognised a charge of £43,000 in profit or loss during the year in respect of short-term leases and low-value assets
(2019: £371,000).
21 Net deferred tax asset/ (liability)
The UK Government legislated in the Finance Act 2020 to maintain the UK corporation tax rate at 19.0% from 1 April 2020, rather than
reducing the rate to 17.0% as previously enacted. The Finance Act 2020 was enacted on 22 July 2020. Deferred income taxes are calculated
on all temporary differences under the liability method using the rate expected to apply when the relevant timing differences are forecast
to unwind.
The budget on 3 March 2021 signalled an increase in the UK corporation tax rate to 25.0% in 2023. This will be reflected in the deferred tax
calculations when the change is enacted.
The movement on the deferred tax account is as follows:
As at 1 January 2020
Recognised in profit or loss in respect of:
– current year
– prior year
– change in rate
Total
Recognised in other comprehensive
income in respect of:
– current year
– prior year
– change in rate
Total
Recognised in equity in respect of:
– current year
– prior year
– change in rate
Total
Business combinations
Total
Deferred
capital
allowances
£’000
1,964
405
31
234
670
–
–
–
–
–
–
–
–
–
–
Pensions
£’000
1,360
(553)
–
(618)
(1,171)
890
–
778
1,668
–
–
–
–
–
–
Share-based
payments
£’000
3,545
Staff-
related
costs
£’000
4,996
Fair value
through
profit or loss
£’000
(304)
398
22
445
865
1,327
(1,155)
456
628
(360)
–
(37)
(397)
Intangible
assets
£’000
(8,925)
848
–
(1,050)
(202)
–
–
–
–
(36)
(17)
7
(46)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
2,636
2,065
(1,102)
(570)
393
890
–
778
1,668
(36)
(17)
7
(46)
–
–
–
–
–
–
–
–
(1,309)
(1,309)
(1,309)
(1,309)
As at 31 December 2020
2,634
1,857
4,364
5,624
(701)
(10,436)
3,342
Deferred tax assets
Deferred tax liabilities
As at 31 December 2020
Deferred
capital
allowances
£’000
2,634
–
2,634
Pensions
£’000
1,857
–
1,857
Share-based
payments
£’000
4,364
–
4,364
Staff-
related
costs
£’000
5,624
–
5,624
Fair value
through
profit or loss
£’000
–
(701)
(701)
Intangible
assets
£’000
–
(10,436)
(10,436)
Total
£’000
14,479
(11,137)
3,342
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Notes to the consolidated financial statements continued
21 Net deferred tax asset/ (liability) continued
As at 1 January 2019
Recognised in profit or loss in respect of:
– current year
– prior year
– change in rate
Total
Recognised in other comprehensive income in
respect of:
– current year
– prior year
– change in rate
Total
Recognised in equity in respect of:
– current year
– prior year
– change in rate
Total
Deferred
capital
allowances
£’000
1,319
584
123
(62)
645
Pensions
£’000
1,902
(546)
–
57
(489)
Share-based
payments
£’000
1,882
1,586
94
–
1,680
Staff-
related
costs
£’000
4,209
1,770
(797)
(186)
787
Fair value
through
profit or loss
£’000
(154)
(160)
–
10
(150)
Intangible
assets
£’000
(9,639)
798
–
(84)
714
–
–
–
–
–
–
–
–
(59)
–
6
(53)
–
–
–
–
–
–
–
–
(17)
–
–
(17)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
(481)
4,032
(580)
(265)
3,187
(59)
–
6
(53)
(17)
–
–
(17)
As at 31 December 2019
1,964
1,360
3,545
4,996
(304)
(8,925)
2,636
Deferred tax assets
Deferred tax liabilities
As at 31 December 2019
Deferred
capital
allowances
£’000
1,964
–
1,964
Pensions
£’000
1,360
–
1,360
Share-based
payments
£’000
3,545
–
3,545
Staff-
related
costs
£’000
4,996
–
4,996
Fair value
through
profit or loss
£’000
–
(304)
(304)
Intangible
assets
£’000
–
(8,925)
(8,925)
Total
£’000
11,865
(9,229)
2,636
170
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| Consolidated financial statements
21 Net deferred tax asset/ (liability) continued
As at 1 January 2019
Recognised in profit or loss in respect of:
Recognised in other comprehensive income in
– current year
– prior year
– change in rate
Total
respect of:
– current year
– prior year
– change in rate
Total
– current year
– prior year
– change in rate
Total
Recognised in equity in respect of:
Deferred
capital
allowances
£’000
1,319
584
123
(62)
645
Pensions
£’000
1,902
Share-based
payments
£’000
1,882
Staff-
related
costs
£’000
4,209
Fair value
through
profit or loss
£’000
(154)
(546)
1,586
1,770
(160)
–
57
94
–
(489)
1,680
(797)
(186)
787
–
10
(150)
Intangible
assets
£’000
(9,639)
798
–
(84)
714
–
–
–
–
–
–
–
–
(59)
–
6
(53)
–
–
–
–
–
–
–
–
–
–
(17)
(17)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
(481)
4,032
(580)
(265)
3,187
(59)
–
6
(53)
(17)
–
–
(17)
As at 31 December 2019
1,964
1,360
3,545
4,996
(304)
(8,925)
2,636
Deferred tax assets
Deferred tax liabilities
As at 31 December 2019
Deferred
capital
allowances
£’000
1,964
–
Pensions
£’000
1,360
–
Share-based
payments
£’000
3,545
–
Staff-
related
costs
£’000
4,996
–
Fair value
through
profit or loss
£’000
–
(304)
(304)
Intangible
assets
£’000
–
(8,925)
(8,925)
Total
£’000
11,865
(9,229)
2,636
1,964
1,360
3,545
4,996
22
Intangible assets
Goodwill
Other intangible assets
2020
£’000
96,872
134,272
231,144
2019
£’000
90,405
137,402
227,807
Goodwill
Goodwill acquired in a business combination is allocated, at acquisition, to the groups of cash-generating units (CGUs) that are expected
to benefit from that business combination. During 2019, the group revised its methodology by which it defines its CGUs and how it
allocates goodwill to groups of CGUs. This resulted in goodwill of £227,000 previously allocated to the Rooper & Whately CGU being
reallocated to the Investment Management group of CGUs.
Under this methodology, the carrying amount of goodwill has been allocated as follows:
Cost
At 1 January 2019 and 1 January 2020
Acquired through business combinations
At 31 December 2020
Impairment
At 1 January 2019
Charge in the year
At 1 January 2020
Charge in the year
At 31 December 2020
Carrying amount at 31 December 2020
Carrying amount at 31 December 2019
Carrying amount at 1 January 2019
Investment
Management
£’000
90,405
6,467
96,872
–
–
–
–
–
96,872
90,405
90,405
Trust
£’000
Total
£’000
1,954
–
1,954
1,359
595
1,954
–
1,954
–
–
595
92,359
6,467
98,826
1,359
595
1,954
–
1,954
96,872
90,405
91,000
Goodwill acquired through business combinations in the period relates to the acquisition of the Barclays Wealth’s Personal Injury and
Court of Protection business (note 8). This has been allocated to the Investment Management group of CGUs. The group does not believe
there are any key assumptions where reasonable changes could occur which could give rise to a material adjustment in the carrying value.
Impairment
The recoverable amounts of the groups of CGUs to which goodwill is allocated are assessed using value-in-use calculations. The group
prepares cash flow forecasts derived from the most recent financial budgets approved by the board, covering the forthcoming and future
years. Budgets are extrapolated for five years based on annual revenue and cost growth for each group of CGUs (see table below), as well as
the group’s expectation of future industry growth rates. A five-year extrapolation period is chosen as this aligns with the period covered by
the group’s ICAAP modelling. A terminal growth rate is applied to year five cash flows, which takes into account the net growth forecasts
over the extrapolation period and the long-term average growth rate for the industry. The group estimates discount rates using pre-tax
rates that reflect current market assessments of the time value of money and the risks specific to the group of CGUs.
The pre-tax rate used to discount the forecast cash flows for each group of CGU is shown in the table below; these are based on a risk-
adjusted weighted average cost of capital. The group judges that these discount rates appropriately reflect the markets in which each
group of CGUs operate.
There was no impairment to the goodwill allocated to the Investment Management group of CGUs during the period. The group has
considered any reasonably foreseeable changes to the assumptions used in the value-in-use calculation for the Investment Management
group of CGUs, including the impact of climate change and COVID-19 to its cash flow projections and the level of risk associated with
those cash flows. Based on this assessment, no such change would result in an impairment of the goodwill allocated to this CGU.
During the year ended 31 December 2019, the group recognised an impairment charge of £595,000 in relation to goodwill allocated to the
Trust group of CGUs. The recoverable amount of the group of CGUs was lower than the carrying value, which reflected the fact that the
business associated with this goodwill is contracting. This reduced the carrying value of the goodwill allocated to the Trust group of CGUs
in 2019 to £nil.
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171
171
Notes to the consolidated financial statements continued
22
Intangible assets continued
At 31 December
Discount rate
Annual revenue growth rate
Terminal growth rate
Other intangible assets
Cost
At 1 January 2019
Internally developed in the year
Purchased in the year
Disposals
At 1 January 2020
Internally developed in the year
Acquired through business combinations (note 8)
Purchased in the year
Disposals
At 31 December 2020
Amortisation and impairment
At 1 January 2019
Impairment charge
Amortisation charge
Disposals
At 1 January 2020
Impairment charge
Amortisation charge
Disposals
At 31 December 2020
Carrying amount at 31 December 2020
Carrying amount at 31 December 2019
Carrying amount at 1 January 2019
Investment Management
2020
12.2%
5.0%
1.0%
2019
8.7%
3.0%
(2.0)%
Client
relationships
£’000
203,617
–
5,269
(1,750)
207,136
–
6,890
4,085
(1,858)
216,253
69,061
–
15,369
(1,750)
82,680
–
14,302
(1,858)
95,124
121,129
124,456
134,556
Software
development
costs
£’000
7,209
1,485
–
(512)
8,182
1,613
–
–
–
9,795
5,215
415
919
(512)
6,037
–
1,197
–
7,234
2,561
2,145
1,994
Trust
2020
-
-
-
Purchased
software
£’000
36,887
–
7,012
(2,751)
41,148
–
–
6,269
(1,228)
46,189
25,519
2,727
4,843
(2,742)
30,347
–
6,488
(1,228)
35,607
10,582
10,801
11,368
2019
10.7%
(1.0)%
(3.0)%
Total
£’000
247,713
1,485
12,281
(5,013)
256,466
1,613
6,890
10,354
(3,086)
272,237
99,795
3,142
21,131
(5,004)
119,064
–
21,987
(3,086)
137,965
134,272
137,402
147,918
Client relationships of £6,890,000 acquired through business combinations in the period relate to the acquisition of the Barclays Wealth’s
Personal Injury and Court of Protection business (note 8).
Purchases of client relationships of £4,085,000 (2019: £5,269,000) in the year relate to payments made to investment managers and third
parties for the introduction of client relationships.
The total amount charged to profit or loss in the year in relation to goodwill and client relationships was £14,302,000 (2019: £15,369,000).
Purchased software with a cost of £23,803,000 (2019: £20,373,000) has been fully amortised but is still in use.
23 Deposits by banks
On 31 December 2020, deposits by banks included overnight cash book overdraft balances of £893,000 (2019: £28,000).
The fair value of deposits by banks was not materially different to their carrying value. Fair value has been calculated as the discounted
amount of estimated future cash flows expected to be paid using current market rates.
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| Consolidated financial statements
22
Intangible assets continued
At 31 December
Discount rate
Annual revenue growth rate
Terminal growth rate
Other intangible assets
Cost
At 1 January 2019
Internally developed in the year
Purchased in the year
Disposals
At 1 January 2020
Internally developed in the year
Purchased in the year
Disposals
At 31 December 2020
Amortisation and impairment
At 1 January 2019
Impairment charge
Amortisation charge
Disposals
At 1 January 2020
Impairment charge
Amortisation charge
Disposals
At 31 December 2020
Carrying amount at 31 December 2020
Carrying amount at 31 December 2019
Carrying amount at 1 January 2019
Acquired through business combinations (note 8)
Investment Management
2020
12.2%
5.0%
1.0%
2019
8.7%
3.0%
(2.0)%
Trust
2020
-
-
-
2019
10.7%
(1.0)%
(3.0)%
Client
development
relationships
£’000
203,617
5,269
(1,750)
207,136
6,890
4,085
(1,858)
216,253
69,061
15,369
(1,750)
82,680
–
–
–
–
14,302
(1,858)
95,124
121,129
124,456
134,556
9,795
46,189
272,237
Software
costs
£’000
7,209
1,485
(512)
8,182
1,613
–
–
–
–
5,215
415
919
(512)
6,037
–
–
1,197
7,234
2,561
2,145
1,994
Purchased
software
£’000
Total
£’000
36,887
247,713
41,148
256,466
7,012
(2,751)
–
–
–
6,269
(1,228)
25,519
2,727
4,843
(2,742)
30,347
–
6,488
(1,228)
35,607
10,582
10,801
11,368
1,485
12,281
(5,013)
1,613
6,890
10,354
(3,086)
99,795
3,142
21,131
(5,004)
119,064
–
21,987
(3,086)
137,965
134,272
137,402
147,918
Client relationships of £6,890,000 acquired through business combinations in the period relate to the acquisition of the Barclays Wealth’s
Personal Injury and Court of Protection business (note 8).
Purchases of client relationships of £4,085,000 (2019: £5,269,000) in the year relate to payments made to investment managers and third
parties for the introduction of client relationships.
The total amount charged to profit or loss in the year in relation to goodwill and client relationships was £14,302,000 (2019: £15,369,000).
Purchased software with a cost of £23,803,000 (2019: £20,373,000) has been fully amortised but is still in use.
23 Deposits by banks
On 31 December 2020, deposits by banks included overnight cash book overdraft balances of £893,000 (2019: £28,000).
The fair value of deposits by banks was not materially different to their carrying value. Fair value has been calculated as the discounted
amount of estimated future cash flows expected to be paid using current market rates.
24 Due to customers
Repayable:
– on demand
– within 3 months or less excluding on demand
– within 1 year or less but over 3 months
Amounts include balances:
– with variable interest rates
– with fixed interest rates
– which are non-interest-bearing
2020
£’000
2019
£’000
2,453,676 2,500,578
160,098
7,969
2,561,767 2,668,645
106,699
1,392
2,445,377 2,500,378
91,639
76,628
2,561,767 2,668,645
66,776
49,614
The fair value of amounts due to customers was not materially different from their carrying value. The estimated fair value of deposits with
no stated maturity, which include non-interest-bearing deposits, is the amount at which deposits could be transferred to a third party at the
measurement date. The estimated fair value of fixed-interest-bearing deposits is based on discounted cash flows using interest rates for
new debts with similar remaining maturity.
25 Accruals, deferred income, provisions and other liabilities
Trade creditors
Other creditors
Accruals
Other provisions (note 26)
26 Other provisions
At 1 January 2019
Charged to profit or loss
Unused amount credited to profit or loss
Net charge to profit or loss
Other movements
Utilised/paid during the year
At 1 January 2020
Charged to profit or loss
Unused amount credited to profit or loss
Net charge to profit or loss
Other movements
Utilised/paid during the year
At 31 December 2020
Payable within 1 year
Payable after 1 year
2020
£’000
785
20,766
81,805
8,715
112,071
2019
£’000
4,001
7,680
72,850
8,732
93,263
Property-
related
£’000
7,536
1,350
(310)
1,040
–
(3,338)
5,238
(642)
(23)
(665)
–
(825)
3,748
–
3,748
3,748
Total
£’000
11,784
4,202
(630)
3,572
5,448
(12,072)
8,732
585
(442)
143
3,857
(4,017)
8,715
2,471
6,244
8,715
Deferred,
variable costs
to acquire client
relationship
intangibles
£’000
1,061
–
–
–
5,269
(5,011)
1,319
–
–
3,857
(1,391)
3,785
1,289
2,496
3,785
Deferred and
contingent
consideration
in business
combinations
£’000
2,378
–
–
–
179
(2,557)
–
588
–
588
–
–
588
Legal and
compensation
£’000
809
2,852
(320)
2,532
–
(1,166)
2,175
639
(419)
220
–
(1,801)
594
588
–
588
594
–
594
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173
173
Notes to the consolidated financial statements continued
Deferred, variable costs to acquire client relationship intangibles
Other movements in provisions relate to deferred payments to investment managers and third parties for the introduction of client
relationships, which have been capitalised in the year.
Deferred and contingent consideration in business combinations
Following the satisfaction of certain operational targets, contingent consideration of £1,050,000 was paid to vendors of Speirs & Jeffrey in
May 2019 (see note 8). In addition, contingent consideration of £1,507,000 was paid in October 2019 in respect of the acquisition of Vision
Independent Financial Planning and Castle Investment Solutions.
Legal and compensation
During the ordinary course of business the group may, from time to time, be subject to complaints, as well as threatened and actual
legal proceedings (which may include lawsuits brought on behalf of clients or other third parties) both in the UK and overseas. Any such
material matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the
likelihood of the group incurring a liability. In those instances where it is concluded that it is more likely than not that a payment will be
made, a provision is established to the group’s best estimate of the amount required to settle the obligation at the relevant balance sheet
date. The timing of settlement of provisions for client compensation or litigation is dependent, in part, on the duration of negotiations with
third parties.
Property-related
Property-related provisions of £3,748,000 relate to dilapidation provisions expected to arise on leasehold premises held by the group
(2019: £5,238,000). Prior-year balances also included monies due under the contract with the assignee of leases on the group’s former
property at 1 Curzon Street, which was fully utilised in the year.
Dilapidation provisions are calculated using a discounted cash flow model; during the year ended 31 December 2020, dilapidation
provisions decreased by £645,000 (2019: increased by £677,000). The group utilised £825,000 (2019: £3,338,000) of the dilapidations
provision held for the surplus property at 1 Curzon Street during the year. The impact of discounting led to an additional credit of £645,000
(2019: additional charge of £1,364,000) being recognised during the year.
Amounts payable after one year
Property-related provisions of £3,748,000 are expected to be settled within 13 years of the balance sheet date, which corresponds to the
longest lease for which a dilapidations provision is being held. Remaining provisions payable after one year are expected to be settled
within three years of the balance sheet date.
27 Lease liabilities
Maturity analysis
Less than one year
One to five years
More than five years
Lease liabilities at 31 December
Current
Non-current
28 Subordinated loan notes
Subordinated loan notes
– face value
– carrying value
2020
£’000
4,869
19,307
31,948
56,124
4,869
51,255
56,124
2019
£’000
5,126
19,193
36,685
61,004
5,126
55,878
61,004
2020
£’000
2019
£’000
20,000
19,768
20,000
19,927
Subordinated loan notes consist of 10-year Tier 2 notes (‘Notes’), which are repayable in August 2025. Interest was payable at a fixed rate of
5.856% until the first call option date in August 2020, which the group chose not to exercise. At this date, the gross carrying amount of the
loan notes was recalculated as the present value of the contractual cash flows modified for the extension and discounted at the original
effective interest rate. A one-off gain to profit or loss of £393,000 was subsequently recognised in the year.
The loan notes now have a call option in August 2021 and annually thereafter at a fixed margin of 4.375% over six-month LIBOR. An interest
expense of £1,294,000 (2019: £1,290,000) was recognised in the year, and has been offset against the one-off gain above (see note 4).
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| Consolidated financial statements
Deferred, variable costs to acquire client relationship intangibles
29 Long-term employee benefits
Other movements in provisions relate to deferred payments to investment managers and third parties for the introduction of client
relationships, which have been capitalised in the year.
Deferred and contingent consideration in business combinations
Following the satisfaction of certain operational targets, contingent consideration of £1,050,000 was paid to vendors of Speirs & Jeffrey in
May 2019 (see note 8). In addition, contingent consideration of £1,507,000 was paid in October 2019 in respect of the acquisition of Vision
Independent Financial Planning and Castle Investment Solutions.
Legal and compensation
During the ordinary course of business the group may, from time to time, be subject to complaints, as well as threatened and actual
legal proceedings (which may include lawsuits brought on behalf of clients or other third parties) both in the UK and overseas. Any such
material matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the
likelihood of the group incurring a liability. In those instances where it is concluded that it is more likely than not that a payment will be
made, a provision is established to the group’s best estimate of the amount required to settle the obligation at the relevant balance sheet
date. The timing of settlement of provisions for client compensation or litigation is dependent, in part, on the duration of negotiations with
third parties.
Property-related
Property-related provisions of £3,748,000 relate to dilapidation provisions expected to arise on leasehold premises held by the group
(2019: £5,238,000). Prior-year balances also included monies due under the contract with the assignee of leases on the group’s former
property at 1 Curzon Street, which was fully utilised in the year.
Dilapidation provisions are calculated using a discounted cash flow model; during the year ended 31 December 2020, dilapidation
provisions decreased by £645,000 (2019: increased by £677,000). The group utilised £825,000 (2019: £3,338,000) of the dilapidations
provision held for the surplus property at 1 Curzon Street during the year. The impact of discounting led to an additional credit of £645,000
(2019: additional charge of £1,364,000) being recognised during the year.
Property-related provisions of £3,748,000 are expected to be settled within 13 years of the balance sheet date, which corresponds to the
longest lease for which a dilapidations provision is being held. Remaining provisions payable after one year are expected to be settled
Amounts payable after one year
within three years of the balance sheet date.
27 Lease liabilities
Maturity analysis
Less than one year
One to five years
More than five years
Current
Non-current
Lease liabilities at 31 December
28 Subordinated loan notes
Subordinated loan notes
– face value
– carrying value
2020
£’000
4,869
19,307
31,948
56,124
4,869
51,255
56,124
2019
£’000
5,126
19,193
36,685
61,004
5,126
55,878
61,004
2020
£’000
2019
£’000
20,000
19,768
20,000
19,927
Subordinated loan notes consist of 10-year Tier 2 notes (‘Notes’), which are repayable in August 2025. Interest was payable at a fixed rate of
5.856% until the first call option date in August 2020, which the group chose not to exercise. At this date, the gross carrying amount of the
loan notes was recalculated as the present value of the contractual cash flows modified for the extension and discounted at the original
effective interest rate. A one-off gain to profit or loss of £393,000 was subsequently recognised in the year.
The loan notes now have a call option in August 2021 and annually thereafter at a fixed margin of 4.375% over six-month LIBOR. An interest
expense of £1,294,000 (2019: £1,290,000) was recognised in the year, and has been offset against the one-off gain above (see note 4).
Defined contribution pension scheme
The group operates a defined contribution group personal pension scheme and contributes to various other personal pension
arrangements for certain directors and employees. The total of contributions made to these schemes during the year was £10,411,000
(2019: £9,726,000). The group also operates a defined contribution scheme for overseas employees, for which the total contributions were
£67,000 (2019: £58,000).
Defined benefit pension schemes
The group operates two defined benefit pension schemes that operate within the UK legal and regulatory framework: the Rathbone 1987
Scheme and the Laurence Keen Retirement Benefit Scheme. The schemes are currently both clients of Rathbone Investment Management,
with investments managed on a discretionary basis, in accordance with the statements of investment principles agreed by the trustees.
Scheme assets are held separately from those of the group.
The trustees of the schemes are required to act in the best interest of the schemes’ beneficiaries. The appointment of trustees is determined
by the schemes’ trust documentation and legislation. The group has a policy that one third of all trustees should be nominated by members
of the schemes.
Following a High Court ruling in 2018, the cost of equalising pension benefits for the impact of unequal Guaranteed Minimum Pensions
(GMPs) has been recognised. Only the Laurence Keen Scheme was impacted. The Rathbone 1987 Scheme was never contracted out,
meaning there are no GMP benefits in this scheme. Ahead of a specific method for equalisation being agreed with the scheme trustees, the
cost has been estimated using a method consistent with that deemed by the High Court to be the minimum necessary to achieve equality.
The High Court made a further ruling in November 2020 relating to members with GMPs that had previously transferred out, whereby the
scheme remains liable for paying any required adjustments arising from GMP equalisation. An estimate of the additional payment has been
recognised as a past service cost in the year.
The Laurence Keen Scheme was closed to new entrants and future accrual with effect from 30 September 1999. Past service benefits
continue to be calculated by reference to final pensionable salaries. From 1 October 1999, all the active members of the Laurence Keen
Scheme were included under the Rathbone 1987 Scheme for accrual of retirement benefits for further service. The Rathbone 1987 Scheme
was closed to new entrants with effect from 31 March 2002 and to future accrual from 30 June 2017.
The schemes are valued by independent actuaries at least every three years using the projected unit credit method, which looks at the
value of benefits accruing over the years following the valuation date based on projected salary to the date of termination of services,
discounted to a present value using a rate that reflects the characteristics of the liability. The valuations are updated at each balance sheet
date in between full valuations. The latest full actuarial valuations were carried out as at 31 December 2019.
The assumptions used by the actuaries, to estimate the schemes’ liabilities, are the best estimates chosen from a range of possible actuarial
assumptions. Due to the timescale covered by the liability, these assumptions may not necessarily be borne out in practice.
The principal actuarial assumptions used, which reflect the different membership profiles of the schemes, were:
Rate of increase of salaries
Rate of increase of pensions in payment
Rate of increase of deferred pensions
Discount rate
Inflation*
Percentage of members transferring out of the schemes per annum
Average age of members at date of transferring out (years)
*
Inflation assumptions are based on the Retail Prices Index
Laurence Keen Scheme
Rathbone 1987 Scheme
2020
%
(unless stated)
n/a
3.40
3.00
1.30
3.00
3.00
52.5
2019
%
(unless stated)
n/a
3.40
3.10
2.05
3.10
3.00
52.5
2020
%
(unless stated)
n/a
3.00
3.00
1.30
3.00
3.00
52.5
2019
%
(unless stated)
n/a
3.10
3.10
2.05
3.10
3.00
52.5
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Notes to the consolidated financial statements continued
29 Long-term employee benefits continued
Over the year, the financial assumptions have been amended to reflect changes in market conditions. Specifically:
1. the discount rate has been decreased by 0.75% to reflect a decrease in the yields available on AA-rated corporate bonds
2. the assumed rate of future inflation has decreased by 0.1% and reflects expectations of long-term inflation as implied by changes in the
Bank of England inflation yield curve
3. the assumed rates of future increases to pensions in payment has decreased by 0.1% for the Rathbone 1987 Scheme, consistent with the
assumed rate of future inflation. For the Laurence Keen Scheme they have remained the same (once rounded).
Over the year the mortality assumptions have been updated. The CMI model used to project future improvements in mortality has been
updated from the 2018 version to the 2019 version, and the mortality base tables have been updated from the S2NxA tables with an 85%
scaling factor to the S3PxA ‘Light’ tables with no scaling factor. Other demographic assumptions have remained unchanged.
The assumed duration of the liabilities for the Laurence Keen Scheme is 16 years (2019: 19 years) and the assumed duration for the
Rathbone 1987 Scheme is 21 years (2019: 22 years).
The normal retirement age for members of the Laurence Keen Scheme is 65 (60 for certain former directors). The normal retirement age
for members of the Rathbone 1987 Scheme is 60 for service prior to 1 July 2009 and 65 thereafter, following the introduction of pension
benefits based on Career-Average Revalued Earnings (CARE) from that date. The assumed life expectancy for the membership of both
schemes is based on the S3PA ‘Light’ actuarial tables (2019: S2NA tables) with improvements in line with the CMI 2019 tables with a long-
term rate of improvement of 1.5% p.a. The assumed life expectancies on retirement were:
Retiring today:
Retiring in 20 years:
aged 60
aged 65
aged 60
aged 65
2020
2019
Males
28.2
23.3
29.9
24.8
Females
29.8
24.8
31.5
26.5
Males
27.9
23.1
29.7
24.7
Females
30.0
25.1
31.9
26.9
The amount included in the balance sheet arising from the group’s assets in respect of the schemes is as follows:
Present value of defined benefit obligations
Fair value of scheme assets
Net defined benefit liability
Laurence Keen
Scheme
£’000
(12,374)
12,592
218
2020
Rathbone
1987 Scheme
£’000
(153,030)
143,027
(10,003)
Total
£’000
(165,404)
155,619
(9,785)
Laurence Keen
Scheme
£’000
(12,726)
12,178
(548)
The amounts recognised in profit or loss, within operating expenses, are as follows:
Net interest on net liability
Past service cost
Laurence Keen
Scheme
£’000
7
76
83
2020
Rathbone
1987 Scheme
£’000
117
–
117
Total
£’000
124
76
200
Laurence Keen
Scheme
£’000
15
15
2019
Rathbone
1987 Scheme
£’000
(146,398)
138,932
(7,466)
2019
Rathbone
1987 Scheme
£’000
240
–
240
Total
£’000
(159,124)
151,110
(8,014)
Total
£’000
255
–
255
Remeasurements of the net defined benefit asset have been reported in other comprehensive income. The actual return on scheme assets
was a rise in value of £451,000 (2019: £1,380,000 rise) for the Laurence Keen Scheme and a rise in value of £9,660,000 (2019: £18,357,000
rise) for the Rathbone 1987 Scheme.
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Over the year, the financial assumptions have been amended to reflect changes in market conditions. Specifically:
1. the discount rate has been decreased by 0.75% to reflect a decrease in the yields available on AA-rated corporate bonds
2. the assumed rate of future inflation has decreased by 0.1% and reflects expectations of long-term inflation as implied by changes in the
Bank of England inflation yield curve
3. the assumed rates of future increases to pensions in payment has decreased by 0.1% for the Rathbone 1987 Scheme, consistent with the
assumed rate of future inflation. For the Laurence Keen Scheme they have remained the same (once rounded).
Over the year the mortality assumptions have been updated. The CMI model used to project future improvements in mortality has been
updated from the 2018 version to the 2019 version, and the mortality base tables have been updated from the S2NxA tables with an 85%
scaling factor to the S3PxA ‘Light’ tables with no scaling factor. Other demographic assumptions have remained unchanged.
The assumed duration of the liabilities for the Laurence Keen Scheme is 16 years (2019: 19 years) and the assumed duration for the
Rathbone 1987 Scheme is 21 years (2019: 22 years).
The normal retirement age for members of the Laurence Keen Scheme is 65 (60 for certain former directors). The normal retirement age
for members of the Rathbone 1987 Scheme is 60 for service prior to 1 July 2009 and 65 thereafter, following the introduction of pension
benefits based on Career-Average Revalued Earnings (CARE) from that date. The assumed life expectancy for the membership of both
schemes is based on the S3PA ‘Light’ actuarial tables (2019: S2NA tables) with improvements in line with the CMI 2019 tables with a long-
term rate of improvement of 1.5% p.a. The assumed life expectancies on retirement were:
Retiring today:
Retiring in 20 years:
The amount included in the balance sheet arising from the group’s assets in respect of the schemes is as follows:
aged 60
aged 65
aged 60
aged 65
2020
2019
Males
28.2
23.3
29.9
24.8
Females
29.8
24.8
31.5
26.5
Males
27.9
23.1
29.7
24.7
Laurence Keen
Scheme
£’000
2020
Rathbone
1987 Scheme
£’000
Total
£’000
Laurence Keen
Scheme
£’000
2019
Rathbone
1987 Scheme
£’000
Females
30.0
25.1
31.9
26.9
Total
£’000
Present value of defined benefit obligations
(12,374)
(153,030)
(165,404)
(12,726)
(146,398)
(159,124)
Fair value of scheme assets
Net defined benefit liability
12,592
143,027
155,619
12,178
138,932
151,110
218
(10,003)
(9,785)
(548)
(7,466)
(8,014)
The amounts recognised in profit or loss, within operating expenses, are as follows:
29 Long-term employee benefits continued
Movements in the present value of defined benefit obligations were as follows:
At 1 January
Service cost (employer’s part)
Interest cost
Contributions from members
Actuarial experience gains
Actuarial (gains)/losses arising from:
– demographic assumptions
– financial assumptions
Past service cost
Benefits paid
At 31 December
Laurence Keen
Scheme
£’000
12,726
–
257
–
(1,081)
(389)
1,158
76
(373)
12,374
2020
Rathbone
1987 Scheme
£’000
146,398
–
2,916
–
(3,272)
(5,154)
20,482
–
(8,340)
153,030
Laurence Keen
Scheme
£’000
12,383
–
336
–
10
2019
Rathbone
1987 Scheme
£’000
134,150
–
3,739
–
121
(293)
1,452
–
(1,162)
12,726
(3,243)
17,560
–
(5,929)
146,398
Total
£’000
159,124
–
3,173
–
(4,353)
(5,543)
21,640
76
(8,713)
165,404
Total
£’000
146,533
–
4,075
–
131
(3,536)
19,012
–
(7,091)
159,124
Movements in the fair value of scheme assets were as follows:
At 1 January
Remeasurement of net defined benefit liability:
– interest income
– return on scheme assets (excluding amounts included
in interest income)
Contributions from the sponsoring companies
Contributions from scheme members
Benefits paid
At 31 December
Laurence Keen
Scheme
£’000
12,178
2020
Rathbone
1987 Scheme
£’000
138,932
Total
£’000
151,110
Laurence Keen
Scheme
£’000
11,624
2019
Rathbone
1987 Scheme
£’000
123,712
Total
£’000
135,336
250
2,799
3,049
321
3,499
3,820
201
336
–
(373)
12,592
6,861
2,775
–
(8,340)
143,027
7,062
3,111
–
(8,713)
155,619
1,059
336
–
(1,162)
12,178
14,858
2,792
–
(5,929)
138,932
15,917
3,128
–
(7,091)
151,110
The statements of investment principles set by the trustees of both schemes were revised in 2020. They require that the assets of the
schemes are invested in a diversified portfolio of assets, split between return-seeking assets (primarily equities) and safer assets (corporate
bonds and liability-driven investments).
The expected asset allocations at 31 December 2020 as set out in the statements of investment principles are as follows:
Net interest on net liability
Past service cost
Laurence Keen
Scheme
£’000
7
76
83
2020
Rathbone
1987 Scheme
£’000
117
–
117
Laurence Keen
2019
Rathbone
1987 Scheme
Total
£’000
124
76
200
Scheme
£’000
15
15
£’000
240
–
240
Total
£’000
255
–
255
Target asset allocation at 31 December 2020
Benchmark
Safer assets
Growth assets
Range
Safer assets
Growth assets
Remeasurements of the net defined benefit asset have been reported in other comprehensive income. The actual return on scheme assets
was a rise in value of £451,000 (2019: £1,380,000 rise) for the Laurence Keen Scheme and a rise in value of £9,660,000 (2019: £18,357,000
rise) for the Rathbone 1987 Scheme.
Laurence Keen
Scheme
Rathbone
1987 Scheme
60%
40%
60%
40%
50% – 70% 50% – 70%
30% – 50% 30% – 50%
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Notes to the consolidated financial statements continued
29 Long-term employee benefits continued
The analysis of the scheme assets, measured at bid prices, at the balance sheet date was as follows:
Laurence Keen Scheme
Equity instruments:
– United Kingdom
– Eurozone
– North America
– Other
Debt instruments:
– United Kingdom government bonds
– Overseas corporate bonds
– United Kingdom corporate bonds
Liability-driven investments
Cash
Other
At 31 December
Rathbone 1987 Scheme
Equity instruments:
– United Kingdom
– Eurozone
– North America
– Other
Debt instruments:
– United Kingdom government bonds
– Overseas government bonds
– United Kingdom corporate bonds
– Overseas corporate bonds
Derivatives:
– Interest rate swap funds
Liability-driven investments
Cash
Other
At 31 December
2020
Fair
value
£’000
485
555
2,284
2,048
5,372
–
–
4,489
4,489
2,441
161
129
12,592
2020
Fair
value
£’000
29,299
5,948
15,978
15,497
66,722
–
–
41,509
–
41,509
2019
Fair
value
£’000
3,320
408
696
704
5,128
4,693
158
1,847
6,698
–
79
273
12,178
2020
Current
allocation
%
2019
Current
allocation
%
43
42
36
19
1
1
100
55
–
1
2
100
2019
Fair
value
£’000
2020
Current
allocation
%
2019
Current
allocation
%
42,518
6,769
9,492
8,887
67,666
37,184
1,324
11,198
–
49,706
–
–
32,700
2,096
–
143,027
14,615
14,615
–
6,945
–
138,932
46
48
29
36
–
24
1
–
100
11
–
5
–
100
All equity instruments have quoted prices in active markets. ‘Other’ scheme assets comprise commodities (2019: comprise commodities
and property funds). Buy and maintain credit funds have been classified as UK corporate bonds.
The Rathbone 1987 Scheme previously held shares in real-time inflation-linked interest rate swap funds, which had a fair value of
£14,615,000 at 31 December 2019. During the year, a proportion of assets were transferred to new fund managers, Legal and General
Investment Management, and the interest rate swap instrument was subsequently sold. The Scheme now holds liability-driven
investments, which act to reduce the group’s exposure to changes in net defined benefit pension obligations arising from changes
in interest rates and inflation.
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| Consolidated financial statements
29 Long-term employee benefits continued
The analysis of the scheme assets, measured at bid prices, at the balance sheet date was as follows:
Laurence Keen Scheme
Equity instruments:
– United Kingdom
– Eurozone
– North America
– Other
Debt instruments:
– United Kingdom government bonds
– Overseas corporate bonds
– United Kingdom corporate bonds
Liability-driven investments
Cash
Other
At 31 December
Rathbone 1987 Scheme
Equity instruments:
– United Kingdom
– Eurozone
– North America
– Other
Debt instruments:
– United Kingdom government bonds
– Overseas government bonds
– United Kingdom corporate bonds
– Overseas corporate bonds
Derivatives:
– Interest rate swap funds
Liability-driven investments
Cash
Other
At 31 December
12,592
12,178
2019
Fair
value
£’000
2020
Current
allocation
%
2019
Current
allocation
%
2020
Current
allocation
%
2019
Current
allocation
%
43
42
36
19
1
1
100
55
–
1
2
100
46
48
2020
Fair
value
£’000
485
555
2,284
2,048
5,372
–
–
4,489
4,489
2,441
161
129
2020
Fair
value
£’000
29,299
5,948
15,978
15,497
66,722
41,509
32,700
2,096
–
–
–
–
–
–
2019
Fair
value
£’000
3,320
408
696
704
5,128
4,693
158
1,847
6,698
–
79
273
42,518
6,769
9,492
8,887
67,666
37,184
1,324
11,198
–
–
–
14,615
14,615
6,945
41,509
49,706
29
36
–
24
1
–
100
11
–
5
–
100
143,027
138,932
The key assumptions affecting the results of the valuation are the discount rate, future inflation, mortality, the rate of members transferring
out and the average age at the time of transferring out. In order to demonstrate the sensitivity of the results to these assumptions, the
actuary has recalculated the defined benefit obligations for each scheme by varying each of these assumptions in isolation whilst leaving
the other assumptions unchanged. For example, in order to demonstrate the sensitivity of the results to the discount rate, the actuary has
recalculated the defined benefit obligations for each scheme using a discount rate that is 0.5% higher than that used for calculating the
disclosed figures. A similar approach has been taken to demonstrate the sensitivity of the results to the other key assumptions. A summary
of the sensitivities in respect of the total of the two schemes’ defined benefit obligations is set out below.
1.0% increase in:
– discount rate
0.5% increase in:
– rate of inflation
Reduce allowance for future transfers to nil
1-year increase to:
– longevity at 60
– average age of members at the time of transferring out
Combined impact on schemes’ liabilities
(Decrease)/increase
£’000
(Decrease)/increase
%
(15,689)
11,608
3,189
7,356
872
(9.5%)
7.0%
1.9%
4.4%
0.5%
The total contributions made by the group to the 1987 Scheme during the year were £2,775,000 (2019: £2,792,000). The group has a
commitment to pay deficit-reducing contributions of £4,750,000 by 31 August 2021, £3,750,000 by 31 August 2022 and a further £2,750,000
by 31 August 2023 and each subsequent 31 August up to and including 31 August 2026, so long as that scheme remains in deficit. The deficit
funding plan will be reviewed following the next triennial valuation, as at 31 December 2022.
The total contributions made by the group to the Laurence Keen Scheme during the year were £336,000 (2019: £336,000). The group has
a commitment to pay deficit-reducing contributions of £168,000 by 28 February each year from 2021 to 2026 (inclusive) and a further
£168,000 by 31 August in each of those years, so long as that scheme remains in deficit.
No allowance has been made for a minimum funding requirement under IFRIC 14. The funding plans only require further contributions if
the schemes remain in deficit.
30 Share capital and share premium
The following movements in share capital occurred during the year:
At 1 January 2019 (restated)
Shares issued:
– in relation to business combinations (note 9)
– to Share Incentive Plan
– to Save As You Earn scheme
– to Employee Benefit Trust
At 1 January 2020
Shares issued:
– to Share Incentive Plan
– to Save As You Earn scheme
– to Employee Benefit Trust
At 31 December 2020
Number of
shares
55,206,957
603,913
150,766
143,502
256,848
56,361,986
259,619
5,008
859,800
57,486,413
Exercise/
issue price
Pence
2,484.0
2,085.0 – 2,540.0
1,556.0 – 1,648.0
5.0
1,296.0 – 2,110.0
1,641.0 – 1,648.0
5.0
Share
capital
£’000
Share
premium
£’000
2,760 205,273
30
8
7
13
–
3,364
2,302
–
2,818 210,939
13
–
43
4,070
83
–
2,874 215,092
Merger reserve
£’000
56,785
Total
£’000
264,818
14,971
–
–
–
71,756
–
–
–
71,756
15,001
3,372
2,309
13
285,513
4,083
83
43
289,722
All equity instruments have quoted prices in active markets. ‘Other’ scheme assets comprise commodities (2019: comprise commodities
and property funds). Buy and maintain credit funds have been classified as UK corporate bonds.
The total number of issued and fully paid up ordinary shares at 31 December 2020 was 57,486,413 (2019: 56,361,986) with a par value of
5p per share.
The Rathbone 1987 Scheme previously held shares in real-time inflation-linked interest rate swap funds, which had a fair value of
£14,615,000 at 31 December 2019. During the year, a proportion of assets were transferred to new fund managers, Legal and General
Investment Management, and the interest rate swap instrument was subsequently sold. The Scheme now holds liability-driven
investments, which act to reduce the group’s exposure to changes in net defined benefit pension obligations arising from changes
in interest rates and inflation.
The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at
meetings of the company. The ordinary shareholders are entitled to any residual assets on the winding up of the company.
On 28 May 2019, the company issued 603,913 shares in respect of the contingent consideration from the acquisition of Speirs & Jeffrey
(see note 8), following the satisfaction of certain operational targets.
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Notes to the consolidated financial statements continued
31 Own shares
The following movements in own shares occurred during the year:
At 1 January 2019
Acquired in the year
Released on vesting
At 1 January 2020
Acquired in the year
Released on vesting
At 31 December 2020
Number of
shares
1,943,853
694,152
(26,563)
2,611,442
1,187,938
(42,010)
3,757,370
£’000
32,737
10,033
(799)
41,971
5,077
(304)
46,744
Own shares represent the cost of the company’s own shares, either purchased in the market or issued by the company, that are held by
the company or in an employee benefit trust to satisfy future awards under the group’s share-based payment schemes (note 32). A total
of 2,343,738 shares were held in the Employee Benefit Trust at 31 December 2020 (2019: 1,292,627), and 407,110 shares were held by the
trustees of the Share Incentive Plan but were not unconditionally gifted to employees (2019: 312,293). A further 1,006,522 (2019: 1,006,522)
shares were held in nominee in respect of the initial share consideration for the acquisition of Speirs & Jeffrey (see note 30). No shares
were acquired through share buybacks during the year (2019: 317,281).
32 Share-based payments
Share Incentive Plan
The group operates a Share Incentive Plan (SIP), which is available to all employees. Employees can contribute up to £150 per month to
acquire partnership shares, which are purchased or allotted in monthly accumulation periods. The group currently matches employee
contributions on a one-for-one basis to acquire matching shares.
The group also provides performance-related free shares, with eligible employees receiving shares valued at the rate of £100 per 1% real
increase in earnings per share up to a maximum of £3,000 per annum.
For UK employees, SIP dividends are reinvested and used to purchase dividend shares, whilst for Jersey employees dividends are paid
in cash.
As at 31 December 2020, the trustees of the SIP held 1,240,212 (2019: 1,065,917) ordinary shares of 5p each in Rathbone Brothers Plc with a
total market value of £19,099,000 (2019: £22,704,000). Of the total number of shares held by the trustees, 406,012 (2019: 311,972) have been
conditionally gifted to employees and 1,098 (2019: 321) remain unallocated. Dividends on the unallocated shares have been waived by
the trustees.
The group recognised a charge of £1,760,980 in relation to this scheme in 2020 (2019: £1,324,000).
Savings-related share option or Save as You Earn (SAYE) plan
Under the SAYE plan, employees can contribute up to £500 per month to acquire shares at the end of a three- or five-year savings period.
Options with an aggregate estimated fair value of £3,931,000, determined using a binomial valuation model including expected dividends,
were granted on 21 April 2020 to directors and staff under the SAYE plan. The inputs into the binomial model for options granted during
2020, as at the date of issue, were as follows:
Share price (pence)
Exercise price (pence)
Expected volatility
Risk-free rate
Expected dividend yield
2020
1,380
1,085
26%
0.1%
2.8%
2019
2,400
1,813
24%
0.8%
2.8%
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| Consolidated financial statements
31 Own shares
The following movements in own shares occurred during the year:
The number of share options outstanding for the SAYE plan at the end of the year, the period in which they were granted and the dates on
which they may be exercised are given below.
At 1 January 2019
Acquired in the year
Released on vesting
At 1 January 2020
Acquired in the year
Released on vesting
At 31 December 2020
Own shares represent the cost of the company’s own shares, either purchased in the market or issued by the company, that are held by
the company or in an employee benefit trust to satisfy future awards under the group’s share-based payment schemes (note 32). A total
of 2,343,738 shares were held in the Employee Benefit Trust at 31 December 2020 (2019: 1,292,627), and 407,110 shares were held by the
trustees of the Share Incentive Plan but were not unconditionally gifted to employees (2019: 312,293). A further 1,006,522 (2019: 1,006,522)
shares were held in nominee in respect of the initial share consideration for the acquisition of Speirs & Jeffrey (see note 30). No shares
were acquired through share buybacks during the year (2019: 317,281).
32 Share-based payments
Share Incentive Plan
The group operates a Share Incentive Plan (SIP), which is available to all employees. Employees can contribute up to £150 per month to
acquire partnership shares, which are purchased or allotted in monthly accumulation periods. The group currently matches employee
contributions on a one-for-one basis to acquire matching shares.
The group also provides performance-related free shares, with eligible employees receiving shares valued at the rate of £100 per 1% real
increase in earnings per share up to a maximum of £3,000 per annum.
For UK employees, SIP dividends are reinvested and used to purchase dividend shares, whilst for Jersey employees dividends are paid
in cash.
the trustees.
As at 31 December 2020, the trustees of the SIP held 1,240,212 (2019: 1,065,917) ordinary shares of 5p each in Rathbone Brothers Plc with a
total market value of £19,099,000 (2019: £22,704,000). Of the total number of shares held by the trustees, 406,012 (2019: 311,972) have been
conditionally gifted to employees and 1,098 (2019: 321) remain unallocated. Dividends on the unallocated shares have been waived by
The group recognised a charge of £1,760,980 in relation to this scheme in 2020 (2019: £1,324,000).
Savings-related share option or Save as You Earn (SAYE) plan
Under the SAYE plan, employees can contribute up to £500 per month to acquire shares at the end of a three- or five-year savings period.
Options with an aggregate estimated fair value of £3,931,000, determined using a binomial valuation model including expected dividends,
were granted on 21 April 2020 to directors and staff under the SAYE plan. The inputs into the binomial model for options granted during
2020, as at the date of issue, were as follows:
Share price (pence)
Exercise price (pence)
Expected volatility
Risk-free rate
Expected dividend yield
2020
1,380
1,085
26%
0.1%
2.8%
2019
2,400
1,813
24%
0.8%
2.8%
Number of
shares
1,943,853
694,152
(26,563)
2,611,442
1,187,938
(42,010)
£’000
32,737
10,033
(799)
41,971
5,077
(304)
3,757,370
46,744
Year of grant
2014
2015
2016
2017
2018
2019
2020
At 31 December
Exercise price
Pence
1,556.0
1,641.0
1,648.0
1,899.0
1,977.0
1,813.0
1,085.0
2020
Number
of share
Exercise
period
options
2019
–
2020
309
2019 and 2021
8,988
2020 and 2022
6,874
2021 and 2023
31,228
2022 and 2024
43,246
2023 and 2025 1,158,317
1,248,962
Movements in the number of share options outstanding for the SAYE plan were as follows:
At 1 January
Granted in the year
Forfeited or cancelled in the year
Exercised in the year
At 31 December
2020
2019
Number
of share
options
520,604
1,177,277
(442,665)
(6,254)
1,248,962
Weighted
average
exercise price
Pence
1,842.0
1,085.0
1,808.0
1,690.0
1,141.0
Number
of share
options
501,379
201,406
(38,679)
(143,502)
520,604
2019
Number
of share
options
964
43,456
44,972
109,285
127,363
194,564
–
520,604
Weighted
average
exercise price
Pence
1,800.0
1,813.0
1,893.0
1,612.0
1,842.0
The weighted average share price at the dates of exercise for share options exercised during the year was £16.85 (2019: £23.11). The options
outstanding at 31 December 2020 had a weighted average contractual life of 3.7 years (2019: 2.5 years) and a weighted average exercise price
of £11.41 (2019: £18.42).
Executive Incentive Plan
Details of the general terms of this plan are set out in the remuneration committee report on page 106, and pages 118 to 120.
Under the remuneration policy, 40% of the total award will be given in cash with the remaining 60% of the award granted in shares. The
group treats the cash element of the award as an employee benefit under IAS 19 and the share element of the award as an equity-settled
share-based payment under IFRS 2.
The group recognised a charge of £2,399,000 in relation to the equity-settled share-based payment element of this scheme in 2020
(2019: £3,104,000).
Staff Equity Plan
The Staff Equity Plan is for individuals within Rathbone Investment Management and Rathbone Investment Management International.
The aim of the scheme is to promote increased equity interest in Rathbone Brothers Plc amongst employees.
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Notes to the consolidated financial statements continued
32 Share-based payments continued
Participants are granted awards under the plan in the form of an option with an exercise price of £nil. The option awards are subject to
certain service and performance conditions. Following the satisfaction of these performance conditions, the awards will vest (or lapse)
and become exercisable on the fifth anniversary of the grant date. The awards will be exercisable from the vesting date until the tenth
anniversary of the grant date.
The group recognised a charge of £4,327,000 in relation to this scheme in 2020 (2019: £3,647,000).
Other schemes
The group operates a number of other plans for rewarding employees. Participants are granted awards under these plans in the form of
options, which vest automatically on an anniversary of the grant date (generally between one and five years). As the intention is to settle
the options in such plans in shares, the awards are treated as equity-settled share-based payments under IFRS 2.
The group recognised total charges of £11,276,000 in relation to share-based payment transactions in 2020 (2019: £9,328,000) (see note 10).
Speirs & Jeffrey share-based payments
Details of the general terms of share-based payments associated with the acquisition of Speirs & Jeffrey are set out in note 8.
33 Financial risk management
The group has identified the financial, business and operational risks arising from its activities and has established policies and procedures
to manage these items in accordance with its risk appetite, as described in the group risk committee report on pages 92 to 94.
The group categorises its financial risks into the following primary areas:
(i)
credit risk (which includes counterparty default risk);
(ii)
liquidity risk;
(iii) market risk (which includes fair value interest rate risk, cash flow interest rate risk, foreign exchange risk and price risk); and
(iv) pension risk.
The group’s exposures to pension risk are set out in note 29.
The group’s financial risk management policies are designed to identify and analyse the financial risks that the group faces, to set
appropriate risk tolerances, limits and controls, and to monitor the financial risks and adherence to limits by means of reliable and
up-to-date information systems. The group regularly reviews its financial risk management policies and systems to reflect changes
in the business, counterparties, markets and the range of financial instruments that it utilises.
The treasury department, reporting through the banking committee, has principal responsibility for monitoring exposure to credit risk,
liquidity risk and market risk. Procedures and delegated authorities are documented in a group treasury manual and policy documents
prescribe the management and monitoring of each type of risk. The primary objective of the group’s treasury policy is to manage short
term liquidity requirements whilst maintaining an appropriate level of exposure to other financial risks in accordance with the group’s
risk appetite.
(i) Credit risk
The group takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due, through its
banking, treasury, trust and financial planning activities. The principal source of credit risk arises from placing funds in the money market
and holding interest-bearing securities. The group also has exposure to credit risk through its client loan book and guarantees given on
clients’ behalf.
It is the group’s policy to place funds generated internally and from deposits by clients with a range of high-quality financial institutions
and the Bank of England. Investments with financial institutions are spread to avoid excessive exposure to any individual counterparty.
Loans made to clients are secured against clients’ assets that are held and managed by group companies.
Exposure to credit risk is managed through setting appropriate ratings requirements and lending limits. Limits are reviewed regularly,
taking into account the ability of borrowers and potential borrowers to meet repayment obligations.
The group categorises its exposures based on the long-term ratings awarded to counterparties by Fitch or Moody’s. Each exposure is
assessed individually, both at inception and in ongoing monitoring. In addition to formal external ratings, the banking committee also
utilises market intelligence information to assist with its ongoing monitoring.
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2020
£’000
2019
£’000
1,803,434 1,933,218
70,000
600,261
100,194
2,564,123 2,703,673
Treasury book
Balances with central banks
Loans and advances to banks – fixed deposits
Unlisted debt securities
Money market funds
Gross amount
The group’s financial assets are categorised as follows:
Balances with central banks (note 14)
The group has exposure to central banks through its deposits held with the Bank of England.
Loans and advances to banks (note 15) and debt and other securities (note 17)
The group has exposures to a wide range of financial institutions through its treasury portfolio, which includes bank deposits, certificates
of deposit, money market funds and treasury bills. These exposures principally arise from the placement of clients’ cash, where it is held
under a banking relationship, and the group’s own reserves.
Balances with central banks, loans and advances to banks and debt and other securities (excluding equity securities) are collectively
referred to as the group’s treasury book.
32 Share-based payments continued
Participants are granted awards under the plan in the form of an option with an exercise price of £nil. The option awards are subject to
certain service and performance conditions. Following the satisfaction of these performance conditions, the awards will vest (or lapse)
and become exercisable on the fifth anniversary of the grant date. The awards will be exercisable from the vesting date until the tenth
The group recognised a charge of £4,327,000 in relation to this scheme in 2020 (2019: £3,647,000).
anniversary of the grant date.
Other schemes
The group operates a number of other plans for rewarding employees. Participants are granted awards under these plans in the form of
options, which vest automatically on an anniversary of the grant date (generally between one and five years). As the intention is to settle
the options in such plans in shares, the awards are treated as equity-settled share-based payments under IFRS 2.
The group recognised total charges of £11,276,000 in relation to share-based payment transactions in 2020 (2019: £9,328,000) (see note 10).
Details of the general terms of share-based payments associated with the acquisition of Speirs & Jeffrey are set out in note 8.
Speirs & Jeffrey share-based payments
33 Financial risk management
The group has identified the financial, business and operational risks arising from its activities and has established policies and procedures
to manage these items in accordance with its risk appetite, as described in the group risk committee report on pages 92 to 94.
The group categorises its financial risks into the following primary areas:
(i)
credit risk (which includes counterparty default risk);
(iii) market risk (which includes fair value interest rate risk, cash flow interest rate risk, foreign exchange risk and price risk); and
(ii)
liquidity risk;
(iv) pension risk.
risk appetite.
(i) Credit risk
clients’ behalf.
The group’s financial risk management policies are designed to identify and analyse the financial risks that the group faces, to set
appropriate risk tolerances, limits and controls, and to monitor the financial risks and adherence to limits by means of reliable and
up-to-date information systems. The group regularly reviews its financial risk management policies and systems to reflect changes
in the business, counterparties, markets and the range of financial instruments that it utilises.
The treasury department, reporting through the banking committee, has principal responsibility for monitoring exposure to credit risk,
liquidity risk and market risk. Procedures and delegated authorities are documented in a group treasury manual and policy documents
prescribe the management and monitoring of each type of risk. The primary objective of the group’s treasury policy is to manage short
term liquidity requirements whilst maintaining an appropriate level of exposure to other financial risks in accordance with the group’s
The group takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due, through its
banking, treasury, trust and financial planning activities. The principal source of credit risk arises from placing funds in the money market
and holding interest-bearing securities. The group also has exposure to credit risk through its client loan book and guarantees given on
It is the group’s policy to place funds generated internally and from deposits by clients with a range of high-quality financial institutions
and the Bank of England. Investments with financial institutions are spread to avoid excessive exposure to any individual counterparty.
Loans made to clients are secured against clients’ assets that are held and managed by group companies.
Exposure to credit risk is managed through setting appropriate ratings requirements and lending limits. Limits are reviewed regularly,
taking into account the ability of borrowers and potential borrowers to meet repayment obligations.
The group categorises its exposures based on the long-term ratings awarded to counterparties by Fitch or Moody’s. Each exposure is
assessed individually, both at inception and in ongoing monitoring. In addition to formal external ratings, the banking committee also
utilises market intelligence information to assist with its ongoing monitoring.
The group’s exposures to pension risk are set out in note 29.
(a) Overdrafts
The group’s policy requires that all such exposures are only taken with counterparties that have been awarded a minimum long-term
rating of single A by Fitch or equivalent rating by Moody’s. Counterparty limits are also in place to limit exposure to an individual
counterparty or connected group of counterparties. Counterparty exposures are monitored on a daily basis by the treasury department
and reviewed by the banking committee on a monthly basis, or more frequently when necessary. The banking committee may suspend
dealing in a particular counterparty, or liquidate specific holdings, in the light of adverse market information.
Loans and advances to customers (note 16)
The group provides loans to clients through its investment management operations (‘the investment management loan book’). The group
is also exposed to credit risk on overdrafts on clients’ investment management accounts, trade debtors arising from the trust, tax and
financial planning businesses (‘trust and financial planning debtors’) and other debtors.
Overdrafts on clients’ investment management accounts arise from time to time due to short-term timing differences between the
purchase and sale of assets on a client’s behalf. Overdrafts are actively monitored and reported to the banking committee on a
monthly basis.
(b)
Investment management loan book
Loans are provided as a service to investment management clients, who are generally asset-rich but have short- to medium-term
cash requirements. Such loans are normally made on a fully secured basis against portfolios held in Rathbones’ nominee name,
and some loans may be partially secured by property. Extensions to the initial loan period may be granted subject to credit criteria.
At 31 December 2020, the total lending exposure limit for the investment management loan book was £225,000,000 (2019:
£200,000,000), of which £157,304,000 had been advanced (2019: £131,848,000) and a further £39,510,000 had been committed
(2019: £31,284,000).
(c) Trust and financial planning debtors
Trust and financial planning debtors relate to fees which have been invoiced but not yet settled by clients. The collection and ageing
of trust and financial planning debtors are reviewed on a monthly basis by the management committees of the group’s trust and
financial planning businesses.
(d) Other debtors
Other loans and advances to customers relate to management fees receivable.
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183
183
10,000
651,427
99,262
Notes to the consolidated financial statements continued
33 Financial risk management continued
(i) Credit risk continued
Settlement balances
Settlement risk arises in any situation where a payment in cash or transfer of a security is made in the expectation of a corresponding
delivery of a security or receipt of cash. The majority of transactions are carried out on a delivery versus payment basis, which results
in securities and cash being exchanged within a very close timeframe. Settlement balances outside standard terms are monitored on a
daily basis.
The Investment Management and Funds segments have exposure to market counterparties in the settlement of trades. Settlement
balances arising in the Investment Management segment are primarily in relation to client trades and risk of non-settlement is borne
by clients.
Maximum exposure to credit risk
Credit risk relating to on-balance-sheet exposures:
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers:
– overdrafts
– investment management loan book
– trust and financial planning debtors
– other debtors
Investment securities:
– unlisted debt securities and money market funds
– equity securities
Other financial assets
Credit risk relating to off-balance-sheet exposures:
Loan commitments
Financial guarantees (note 35)
2020
£’000
2019
£’000
1,803,434 1,933,218
52,520
177,832
90,373
159,430
6,384
157,957
1,424
557
5,148
132,033
1,272
60
750,795
2,569
92,386
700,492
1,186
86,963
39,510
–
31,284
117
3,104,819 3,122,125
The above table represents the group’s gross credit risk exposure at 31 December 2020 and 2019, without taking account of any
associated collateral held or other credit enhancements. For on-balance-sheet assets, the exposures set out above are based on gross
carrying amounts.
Of the total maximum exposure, 10.5% is derived from loans and advances to banks and customers (2019: 10.1%) and 24.2% represents
investment securities (2019: 22.4%).
The credit risk relating to off-balance-sheet exposures for financial guarantees reflects the group’s gross potential exposure of guarantees
held on balance sheet (see note 1.21).
Impairment of financial instruments
The group’s accounting policy governing impairment of financial assets is given in note 1.12. Impairment losses on financial assets
recognised in profit or loss were as shown in the table below. The main class of asset these impairment losses have arisen against is cash
and balances held with central banks.
Impairment losses/(reversals) arising from:
– treasury book
– investment management loan book
– trust and financial planning debtors
2020
£’000
577
–
5
582
2019
£’000
99
(11)
15
103
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| Consolidated financial statements
Settlement risk arises in any situation where a payment in cash or transfer of a security is made in the expectation of a corresponding
delivery of a security or receipt of cash. The majority of transactions are carried out on a delivery versus payment basis, which results
in securities and cash being exchanged within a very close timeframe. Settlement balances outside standard terms are monitored on a
The Investment Management and Funds segments have exposure to market counterparties in the settlement of trades. Settlement
balances arising in the Investment Management segment are primarily in relation to client trades and risk of non-settlement is borne
33 Financial risk management continued
(i) Credit risk continued
Settlement balances
daily basis.
by clients.
Credit risk relating to on-balance-sheet exposures:
Maximum exposure to credit risk
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers:
– overdrafts
– investment management loan book
– trust and financial planning debtors
– other debtors
Investment securities:
– equity securities
Other financial assets
– unlisted debt securities and money market funds
Credit risk relating to off-balance-sheet exposures:
Loan commitments
Financial guarantees (note 35)
carrying amounts.
investment securities (2019: 22.4%).
held on balance sheet (see note 1.21).
Impairment of financial instruments
and balances held with central banks.
Impairment losses/(reversals) arising from:
– treasury book
– investment management loan book
– trust and financial planning debtors
The above table represents the group’s gross credit risk exposure at 31 December 2020 and 2019, without taking account of any
associated collateral held or other credit enhancements. For on-balance-sheet assets, the exposures set out above are based on gross
Of the total maximum exposure, 10.5% is derived from loans and advances to banks and customers (2019: 10.1%) and 24.2% represents
The credit risk relating to off-balance-sheet exposures for financial guarantees reflects the group’s gross potential exposure of guarantees
The group’s accounting policy governing impairment of financial assets is given in note 1.12. Impairment losses on financial assets
recognised in profit or loss were as shown in the table below. The main class of asset these impairment losses have arisen against is cash
2020
£’000
2019
£’000
1,803,434 1,933,218
90,373
159,430
52,520
177,832
6,384
5,148
157,957
132,033
1,424
557
1,272
60
750,795
700,492
2,569
92,386
39,510
–
1,186
86,963
31,284
117
3,104,819 3,122,125
2020
£’000
577
–
5
582
2019
£’000
99
(11)
15
103
Expected credit loss assessment
At each reporting date, for both the treasury book and investment management loan book, the group assesses whether there has been a
significant increase in credit risk of exposures since initial recognition, by comparing the change in the risk of a default occurring over the
expected life of the instrument between the reporting date and the date of initial recognition. The following criteria are used to identify
significant increases in credit risk and are monitored and reviewed periodically for appropriateness by the treasury team.
Qualitative indicators
The group periodically monitors its exposures and uses a set of defined criteria to flag any counterparties that may be experiencing
financial difficulties. Such exposures are added to a watch list maintained by the treasury team, and those that are considered to have
experienced a significant increase in credit risk are classified as ‘stage 2’, on which a lifetime ECL is recognised.
Quantitative indicators
The lifetime probability of default at the reporting date is compared to the original lifetime probability of default at initial recognition and
if the difference exceeds a predefined threshold (for the current analysis this threshold is set at 50% of the value at initial recognition) the
exposure is moved to stage 2.
Probability of defaults used for identifying significant increases in credit risk for staging purposes are calculated using the same
methodology and data used for estimating probability of defaults for the purpose of measuring expected credit losses.
The ‘30 days past due’ backstop indicator has not been rebutted by the group, albeit it is not a significant driver of stage movements as
the opportunity for a counterparty to miss a payment is low due to the fact that over the life of exposure, any interest and or principal
is directly debited from the counterparty’s investment balance and investment income, which is in turn held as collateral under the
bank’s custody.
Materially all exposures in both the treasury book and investment management loan book follow a bullet repayment structure; therefore,
the exposure at any point in time reflects the outstanding balance of the instrument at that point in time.
Definition of default
The group considers an investment management loan book exposure to be in default when a client fails to respond to three sets of default
notices (every 30 days for a period of 90 days). A treasury book exposure is deemed to be in default when a payment is past due by more
than one working day (grace period).
Probability of default (PD)
The group uses a lifetime PD for each exposure, which is the probability-weighted result of considering three economic scenarios: a base
case, an upside scenario and a downside scenario. These scenarios include the forecast of the macroeconomic factors that have been
identified as relevant to the bank’s exposures, namely GDP and UK unemployment rates, which are incorporated into the estimation
of lifetime PDs.
The methodology for estimating lifetime PDs and adjustments for macroeconomic scenarios used for identifying significant increases in
credit risk are as follows:
Treasury book assessment
The 12-month PD for each exposure is initially estimated as the historical 12-month PD sourced from Standard & Poor’s, by credit rating and
country of exposure. In order to estimate the PDs occurring over the lifetime of an underlying exposure, the group applies its expectations
of future progression in point in time (‘PiT’) default probabilities, which inherently revolve around expectations of future development of
macroeconomic factors relevant to treasury assets, namely UK GDP, UK unemployment rates, UK inflation and UK interest rates.
Loss given default (LGD) for treasury book assets is dependent on the nature of the counterparty and the region in which the instrument
was issued. For sovereign exposures, the group applies a flat LGD rate, which is externally sourced from Moody’s most recent sovereign
default and recovery rates research statistics, by country of issuer. For unsecured corporate exposures, a time series of historical corporate
recovery rates is sourced from Moody’s annual publication on corporate defaults and recovery rates.
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185
185
Notes to the consolidated financial statements continued
33 Financial risk management continued
(i) Credit risk continued
The following table presents an analysis of the credit quality of treasury book exposures at amortised cost and FVTPL. It indicates whether
assets measured at amortised cost were subject to a 12-month ECL or lifetime ECL allowance and, in the latter case, whether they were
credit-impaired:
2020
2019
AAA
AA+ to AA-
A+ to A-
Gross carrying amounts
Loss allowance
Carrying amount
Fair value
through profit or
loss
£’000
99,262
12-month ECL
£’000
–
– 2,095,029
369,987
–
99,262 2,465,016
(836)
99,262 2,464,180
Lifetime ECL –
not credit-
impaired
£’000
–
–
–
–
–
–
At amortised cost
Lifetime
ECL –
credit-
impaired
£’000
–
–
–
–
–
–
Fair value through
profit or loss
£’000
100,194
12-month ECL
£’000
–
– 2,138,435
465,074
–
100,194 2,603,509
(259)
100,194 2,603,250
Lifetime ECL –
not credit-
impaired
£’000
–
–
–
–
–
–
Lifetime
ECL –
credit-
impaired
£’000
–
–
–
–
–
–
Cash and balances with central banks
Loans and advances to banks
Unlisted debt securities
Money market funds
Carrying amount
– 1,802,706
9,998
–
651,427
–
99,262
–
99,262 2,464,131
–
–
–
–
–
–
–
–
–
–
– 1,932,996
69,993
–
600,261
–
100,194
–
100,194 2,603,250
–
–
–
–
–
–
–
–
–
–
The movement in allowance for impairment for the treasury book during the year was as follows.
Balance at 1 January 2019
Net remeasurement of loss allowance
Balance at 31 December 2020
Cash and balances with central banks
Loans and advances to banks
Unlisted debt securities
ECL provision
12-month ECL
£’000
259
577
836
728
2
106
836
Lifetime ECL –
not credit-
impaired
£’000
–
Lifetime ECL –
credit-impaired
£’000
–
–
–
–
–
–
–
–
–
–
–
Total ECL
£’000
259
577
836
728
2
106
836
As a result of the COVID-19 pandemic, there has been a material deterioration in the macroeconomic factors that serve as an input to the
group’s PDs. The increase in the loss allowance during 2020 is predominantly due to an increase in the gross amount held with the Bank
of England, against which the group holds the largest ECL provision.
Investment Management loan book assessment
Due to the lack of historical defaults within the investment management loan book, the model uses publicly available default data for UK
secured lending as a starting point in order to obtain an initial estimate for PD. The 12-month PD is estimated as the historical long-term
default rate on lending in the UK as sourced from the Council of Mortgage Lenders (CML).
In order to estimate the PDs occurring over the lifetime of an underlying exposure, the group develops its expectations of future
progression in PiT default probabilities, which inherently revolves around expectations of future development of macroeconomic
factors relevant to the bank’s lending portfolio, namely UK GDP (‘GDP’) and UK unemployment rates (UR).
In order to develop and apply such forward-looking expectations, a historical relationship between PD, GDP and UR is estimated
statistically through a multi-factor regression analysis of past movements between these variables. The relationship resulting from
this analysis reflects the relative quantitative behaviour of the regressed macroeconomic factors against PD.
Using the calculated 12-month PiT PD as a starting point, conditional PDs for each future period within the period of exposure are
estimated by applying the GDP and UR coefficients to the group’s forecasts of UK GDP and UK UR respectively, as sourced from
International Monetary Fund (IMF) forecast data. This analysis forms the base case scenario for estimating lifetime PDs. The same
methodology is applied for separate upside and downside scenarios as required by the standard.
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| Consolidated financial statements
33 Financial risk management continued
(i) Credit risk continued
The following table presents an analysis of the credit quality of treasury book exposures at amortised cost and FVTPL. It indicates whether
assets measured at amortised cost were subject to a 12-month ECL or lifetime ECL allowance and, in the latter case, whether they were
Gross carrying amounts
99,262 2,465,016
credit-impaired:
AAA
AA+ to AA-
A+ to A-
Loss allowance
Carrying amount
Cash and balances with central banks
Loans and advances to banks
Unlisted debt securities
Money market funds
Carrying amount
Balance at 1 January 2019
Net remeasurement of loss allowance
Balance at 31 December 2020
Cash and balances with central banks
Loans and advances to banks
Unlisted debt securities
ECL provision
At amortised cost
2019
12-month ECL
impaired
impaired
profit or loss
12-month ECL
impaired
impaired
Lifetime ECL –
not credit-
Lifetime
ECL –
credit-
£’000
£’000
Fair value through
Lifetime ECL –
not credit-
Lifetime
ECL –
credit-
£’000
£’000
Fair value
through profit or
loss
£’000
99,262
2020
£’000
–
– 2,095,029
–
369,987
(836)
99,262 2,464,180
– 1,802,706
–
–
9,998
651,427
99,262
–
99,262 2,464,131
–
–
–
–
–
–
–
–
–
–
–
£’000
100,194
£’000
–
– 2,138,435
–
465,074
100,194 2,603,509
(259)
100,194 2,603,250
– 1,932,996
–
–
69,993
600,261
100,194
–
100,194 2,603,250
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£’000
259
577
836
728
2
106
836
12-month ECL
impaired
credit-impaired
Total ECL
Lifetime ECL –
not credit-
Lifetime ECL –
£’000
£’000
£’000
259
577
836
728
2
106
836
–
–
–
–
–
–
–
–
–
–
–
–
The movement in allowance for impairment for the treasury book during the year was as follows.
As a result of the COVID-19 pandemic, there has been a material deterioration in the macroeconomic factors that serve as an input to the
group’s PDs. The increase in the loss allowance during 2020 is predominantly due to an increase in the gross amount held with the Bank
of England, against which the group holds the largest ECL provision.
Investment Management loan book assessment
Due to the lack of historical defaults within the investment management loan book, the model uses publicly available default data for UK
secured lending as a starting point in order to obtain an initial estimate for PD. The 12-month PD is estimated as the historical long-term
default rate on lending in the UK as sourced from the Council of Mortgage Lenders (CML).
In order to estimate the PDs occurring over the lifetime of an underlying exposure, the group develops its expectations of future
progression in PiT default probabilities, which inherently revolves around expectations of future development of macroeconomic
factors relevant to the bank’s lending portfolio, namely UK GDP (‘GDP’) and UK unemployment rates (UR).
In order to develop and apply such forward-looking expectations, a historical relationship between PD, GDP and UR is estimated
statistically through a multi-factor regression analysis of past movements between these variables. The relationship resulting from
this analysis reflects the relative quantitative behaviour of the regressed macroeconomic factors against PD.
Using the calculated 12-month PiT PD as a starting point, conditional PDs for each future period within the period of exposure are
estimated by applying the GDP and UR coefficients to the group’s forecasts of UK GDP and UK UR respectively, as sourced from
International Monetary Fund (IMF) forecast data. This analysis forms the base case scenario for estimating lifetime PDs. The same
methodology is applied for separate upside and downside scenarios as required by the standard.
The following table presents an analysis of the credit quality of investment management loan book exposures at amortised cost. It
indicates whether assets measured at amortised cost were subject to a 12-month ECL or lifetime ECL allowance and, in the latter case,
whether they were credit-impaired.
Very low
Low
Medium
High
Gross carrying amounts
Loss allowance
Carrying amount
2020
Lifetime ECL –
not credit-
impaired
£’000
–
–
–
337
337
–
337
At amortised cost
Lifetime ECL –
credit-impaired
£’000
–
–
–
–
–
–
–
12-month ECL
£’000
28,718
84,452
18,471
40
131,681
–
131,681
2019
Lifetime ECL –
not credit-
impaired
£’000
–
–
–
353
353
–
353
Lifetime ECL –
credit-impaired
£’000
–
–
–
–
–
–
–
12-month ECL
£’000
29,931
103,626
20,146
3,917
157,620
–
157,620
The movement in allowance for impairment of the investment management loan book during the year was as follows.
Balance at 1 January 2020 and 31 December 2020
12-month ECL
£’000
–
Lifetime ECL –
not credit-
impaired
£’000
–
Lifetime ECL –
credit-impaired
£’000
–
Total ECL
£’000
–
Trust and financial planning debtors assessment
The group uses a provision matrix to measure the ECLs of trust and financial planning debtors, which comprise a large number of small
balances. For such debts, a normal settlement period of up to 30 days is expected.
The following table provides information about the exposure to credit risk and ECLs for trust and financial planning debtors as at
31 December 2020:
Rathbone Trust Company
Rathbone Trust & Legal Services
Rathbone Financial Planning
Gross carrying amounts
Loss allowance
Carrying amount
Rathbone Trust Company
<90 days overdue
90-180 days overdue
180-270 days overdue
270-365 days overdue
>365 days overdue
2020
£’000
814
324
287
1,425
(102)
1,323
Weighted
average loss rate
£’000
0.3%
1.6%
2.8%
4.7%
26.3%
Gross carrying
amount
£’000
505
97
80
26
106
814
Loss allowance
Not credit
impaired
£’000
(2)
(2)
(2)
(1)
(6)
(13)
Credit impaired
£’000
–
–
(3)
–
(82)
(85)
2019
£’000
808
221
244
1,273
(103)
1,170
Total
£’000
(2)
(2)
(5)
(1)
(88)
(98)
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Notes to the consolidated financial statements continued
33 Financial risk management continued
(i) Credit risk continued
Rathbone Trust & Legal Services
<90 days overdue
90-180 days overdue
180-270 days overdue
270-365 days overdue
>365 days overdue
Weighted
average loss rate
£’000
0.0%
0.0%
0.0%
0.0%
0.0%
Gross carrying
amount
£’000
272
14
21
4
13
324
Not credit-
impaired
£’000
–
–
–
–
–
–
Loss allowance
Credit-impaired
£’000
(4)
–
–
–
–
(4)
The movement in allowance for impairment in respect of trust and financial planning debtors during the year is set out below.
Movement in impairment provision during the year
At 1 January
Amounts written off
Credit to profit or loss
At 31 December 2020
Total
£’000
(4)
–
–
–
–
(4)
Trust and
financial
planning
debtors
£’000
103
(6)
5
102
Concentration of credit risk
The group has counterparty credit risk within its financial assets in that exposure is to a number of similar credit institutions. The banking
committee actively monitors counterparties and may reduce risk by either suspending dealing or liquidating investments in light of
adverse market information, for example in anticipation of or in response to any formal Fitch or Moody’s rating downgrade. This may
happen in relation to specific banks or banks within a particular country or sector.
(a) Geographical sectors
The following table analyses the group’s credit exposures, at their carrying amounts, by geographical region as at the balance sheet
date. In this analysis, exposures are categorised based on the country of domicile of the counterparty.
At 31 December 2020
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers:
– overdrafts
– investment management loan book
– trust and financial planning debtors
– other debtors
Investment securities:
– equity securities
– unlisted debt securities and money market funds
Other financial assets
United
Kingdom
£’000
1,802,706
83,747
157,618
5,633
139,068
1,323
557
Eurozone
£’000
–
1,323
–
25
310
–
–
Rest of
the World
£’000
Total
£’000
– 1,802,706
90,373
159,430
5,303
1,812
726
18,579
–
–
6,384
157,957
1,323
557
–
219,909
85,450
2,496,011
2,569
209,204
1,004
214,435
–
321,576
1,998
2,569
750,689
88,452
349,994 3,060,440
188
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| Consolidated financial statements
1,620
1,800
Rest of
the World
£’000
–
230,188
4,052
243
11,480
–
–
Total
£’000
– 1,932,996
52,520
177,832
5,148
132,034
1,170
60
–
1,186
700,455
82,392
249,383 3,085,793
At 31 December 2019
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers:
– overdrafts
– investment management loan book
– trust and financial planning debtors
– other debtors
Investment securities:
– equity securities
– unlisted debt securities and money market funds
– Other financial assets
United
Kingdom
£’000
1,932,996
50,503
176,032
4,868
120,046
1,170
60
Eurozone
£’000
–
397
–
37
508
–
–
–
189,984
77,794
2,553,453
1,186
280,283
546
282,957
33 Financial risk management continued
(i) Credit risk continued
Rathbone Trust & Legal Services
<90 days overdue
90-180 days overdue
180-270 days overdue
270-365 days overdue
>365 days overdue
Movement in impairment provision during the year
At 1 January
Amounts written off
Credit to profit or loss
At 31 December 2020
Concentration of credit risk
Weighted
Gross carrying
Not credit-
average loss rate
impaired
Credit-impaired
Loss allowance
£’000
0.0%
0.0%
0.0%
0.0%
0.0%
amount
£’000
272
14
21
4
13
324
£’000
–
–
–
–
–
–
£’000
(4)
–
–
–
–
(4)
(4)
Total
£’000
(4)
–
–
–
–
Trust and
financial
planning
debtors
£’000
103
(6)
5
102
The movement in allowance for impairment in respect of trust and financial planning debtors during the year is set out below.
The group has counterparty credit risk within its financial assets in that exposure is to a number of similar credit institutions. The banking
committee actively monitors counterparties and may reduce risk by either suspending dealing or liquidating investments in light of
adverse market information, for example in anticipation of or in response to any formal Fitch or Moody’s rating downgrade. This may
happen in relation to specific banks or banks within a particular country or sector.
(a) Geographical sectors
The following table analyses the group’s credit exposures, at their carrying amounts, by geographical region as at the balance sheet
date. In this analysis, exposures are categorised based on the country of domicile of the counterparty.
At 31 December 2020
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers:
– overdrafts
– investment management loan book
– trust and financial planning debtors
– other debtors
Investment securities:
– equity securities
Other financial assets
– unlisted debt securities and money market funds
Rest of
the World
£’000
Total
£’000
– 1,802,706
5,303
1,812
90,373
159,430
United
Kingdom
£’000
1,802,706
83,747
157,618
5,633
139,068
1,323
557
Eurozone
£’000
1,323
–
–
–
–
25
310
726
6,384
18,579
157,957
–
–
–
1,323
557
2,569
750,689
88,452
–
2,569
219,909
85,450
209,204
321,576
1,004
1,998
2,496,011
214,435
349,994 3,060,440
At 31 December 2020, materially all eurozone exposures were to counterparties based in the Netherlands, France, Finland, Ireland
and Luxembourg (2019: Netherlands, France, Finland, Ireland and Luxembourg) and materially all rest of the world exposures were
to counterparties based in Switzerland, Sweden, Norway, Canada and Australia (2019: Switzerland, Sweden, Norway, Canada and
Australia). At 31 December 2020, the group had no exposure to sovereign debt (2019: no exposure to sovereign debt).
(b)
Industry sectors
The group’s credit exposures at the balance sheet date, analysed by the primary industry sectors in which our counterparties
operate, were:
At 31 December 2020
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers:
– overdrafts
– investment management loan book
– trust and financial planning debtors
– other debtors
Investment securities:
– equity securities
– unlisted debt securities and money market funds
Other financial assets
Public
sector
£’000
1,802,706
–
–
Financial
institutions
£’000
–
90,373
159,430
Clients
and other
corporates
£’000
Total
£’000
– 1,802,706
90,373
–
159,430
–
–
–
–
–
–
–
–
–
6,384
157,957
1,323
557
6,384
157,957
1,323
557
–
–
75
2,569
750,689
3,048
1,802,781 1,006,109
–
–
85,329
2,569
750,689
88,452
251,550 3,060,440
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Notes to the consolidated financial statements continued
33 Financial risk management continued
(i) Credit risk continued
At 31 December 2019
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers:
– overdrafts
– investment management loan book
– trust and financial planning debtors
– other debtors
Investment securities:
– equity securities
– unlisted debt securities and money market funds
Other financial assets
Public
sector
£’000
1,932,996
–
–
Financial
institutions
£’000
–
52,520
177,832
Clients
and other
corporates
£’000
Total
£’000
– 1,932,996
52,520
–
177,832
–
–
–
–
–
–
–
–
–
–
–
500
1,933,496
1,186
700,455
4,788
936,781
5,148
132,034
1,170
60
5,148
132,034
1,170
60
–
1,186
700,455
82,392
215,516 3,085,793
–
–
77,104
(ii) Liquidity risk
Liquidity risk is the risk that the group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by
delivering cash or another financial asset.
The primary objective of the group’s treasury policy is to manage short- to medium-term liquidity requirements. In addition to setting the
treasury policy, Rathbone Investment Management (‘the Bank’) performs an annual assessment of liquidity adequacy in accordance with
the regulatory requirements of the Prudential Regulation Authority (PRA) (our Internal Liquidity Adequacy Assessment Process). The Bank
faces two principal risks, namely that a significant proportion of client funds are withdrawn over a short period of time (retail funding risk)
and the risk that marketable assets may not be capable of being realised in the time and at the value required (marketable assets risk).
Funding risks are monitored by daily cash mismatch analyses and CRR ratios using expected cash and asset maturity profiles and regular
forecasting work. This is supported by stress tests which cover firm-specific idiosyncratic scenarios and/or the effects of unforeseen
market-wide stresses. Marketable assets risk is primarily managed by holding cash and marketable instruments which are realisable
at short notice. The group operates strict criteria to ensure that investments are liquid and placed with high-quality counterparties.
A minimum liquid assets buffer (to be held in eligible liquid assets) is set by the board at least annually in conjunction with an amount
prescribed by the PRA.
Non-derivative cash flows
The table below presents the undiscounted cash flows receivable and payable by the group under non-derivative financial assets and
liabilities analysed by the remaining contractual maturities at the balance sheet date.
190
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| Consolidated financial statements
33 Financial risk management continued
(i) Credit risk continued
At 31 December 2019
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers:
– overdrafts
– investment management loan book
– trust and financial planning debtors
– other debtors
Investment securities:
– equity securities
Other financial assets
– unlisted debt securities and money market funds
Public
sector
£’000
Financial
institutions
£’000
Clients
and other
corporates
£’000
1,932,996
52,520
177,832
–
–
–
–
–
Total
£’000
– 1,932,996
–
–
52,520
177,832
5,148
5,148
132,034
132,034
1,170
60
1,170
60
–
–
–
1,186
700,455
82,392
–
–
–
–
–
–
–
–
1,186
700,455
500
4,788
77,104
1,933,496
936,781
215,516 3,085,793
(ii) Liquidity risk
delivering cash or another financial asset.
Liquidity risk is the risk that the group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by
The primary objective of the group’s treasury policy is to manage short- to medium-term liquidity requirements. In addition to setting the
treasury policy, Rathbone Investment Management (‘the Bank’) performs an annual assessment of liquidity adequacy in accordance with
the regulatory requirements of the Prudential Regulation Authority (PRA) (our Internal Liquidity Adequacy Assessment Process). The Bank
faces two principal risks, namely that a significant proportion of client funds are withdrawn over a short period of time (retail funding risk)
and the risk that marketable assets may not be capable of being realised in the time and at the value required (marketable assets risk).
Funding risks are monitored by daily cash mismatch analyses and CRR ratios using expected cash and asset maturity profiles and regular
forecasting work. This is supported by stress tests which cover firm-specific idiosyncratic scenarios and/or the effects of unforeseen
market-wide stresses. Marketable assets risk is primarily managed by holding cash and marketable instruments which are realisable
at short notice. The group operates strict criteria to ensure that investments are liquid and placed with high-quality counterparties.
A minimum liquid assets buffer (to be held in eligible liquid assets) is set by the board at least annually in conjunction with an amount
prescribed by the PRA.
Non-derivative cash flows
The table below presents the undiscounted cash flows receivable and payable by the group under non-derivative financial assets and
liabilities analysed by the remaining contractual maturities at the balance sheet date.
At 31 December 2020
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Debt securities and money market funds
Equity securities
Other financial assets
Cash flows arising from financial assets
Deposits by banks
Settlement balances
Due to customers
Subordinated loan notes
Other financial liabilities
Cash flows arising from
financial liabilities
Net liquidity gap
Cumulative net liquidity gap
At 31 December 2019
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Debt securities and money market funds
Equity securities
Other financial assets
Cash flows arising from financial assets
Deposits by banks
Settlement balances
Due to customers
Subordinated loan notes
Other financial liabilities
Cash flows arising from
financial liabilities
Net liquidity gap
Cumulative net liquidity gap
On
demand
£’000
1,798,000
–
149,441
7,185
99,274
2,569
52
2,056,521
893
–
2,453,676
–
1,478
Not more
than
3 months
£’000
75
90,373
10,115
3,538
216,041
–
84,033
404,175
–
95,412
106,706
453
57,914
After 3
months
but not
more than
1 year
£’000
5,434
–
–
120
438,845
–
1,435
445,834
–
–
1,392
20,453
8,088
After 1
year but
not more
than
5 years
£’000
–
–
–
172,915
–
–
3,493
176,408
–
–
–
–
62,313
After 5
years
£’000
–
–
–
–
–
–
804
804
–
–
–
–
52,621
No fixed
maturity
date
£’000
Total
£’000
– 1,803,509
90,373
–
159,556
–
183,758
–
754,160
–
–
2,569
89,817
–
– 3,083,742
893
–
95,412
–
– 2,561,774
20,906
–
182,414
–
2,456,047
(399,526)
(399,526)
260,485
143,690
(255,836)
29,933
415,901
160,065
62,313
114,095
274,160
52,621
(51,817)
222,343
– 2,861,399
222,343
–
222,343
On
demand
£’000
1,930,001
–
107,835
5,393
100,282
1,186
671
2,145,368
28
–
2,500,578
–
148
Not more
than
3 months
£’000
500
52,521
10,125
20,743
277,971
–
74,783
436,643
–
57,694
160,178
586
59,961
After 3
months
but not
more than
1 year
£’000
3,218
–
60,756
55,251
328,298
–
1,026
448,549
–
–
8,019
20,586
7,859
After 1
year but
not more
than
5 years
£’000
–
–
–
61,864
–
–
3,954
65,818
–
–
–
–
49,083
After 5
years
£’000
–
–
–
–
–
–
1,585
1,585
–
–
–
–
59,263
No fixed
maturity
date
£’000
Total
£’000
– 1,933,719
52,521
–
178,716
–
143,251
–
706,551
–
–
1,186
–
82,019
– 3,097,963
28
–
–
57,694
– 2,668,775
21,172
–
176,314
–
2,500,754
(355,386)
(355,386)
278,419
158,224
(197,162)
36,464
412,085
214,923
49,083
16,735
231,658
59,263
(57,678)
173,980
– 2,923,983
173,980
–
173,980
Liabilities which do not have a contractual maturity date are categorised as ‘on demand’. Included within the amounts due to customers on
demand are balances which historical experience shows are unlikely to be called in the short term. A prudent level of highly liquid assets is
retained to cover reasonably foreseeable short-term changes in client deposits. All debt securities are readily marketable and can be realised
through disposals.
The group holds £5,728,000 of equity investments (2019: £4,587,000) which are subject to liquidity risk but are not included in the table
above. These assets are held as fair value through profit or loss securities and have no fixed maturity date; cash flows arise from receipt of
dividends or through sale of the assets.
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191
Notes to the consolidated financial statements continued
33 Financial risk management continued
(iii) Market risk
Off-balance-sheet items
Cash flows arising from the group’s off-balance-sheet financial liabilities (note 35) are summarised in the table below.
The contractual value of the group’s commitments to extend credit to clients and maximum potential value of financial guarantees are
analysed by the duration of the commitment. Future minimum lease payments under non-cancellable operating leases are reported by
their contractual payment dates. Capital commitments are summarised by the earliest expected date of payment.
At 31 December 2020
Loan commitments
Financial guarantees
Capital commitments
Total off-balance-sheet items
At 31 December 2019
Loan commitments
Financial guarantees
Capital commitments
Total off-balance-sheet items
Total liquidity requirement
At 31 December 2020
Cash flows arising from financial liabilities
Total off-balance-sheet items
Total liquidity requirement
At 31 December 2019
Cash flows arising from financial liabilities
Total off-balance-sheet items
Total liquidity requirement
On
demand
£’000
2,456,047
–
2,456,047
On
demand
£’000
2,500,754
–
2,500,754
Not more
than
3 months
£’000
39,510
–
26
39,536
Not more
than
3 months
£’000
31,284
–
787
32,071
Not more
than
3 months
£’000
260,485
39,536
300,021
Not more
than
3 months
£’000
278,419
32,071
310,490
After 3
months
but not
more than
1 year
£’000
–
–
–
–
After 3
months
but not
more than
1 year
£’000
–
–
–
–
After 3
months
but not
more than
1 year
£’000
29,933
–
29,933
After 3
months
but not
more than
1 year
£’000
36,464
–
36,464
After 1
year but
not more
than
5 years
£’000
–
–
–
–
After 1
year but
not more
than
5 years
£’000
–
117
–
117
After 1
year but
not more
than
5 years
£’000
62,313
–
62,313
After 1
year but
not more
than
5 years
£’000
49,083
117
49,200
After
5 years
£’000
–
–
–
–
After
5 years
£’000
–
–
–
–
Total
£’000
39,510
–
26
39,536
Total
£’000
31,284
117
787
32,188
After
5 years
£’000
Total
£’000
52,621 2,861,399
39,536
52,621 2,900,935
–
After
5 years
£’000
Total
£’000
59,263 2,923,983
32,188
59,263 2,956,171
–
192
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| Consolidated financial statements
33 Financial risk management continued
(iii) Market risk
Off-balance-sheet items
Cash flows arising from the group’s off-balance-sheet financial liabilities (note 35) are summarised in the table below.
The contractual value of the group’s commitments to extend credit to clients and maximum potential value of financial guarantees are
analysed by the duration of the commitment. Future minimum lease payments under non-cancellable operating leases are reported by
their contractual payment dates. Capital commitments are summarised by the earliest expected date of payment.
Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market
interest rates.
The group’s principal exposure to cash flow interest rate risk arises from the mismatch between the repricing of its financial assets and
liabilities. In particular, customer accounts and loan balances are repriced very shortly after changes in base rates, whereas the yield on
the group’s interest-bearing assets is correlated to the future expectation of base rates and varies depending on the maturity profile of
the group’s treasury portfolio. The average maturity mismatch is controlled by the banking committee, which generally lengthens the
mismatch when the yield curve is rising and shortens it when the yield curve is falling.
The table below shows the consolidated repricing profile of the group’s financial assets and liabilities, stated at their carrying amounts,
categorised by the earlier of contractual repricing or maturity dates.
After 3
months
but not
more than
6 months
£’000
After 6
months
but not
more than
1 year
£’000
After 1
year but
not more
than
5 years
£’000
After
5 years
£’000
Non-
interest-
bearing
£’000
Total
£’000
At 31 December 2020
Assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Investment securities:
– equity securities
– unlisted debt securities and money
market funds
Other financial assets
Total financial assets
Liabilities
Deposits by banks
Settlement balances
Due to customers
Subordinated loan notes
Other financial liabilities
Total financial liabilities
Interest rate repricing gap
Not more
than
3 months
£’000
1,797,275
–
159,180
163,879
2,569
–
–
–
–
–
–
–
–
–
–
313,840
574
2,437,317
206,930
–
206,930
229,919
–
229,919
893
–
2,510,762
–
–
2,511,655
(74,338)
–
–
1,391
–
–
1,391
205,539
–
–
–
19,768
–
19,768
210,151
–
–
–
410
–
–
–
410
–
–
–
–
–
–
410
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,431 1,802,706
90,373
159,430
166,221
90,373
250
1,932
5,728
8,297
–
87,878
750,689
88,452
191,592 3,066,168
–
893
95,412
95,412
49,614 2,561,767
19,768
–
135,548
135,548
280,574 2,813,388
252,780
(88,982)
At 31 December 2020
Loan commitments
Financial guarantees
Capital commitments
Total off-balance-sheet items
At 31 December 2019
Loan commitments
Financial guarantees
Capital commitments
Total off-balance-sheet items
Total liquidity requirement
At 31 December 2020
Cash flows arising from financial liabilities
Total off-balance-sheet items
Total liquidity requirement
After
5 years
£’000
–
–
–
–
–
–
–
–
After
5 years
£’000
Total
£’000
39,510
–
26
39,536
31,284
Total
£’000
117
787
32,188
After 3
months
but not
more than
1 year
£’000
After 3
months
but not
more than
1 year
£’000
–
–
–
–
–
–
–
–
After 3
months
but not
more than
1 year
£’000
After 1
year but
not more
than
5 years
£’000
–
–
–
–
After 1
year but
not more
than
5 years
£’000
117
–
–
117
After 1
year but
not more
than
5 years
£’000
Not more
than
3 months
£’000
39,510
–
26
39,536
Not more
than
3 months
£’000
31,284
–
787
32,071
Not more
than
3 months
£’000
260,485
39,536
300,021
Not more
than
3 months
£’000
278,419
32,071
On
demand
£’000
2,456,047
2,456,047
–
–
On
demand
£’000
After
5 years
£’000
Total
£’000
29,933
62,313
52,621 2,861,399
–
–
–
39,536
29,933
62,313
52,621 2,900,935
After 3
months
but not
more than
1 year
£’000
After 1
year but
not more
than
5 years
£’000
After
5 years
£’000
Total
£’000
At 31 December 2019
Total off-balance-sheet items
Total liquidity requirement
Cash flows arising from financial liabilities
2,500,754
36,464
49,083
59,263 2,923,983
2,500,754
310,490
36,464
49,200
59,263 2,956,171
–
117
–
32,188
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193
193
Notes to the consolidated financial statements continued
33 Financial risk management continued
(iii) Market risk continued
At 31 December 2019
Assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Investment securities:
– equity securities
– unlisted debt securities and money
market funds
Other financial assets
Total financial assets
Liabilities
Deposits by banks
Settlement balances
Due to customers
Subordinated loan notes
Other financial liabilities
Total financial liabilities
Interest rate repricing gap
Not more
than
3 months
£’000
1,929,779
–
117,555
136,680
After 3
months
but not
more than
6 months
£’000
–
–
29,998
–
After 6
months
but not
more than
1 year
£’000
–
–
29,996
–
–
–
–
375,483
1,565
2,561,062
204,989
–
234,987
119,983
–
149,979
28
–
2,584,048
–
–
2,584,076
(23,014)
–
–
7,969
–
–
7,969
227,018
–
–
–
19,927
–
19,927
130,052
After 1
year but
not more
than
5 years
£’000
After
5 years
£’000
Non-
interest-
bearing
£’000
Total
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,218 1,932,997
52,520
177,832
138,412
52,520
283
1,732
5,773
5,773
–
82,013
700,455
83,578
145,539 3,091,567
–
–
–
–
469
469
(469)
28
–
57,694
57,694
76,628 2,668,645
19,927
–
134,102
133,633
267,955 2,880,396
211,171
(122,416)
The banking committee has set an overall pre-tax interest rate exposure limit of £8,000,000 (2019: £7,000,000) for the total potential
profit or loss resulting from an unexpected immediate and sustained 2% movement in sterling interest rates for the Bank, the principal
operating subsidiary. The potential total profit or loss is calculated on the basis of the average number of days to repricing of the interest-
bearing liabilities compared with the period to repricing on a corresponding amount of interest-bearing assets.
At 31 December 2020, the Bank had a net present value sensitivity of £4,756,000 (2019: £3,035,000) for an upward 2% shift in rates.
The group held no forward rate agreements at 31 December 2020 (2019: none).
The group has assessed the impact of climate change and COVID-19 on the carrying amount of its financial assets and liabilities at the year
end and considers there to be no material impact.
194
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| Consolidated financial statements
33 Financial risk management continued
(iii) Market risk continued
Cash and balances with central banks
1,929,779
At 31 December 2019
Assets
Settlement balances
Loans and advances to banks
Loans and advances to customers
117,555
136,680
29,998
29,996
Not more
than
3 months
£’000
After 3
months
but not
more than
6 months
£’000
After 6
months
but not
more than
1 year
£’000
After 1
year but
not more
than
5 years
£’000
After
5 years
£’000
Non-
interest-
bearing
£’000
Total
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,565
28
375,483
204,989
119,983
2,561,062
234,987
149,979
2,584,048
7,969
19,927
2,584,076
7,969
19,927
(23,014)
227,018
130,052
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,218 1,932,997
52,520
283
1,732
52,520
177,832
138,412
5,773
5,773
–
700,455
82,013
83,578
145,539 3,091,567
28
57,694
57,694
76,628 2,668,645
–
–
19,927
134,102
133,633
469
469
267,955 2,880,396
(469)
(122,416)
211,171
– unlisted debt securities and money
Investment securities:
– equity securities
market funds
Other financial assets
Total financial assets
Liabilities
Deposits by banks
Settlement balances
Due to customers
Subordinated loan notes
Other financial liabilities
Total financial liabilities
Interest rate repricing gap
The banking committee has set an overall pre-tax interest rate exposure limit of £8,000,000 (2019: £7,000,000) for the total potential
profit or loss resulting from an unexpected immediate and sustained 2% movement in sterling interest rates for the Bank, the principal
operating subsidiary. The potential total profit or loss is calculated on the basis of the average number of days to repricing of the interest-
bearing liabilities compared with the period to repricing on a corresponding amount of interest-bearing assets.
At 31 December 2020, the Bank had a net present value sensitivity of £4,756,000 (2019: £3,035,000) for an upward 2% shift in rates.
The group held no forward rate agreements at 31 December 2020 (2019: none).
The group has assessed the impact of climate change and COVID-19 on the carrying amount of its financial assets and liabilities at the year
end and considers there to be no material impact.
Foreign exchange risk
The group is exposed to translational foreign exchange risk as it undertakes transactions in foreign currencies and is therefore exposed to
foreign exchange rate fluctuations. The group monitors its currency exposures that arise in the ordinary course of business on a daily basis
and significant exposures are managed through the use of spot contracts, from time to time, so as to reduce any currency exposure to a
minimal amount. The group has no structural foreign currency exposure.
The group does not have any material exposure to transactional foreign exchange risk. The table below summarises the group’s exposure
to foreign currency translation risk at 31 December 2020. Included in the table are the group’s financial assets and liabilities, at carrying
amounts, categorised by currency.
At 31 December 2020
Assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Investment securities:
– equity securities
– unlisted debt securities and money market funds
Other financial assets
Total financial assets
Liabilities
Deposits by banks
Settlement balances
Due to customers
Subordinated loan notes
Other financial liabilities
Total financial liabilities
Net on-balance-sheet position
Loan commitments
At 31 December 2019
Assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Investment securities:
– equity securities
– unlisted debt securities and money market funds
Other financial assets
Total financial assets
Liabilities
Deposits by banks
Settlement balances
Due to customers
Subordinated loan notes
Other financial liabilities
Total financial liabilities
Net on-balance-sheet position
Loan commitments
Sterling
£’000
US dollar
£’000
Euro
£’000
Other
£’000
Total
£’000
1,802,706
88,192
118,645
158,077
5,728
684,849
87,897
2,946,094
893
88,109
2,453,375
19,768
135,308
2,697,453
248,641
39,510
–
1,609
12,457
4,310
–
65,840
377
84,593
–
3,284
79,839
–
181
83,304
1,289
–
–
178
20,843
3,834
2,569
–
130
27,554
–
1,103
23,784
–
59
24,946
2,608
–
– 1,802,706
90,373
159,430
166,221
394
7,485
–
–
–
48
8,297
750,689
88,452
7,927 3,066,168
893
–
2,916
95,412
4,769 2,561,767
19,768
135,548
7,685 2,813,388
252,780
39,510
242
–
–
–
Sterling
£’000
US dollar
£’000
Euro
£’000
Other
£’000
Total
£’000
1,932,997
51,918
130,462
131,263
4,587
624,969
82,881
2,959,077
28
45,084
2,552,287
19,927
134,030
2,751,356
207,721
31,284
–
376
22,029
3,543
–
75,486
440
101,874
–
12,274
88,668
–
70
101,012
862
–
–
90
17,026
3,606
1,186
–
185
22,093
–
113
19,726
–
2
19,841
2,252
–
– 1,932,997
52,520
177,832
138,412
136
8,315
–
–
–
72
5,773
700,455
83,578
8,523 3,091,567
–
223
28
57,694
7,964 2,668,645
19,927
134,102
8,187 2,880,396
211,171
31,284
336
–
–
–
194
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195
195
Notes to the consolidated financial statements continued
33 Financial risk management continued
(iii) Market risk continued
A 10% weakening of the US dollar against sterling, occurring on 31 December 2020, would have reduced equity and profit after tax by
£104,000 (2019: reduced by £70,000). A 10% weakening of the euro against sterling, occurring on 31 December 2020, would have reduced
equity and profit after tax by £211,000 (2019: increased by £182,000). A 10% strengthening of the US dollar or euro would have had an equal
and opposite effect. This analysis assumes that all other variables, in particular other exchange rates, remain constant.
Price risk
Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices
(other than those arising from interest rate risk or foreign exchange risk). The group is exposed to price risk through its holdings of equity
investment securities, which are reported at their fair value (note 17).
At 31 December 2020, the fair value of listed equity securities recognised on the balance sheet was £5,728,000 (2019: £4,587,000). A 10% fall
in global equity markets would, in isolation, have resulted in a pre-tax decrease to net assets of £483,000 (2019: £348,000); there would
have been no impact on profit after tax. A 10% rise in global markets would have had an equal and opposite effect.
Fair values
The table below analyses financial instruments measured at fair value into a fair value hierarchy based on the valuation technique used to
determine the fair value:
– Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
– Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.
– Level 3: inputs for the asset or liability that are not based on observable market data.
At 31 December 2020
Assets
Fair value through profit or loss:
– equity securities
– money market funds
At 31 December 2019
Assets
Fair value through profit or loss:
– equity securities
– money market funds
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
5,728
–
5,728
–
99,262
99,262
2,569
–
2,569
8,297
99,262
107,559
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
4,587
–
4,587
–
100,194
100,194
1,186
–
1,186
5,773
100,194
105,967
The group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has
occurred. There have been no transfers between levels during the year (2019: none).
The fair value of listed equity securities is their quoted price. Money market funds are demand securities and changes to estimates of
interest rates will not affect their fair value. The fair value of money market funds is their daily redemption value.
The fair values of the group’s other financial assets and liabilities are not materially different from their carrying values, with the exception
of the following:
– Investment debt securities measured at amortised cost (note 17) comprise bank and building society certificates of deposit, which have
fixed coupons. The fair value of debt securities at 31 December 2020 was £654,769,000 (2019: £604,462,000) and the carrying value was
£651,533,000 (2019: £600,291,000). Fair value of debt securities is based on market bid prices, and hence would be categorised as level 1
within the fair value hierarchy.
– Subordinated loan notes (note 28) comprise Tier 2 loan notes. The fair value of the loan notes at 31 December 2020 was £21,726,000
(2019: £21,302,000) and the carrying value was £19,768,000 (2019: £19,927,000). Fair value of the loan notes is based on discounted
future cash flows using current market rates for debts with similar remaining maturity, and hence would be categorised as level 2 in
the fair value hierarchy.
196
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Rathbone Brothers Plc Report and accounts 2020
| Consolidated financial statements
33 Financial risk management continued
(iii) Market risk continued
A 10% weakening of the US dollar against sterling, occurring on 31 December 2020, would have reduced equity and profit after tax by
£104,000 (2019: reduced by £70,000). A 10% weakening of the euro against sterling, occurring on 31 December 2020, would have reduced
equity and profit after tax by £211,000 (2019: increased by £182,000). A 10% strengthening of the US dollar or euro would have had an equal
and opposite effect. This analysis assumes that all other variables, in particular other exchange rates, remain constant.
Price risk
Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices
(other than those arising from interest rate risk or foreign exchange risk). The group is exposed to price risk through its holdings of equity
investment securities, which are reported at their fair value (note 17).
At 31 December 2020, the fair value of listed equity securities recognised on the balance sheet was £5,728,000 (2019: £4,587,000). A 10% fall
in global equity markets would, in isolation, have resulted in a pre-tax decrease to net assets of £483,000 (2019: £348,000); there would
have been no impact on profit after tax. A 10% rise in global markets would have had an equal and opposite effect.
The table below analyses financial instruments measured at fair value into a fair value hierarchy based on the valuation technique used to
– Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
– Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.
– Level 3: inputs for the asset or liability that are not based on observable market data.
Fair values
determine the fair value:
At 31 December 2020
Assets
Fair value through profit or loss:
– equity securities
– money market funds
At 31 December 2019
Assets
Fair value through profit or loss:
– equity securities
– money market funds
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
5,728
–
5,728
–
2,569
8,297
99,262
–
2,569
107,559
99,262
99,262
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
4,587
–
4,587
–
1,186
100,194
100,194
–
1,186
5,773
100,194
105,967
The group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has
occurred. There have been no transfers between levels during the year (2019: none).
The fair value of listed equity securities is their quoted price. Money market funds are demand securities and changes to estimates of
interest rates will not affect their fair value. The fair value of money market funds is their daily redemption value.
The fair values of the group’s other financial assets and liabilities are not materially different from their carrying values, with the exception
of the following:
– Investment debt securities measured at amortised cost (note 17) comprise bank and building society certificates of deposit, which have
fixed coupons. The fair value of debt securities at 31 December 2020 was £654,769,000 (2019: £604,462,000) and the carrying value was
£651,533,000 (2019: £600,291,000). Fair value of debt securities is based on market bid prices, and hence would be categorised as level 1
within the fair value hierarchy.
– Subordinated loan notes (note 28) comprise Tier 2 loan notes. The fair value of the loan notes at 31 December 2020 was £21,726,000
(2019: £21,302,000) and the carrying value was £19,768,000 (2019: £19,927,000). Fair value of the loan notes is based on discounted
future cash flows using current market rates for debts with similar remaining maturity, and hence would be categorised as level 2 in
the fair value hierarchy.
Level 3 financial instruments
Fair value through profit or loss
The group holds 1,809 shares in Euroclear Holdings SA, which are classed as level 3 in the fair value hierarchy since no observable market
data is available. At 31 December 2019, the fair value of these shares was calculated with reference to the last buyback event in May 2017
when shares were sold at €774.
In the current period, the valuation of €1,586 per share has been calculated by reference to the most readily available data, which is the
indicative price derived from recent transactions of the shares in the market. The valuation at the balance sheet date has been adjusted
for movements in exchange rates since the acquisition date. A 10% weakening of the euro against sterling, occurring on 31 December 2020,
would have reduced equity and profit after tax by £208,000 (2019: £96,000). A 10% strengthening of the euro against sterling would have
had an equal and opposite effect.
Changes in the fair values of financial instruments categorised as level 3 within the fair value hierarchy were as follows:
At 1 January
Total unrealised (losses)/gains recognised in profit or loss
At 31 December
2020
1,186
1,383
2,569
2019
1,259
(73)
1,186
The gains or losses relating to the fair value through profit or loss equity securities is included within ‘other operating income’ in the
consolidated statement of comprehensive income.
There were no other gains or losses arising from changes in the fair value of financial instruments categorised as level 3 within the fair
value hierarchy.
34 Capital management
Rathbone Brothers Plc’s capital is defined for accounting purposes as total equity. As at 31 December 2020 this totalled £513,827,000
(2019: £485,393,000).
Rathbone Investment Management has issued 10-year subordinated Tier 2 loan notes (note 28). As at 31 December 2020, the carrying value
of the notes was £19,768,000 (2019: £19,927,000). From time to time, the group also runs small overnight overdraft balances as part of
working capital.
The group’s objectives when managing capital are to:
– safeguard the group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for
other stakeholders
– maintain a strong capital base in a cost-efficient manner to be able to support the development of the business when required
– optimise the distribution of capital across group companies, reflecting the requirements of each business
– strive to make capital freely transferable across the group where possible
– comply with regulatory requirements at all times.
Rathbones is classified for capital purposes as a banking group and performs an Internal Capital Adequacy Assessment Process (ICAAP),
which is presented to the PRA on an annual basis. Regulatory capital resources for ICAAP purposes are calculated in accordance with
published rules. These require certain adjustments to and certain deductions from accounting capital, the latter largely in respect of
intangible assets. The ICAAP compares regulatory capital resources against regulatory capital requirements derived using the PRA’s Pillar 1
and Pillar 2 methodology. The group has adopted the standardised approach to calculating its Pillar 1 credit risk component and the basic
indicator approach to calculating its operational risk component. Capital management policy and practices are applied at both group and
entity level.
At 31 December 2020 the group’s regulatory capital resources, including retained earnings for 2020, were £303,752,000 (2019: £282,087,000).
The increase in reserves during 2020 is due to an increase in the group’s retained earnings, on account of profits generated in the year.
In addition to a variety of stress tests performed as part of the ICAAP process, and daily reporting in respect of treasury activity, capital
levels are monitored and forecast on a monthly basis to ensure that dividends and investment requirements are appropriately managed
and appropriate buffers are kept against adverse business conditions.
No breaches were reported to the PRA during the financial years ended 31 December 2019 and 2020.
The group has not applied transitional relief in recognising expected credit losses (ECLs) in regulatory capital resources. As such, there is no
difference between accounting ECLs and regulatory capital ECLs.
196
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197
Notes to the consolidated financial statements continued
35 Contingent liabilities and commitments
(a) Capital expenditure authorised and contracted for at 31 December 2020 but not provided in the financial statements amounted
to £26,000 (2019: £787,000). This related to expenditure on fixtures and fittings (2019: leasehold improvements and fixtures
and fittings).
(b) The contractual amounts of the group’s commitments to extend credit to its clients are as follows:
Guarantees
Undrawn commitments to lend of 1 year or less
Undrawn commitments to lend of more than 1 year
The fair value of the guarantees is £nil (2019: £nil).
2020
£’000
–
30,240
9,270
39,510
2019
£’000
117
23,344
7,940
31,401
(c)
The arrangements put in place by the Financial Services Compensation Scheme (FSCS) to protect depositors and investors from loss
in the event of failure of financial institutions has resulted in significant levies on the industry in recent years. The financial impact of
unexpected FSCS levies is largely out of the group’s control as they result from other industry failures.
There is uncertainty over the level of future FSCS levies as they depend on the ultimate cost to the FSCS of industry failures. The
group contributes to the deposit class, investment fund management class and investment intermediation levy classes and accrues
levy costs for future levy years when the obligation arises.
36 Related party transactions
Transactions with key management personnel
The remuneration of the key management personnel of the group, who are defined as the company’s directors and other members of
senior management who are responsible for planning, directing and controlling the activities of the group, is set out below.
Gains on options exercised by directors during the year totalled £nil (2019: £7,000). Further information about the remuneration of
individual directors is provided in the audited part of the directors’ remuneration report on page 118.
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments
2020
£’000
9,829
298
941
3,170
14,238
2019
£’000
14,176
296
2,695
3,408
20,575
Dividends totalling £98,000 were paid in the year (2019: £95,000) in respect of ordinary shares held by key management personnel and
their close family members.
As at 31 December 2020, the group had outstanding interest-free season ticket loans of nil (2019: nil) issued to key management personnel.
At 31 December 2020, key management personnel and their close family members had gross outstanding deposits of £616,000 (2019:
£636,000) and gross outstanding banking loans of nil (2019: nil), all of which (2019: all) were made on normal business terms. A number of
the group’s key management personnel and their close family members make use of the services provided by companies within the group.
Charges for such services are made at various staff rates.
198
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| Consolidated financial statements
35 Contingent liabilities and commitments
(a) Capital expenditure authorised and contracted for at 31 December 2020 but not provided in the financial statements amounted
to £26,000 (2019: £787,000). This related to expenditure on fixtures and fittings (2019: leasehold improvements and fixtures
and fittings).
(b) The contractual amounts of the group’s commitments to extend credit to its clients are as follows:
Guarantees
Undrawn commitments to lend of 1 year or less
Undrawn commitments to lend of more than 1 year
The fair value of the guarantees is £nil (2019: £nil).
2020
£’000
–
30,240
9,270
39,510
2019
£’000
117
23,344
7,940
31,401
2020
£’000
9,829
298
941
3,170
14,238
2019
£’000
14,176
296
2,695
3,408
20,575
(c)
The arrangements put in place by the Financial Services Compensation Scheme (FSCS) to protect depositors and investors from loss
in the event of failure of financial institutions has resulted in significant levies on the industry in recent years. The financial impact of
unexpected FSCS levies is largely out of the group’s control as they result from other industry failures.
There is uncertainty over the level of future FSCS levies as they depend on the ultimate cost to the FSCS of industry failures. The
group contributes to the deposit class, investment fund management class and investment intermediation levy classes and accrues
levy costs for future levy years when the obligation arises.
36 Related party transactions
Transactions with key management personnel
The remuneration of the key management personnel of the group, who are defined as the company’s directors and other members of
senior management who are responsible for planning, directing and controlling the activities of the group, is set out below.
Gains on options exercised by directors during the year totalled £nil (2019: £7,000). Further information about the remuneration of
individual directors is provided in the audited part of the directors’ remuneration report on page 118.
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments
their close family members.
Dividends totalling £98,000 were paid in the year (2019: £95,000) in respect of ordinary shares held by key management personnel and
As at 31 December 2020, the group had outstanding interest-free season ticket loans of nil (2019: nil) issued to key management personnel.
At 31 December 2020, key management personnel and their close family members had gross outstanding deposits of £616,000 (2019:
£636,000) and gross outstanding banking loans of nil (2019: nil), all of which (2019: all) were made on normal business terms. A number of
the group’s key management personnel and their close family members make use of the services provided by companies within the group.
Charges for such services are made at various staff rates.
Other related party transactions
The group’s transactions with the pension funds are described in note 29. At 31 December 2020, no amounts were outstanding with either
the Laurence Keen Scheme or the Rathbone 1987 Scheme (2019: none).
One group subsidiary, Rathbone Unit Trust Management, has authority to manage the investments within a number of unit trusts. Another
group company, Rathbone Investment Management International, acted as investment manager for a protected cell company offering
unitised private client portfolio services. During 2020, the group managed 28 unit trusts, Sociétés d’Investissement à Capital Variable
(SICAVs) and open-ended investment companies (OEICs) (together, ‘collectives’) (2019: 27 unit trusts and OEICs).
The group charges each fund an annual management fee for these services, but does not earn any performance fees on the unit trusts. The
management charges are calculated on the bases published in the individual fund prospectuses, which also state the terms and conditions
of the management contract with the group.
The following transactions and balances relate to the group’s interest in the unit trusts:
Year ended 31 December
Total management fees
As at 31 December
Management fees owed to the group
Holdings in unit trusts (note 17)
2020
£’000
45,657
2020
£’000
4,885
5,728
10,613
2019
£’000
40,111
2019
£’000
3,904
4,587
8,491
Total management fees are included within ‘fee and commission income’ in the consolidated statement of comprehensive income.
Management fees owed to the group are included within ‘accrued income’ and holdings in unit trusts are classified as ‘fair value through
profit or loss equity securities’ in the consolidated balance sheet. The maximum exposure to loss is limited to the carrying amount on the
balance sheet as disclosed above.
All amounts outstanding with related parties are unsecured and will be settled in cash. No guarantees have been given or received.
No expected credit loss provisions have been made in respect of the amounts owed by related parties.
37
Interest in unconsolidated structured entities
As described in note 36, at 31 December 2020, the group owned units in collectives managed by Rathbone Unit Trust Management with
a value of £5,728,000 (2019: £4,587,000), representing 0.06% (2019: 0.08%) of the total value of the collectives managed by the group.
These assets are held to hedge the group’s exposure to deferred remuneration schemes for employees of Funds.
The group’s primary risk associated with its interest in the unit trusts is from changes in the fair value of its holdings in the funds.
The group is not judged to control, and therefore does not consolidate, the collectives. Although the fund trustees have limited rights to
remove Rathbone Unit Trust Management as manager, the group is exposed to very low variability of returns from its management and
share of ownership of the funds and is therefore judged to act as an agent rather than having control under IFRS 10.
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199
Notes to the consolidated financial statements continued
38 Consolidated statement of cash flows
For the purposes of the consolidated statement of cash flows, cash and cash equivalents comprise the following balances with less than
three months until maturity from the date of acquisition:
Cash and balances at central banks (note 14)
Loans and advances to banks (note 15)
Fair value through profit or loss investment securities (note 17)
At 31 December
2020
£’000
2019
£’000
1,798,000 1,930,000
117,839
100,194
2,056,694 2,148,033
159,432
99,262
Fair value thought profit or loss investment securities are amounts invested in money market funds, which are realisable on demand.
Cash flows arising from the (repurchase)/issue of ordinary shares comprise:
Share capital issued (note 30)
Share premium on shares issued (note 30)
Merger reserve on shares issued (note 30)
Shares issued in relation to share-based schemes for which no cash consideration was received
Shares issued in relation to share buybacks
A reconciliation of the movements of liabilities to cash flows arising from financing activities was as follows:
2020
£’000
56
4,153
–
–
(5,077)
(868)
2019
£’000
58
5,666
14,971
(15,001)
(10,034)
(4,340)
At 1 January 2020
Changes from financing cash flows
Proceeds from issue of share capital
Proceeds from sale of treasury shares
Dividends paid
Total changes from financing cash flows
The effect of changes in foreign exchange rates
Changes in fair value
Other changes
Liability-related
Interest expense
Interest paid
Total liability-related changes
Total equity-related other changes
At 31 December 2020
Liabilities
Subordinated
loan notes
£’000
19,927
Share capital/
premium
£’000
213,757
Equity
Reserves
£’000
29,785
Retained
earnings
£’000
241,851
Total
£’000
505,320
–
–
–
–
–
–
(393)
4,209
–
–
4,209
–
–
–
1,294
(1,060)
(159)
–
19,768
–
–
–
–
217,966
–
(4,773)
–
(4,773)
–
–
–
–
–
–
–
25,012
–
(304)
(37,831)
(38,135)
–
–
–
–
–
–
67,133
270,849
4,209
(5,077)
(37,831)
(38,699)
–
–
(393)
1,294
(1,060)
(159)
67,133
533,595
200
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| Consolidated financial statements
At 1 January 2019 (restated)
Changes from financing cash flows
Proceeds from issue of share capital
Proceeds from sale of treasury shares
Dividends paid
Total changes from financing cash flows
The effect of changes in foreign exchange rates
Changes in fair value
Other changes
Liability-related
Interest expense
Interest paid
Total liability-related changes
Total equity-related other changes
At 31 December 2019
39 Events after the balance sheet date
Liabilities
Subordinated
loan notes
£’000
19,807
Share capital/
premium
£’000
208,033
Equity
Reserves
£’000
24,048
Retained
earnings
£’000
232,059
Total
£’000
483,947
–
–
–
–
–
–
5,694
–
–
5,694
–
–
–
(9,234)
–
(9,234)
–
–
–
(799)
(35,959)
(36,758)
–
–
5,694
(10,033)
(35,959)
(40,298)
–
–
1,291
(1,171)
120
–
19,927
–
–
–
30
213,757
–
–
–
14,971
29,785
–
–
–
46,550
241,851
1,291
(1,171)
120
61,551
505,320
There have been no material events occurring between the balance sheet date and the date of signing this report.
38 Consolidated statement of cash flows
For the purposes of the consolidated statement of cash flows, cash and cash equivalents comprise the following balances with less than
three months until maturity from the date of acquisition:
Cash and balances at central banks (note 14)
Loans and advances to banks (note 15)
Fair value through profit or loss investment securities (note 17)
At 31 December
Fair value thought profit or loss investment securities are amounts invested in money market funds, which are realisable on demand.
Cash flows arising from the (repurchase)/issue of ordinary shares comprise:
Share capital issued (note 30)
Share premium on shares issued (note 30)
Merger reserve on shares issued (note 30)
Shares issued in relation to share buybacks
Shares issued in relation to share-based schemes for which no cash consideration was received
A reconciliation of the movements of liabilities to cash flows arising from financing activities was as follows:
At 1 January 2020
213,757
29,785
241,851
505,320
Subordinated
Share capital/
Equity
premium
£’000
Reserves
£’000
Liabilities
loan notes
£’000
19,927
2020
£’000
2019
£’000
1,798,000 1,930,000
159,432
99,262
117,839
100,194
2,056,694 2,148,033
2020
£’000
56
4,153
–
–
(5,077)
(868)
2019
£’000
58
5,666
14,971
(15,001)
(10,034)
(4,340)
Retained
earnings
£’000
Total
£’000
Changes from financing cash flows
Proceeds from issue of share capital
Proceeds from sale of treasury shares
Dividends paid
Total changes from financing cash flows
The effect of changes in foreign exchange rates
Changes in fair value
Other changes
Liability-related
Interest expense
Interest paid
Total liability-related changes
Total equity-related other changes
At 31 December 2020
4,209
(4,773)
4,209
(4,773)
(304)
(37,831)
(38,135)
–
–
–
–
–
–
–
(393)
1,294
(1,060)
(159)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19,768
217,966
25,012
270,849
67,133
–
–
–
–
–
–
–
4,209
(5,077)
(37,831)
(38,699)
–
–
(393)
1,294
(1,060)
(159)
67,133
533,595
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201
201
Notes to the consolidated financial statements continued
40 Country-by-country reporting
HM Treasury has transposed the requirements set out under the Capital Requirements Directive IV (CRD IV) and issued the Capital
Requirements Country-by-Country Reporting Regulations 2013, effective 1 January 2014. The legislation requires Rathbone Brothers Plc
(together with its subsidiaries, ‘the group’) to publish certain additional information, on a consolidated basis, for the year ended 31
December 2020.
Basis of preparation:
Country
Nature of activities
Turnover
In most cases, we have determined the country by reference to the country of tax residence. Where
an entity is not subject to tax (e.g. a partnership) we have considered the location of management or
the jurisdiction in which the revenues are generated. In these cases it is possible that tax is paid in a
different country to the one in which profits are reported.
The nature of activities within the United Kingdom are described within our services on pages 6 and 7.
Discretionary investment management is the sole activity which occurs in Jersey.
Turnover is defined as operating income. As the consolidated results are split by country, there is an
element of double counting when inter-jurisdictional transactions (for example, the payment of
dividends) occur. The entries to eliminate this double counting are included at the bottom of the
table to enable the disclosed figures to agree to the published consolidated accounts of the group.
Profit/(loss) before taxation
These are accounting profits. As with turnover some double counting may arise and again this has
been eliminated at the bottom of the table. The majority of the total relates to the elimination of
inter-jurisdictional dividends, which are reflected as profits in the United Kingdom.
Tax paid
This column reflects corporation tax actually paid in the year. Note that it is rare that tax paid in any
given year relates directly to the profits earned in the same period.
Public subsidies received
The group received no public subsidies in the year.
Number of employees
The number of employees reported is the average number of full-time employees who were
permanently employed by the group, or one of its subsidiaries, during the year. Contractors
are excluded.
Subsidiaries
A list of the subsidiaries of the group, including their main activity and country of incorporation,
is shown within note 45.
Country
United Kingdom
Jersey
Sub-total
Inter-group eliminations and other entries arising on consolidation
Total
Turnover
£’000
357,888
12,488
370,376
(4,288)
366,088
Profit/(loss)
before
taxation
£’000
75,726
2,501
78,227
(34,448)
43,779
Tax paid
£’000
21,090
321
21,411
–
21,411
Number of
employees
1,511
24
1,535
–
1,535
202
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| Consolidated financial statements
40 Country-by-country reporting
HM Treasury has transposed the requirements set out under the Capital Requirements Directive IV (CRD IV) and issued the Capital
Requirements Country-by-Country Reporting Regulations 2013, effective 1 January 2014. The legislation requires Rathbone Brothers Plc
(together with its subsidiaries, ‘the group’) to publish certain additional information, on a consolidated basis, for the year ended 31
December 2020.
Basis of preparation:
Country
In most cases, we have determined the country by reference to the country of tax residence. Where
an entity is not subject to tax (e.g. a partnership) we have considered the location of management or
the jurisdiction in which the revenues are generated. In these cases it is possible that tax is paid in a
different country to the one in which profits are reported.
Nature of activities
The nature of activities within the United Kingdom are described within our services on pages 6 and 7.
Discretionary investment management is the sole activity which occurs in Jersey.
Turnover
Turnover is defined as operating income. As the consolidated results are split by country, there is an
element of double counting when inter-jurisdictional transactions (for example, the payment of
dividends) occur. The entries to eliminate this double counting are included at the bottom of the
table to enable the disclosed figures to agree to the published consolidated accounts of the group.
Profit/(loss) before taxation
These are accounting profits. As with turnover some double counting may arise and again this has
been eliminated at the bottom of the table. The majority of the total relates to the elimination of
inter-jurisdictional dividends, which are reflected as profits in the United Kingdom.
Tax paid
This column reflects corporation tax actually paid in the year. Note that it is rare that tax paid in any
given year relates directly to the profits earned in the same period.
Public subsidies received
The group received no public subsidies in the year.
Number of employees
The number of employees reported is the average number of full-time employees who were
permanently employed by the group, or one of its subsidiaries, during the year. Contractors
Subsidiaries
A list of the subsidiaries of the group, including their main activity and country of incorporation,
are excluded.
is shown within note 45.
Country
United Kingdom
Jersey
Sub-total
Total
Inter-group eliminations and other entries arising on consolidation
(4,288)
(34,448)
Turnover
£’000
357,888
12,488
370,376
Profit/(loss)
before
taxation
£’000
75,726
2,501
78,227
Tax paid
£’000
21,090
321
21,411
–
Number of
employees
1,511
24
1,535
–
366,088
43,779
21,411
1,535
Company statement of changes in equity
for the year ended 31 December 2020
At 1 January 2019 (restated)
Profit for the year
Net remeasurement of defined
benefit liability
Deferred tax relating to components of
other comprehensive income
Other comprehensive income net of tax
Dividends paid
Issue of share capital
Share-based payments:
– value of employee services
– cost of own shares acquired
– cost of own shares vesting
– tax on share-based payments
At 31 December 2019
Profit for the year
Net remeasurement of defined
benefit liability
Deferred tax relating to components of
other comprehensive income
Other comprehensive income net of tax
Dividends paid
Issue of share capital
Share-based payments:
– value of employee services
– cost of own shares acquired
– cost of own shares vesting
– tax on share-based payments
At 31 December 2020
Note
Share capital
£’000
2,760
–
Share premium
£’000
205,273
–
Merger Reserve
£’000
24,950
–
Own shares
£’000
(32,737)
–
–
–
–
–
58
–
–
–
–
–
–
–
5,666
–
14,971
–
–
–
–
–
–
–
–
–
2,818
–
–
–
–
210,939
–
–
–
–
39,921
–
(10,033)
799
–
(41,971)
Retained
earnings
£’000
101,624
29,451
Total equity
£’000
301,870
29,451
310
(53)
257
310
(53)
257
(35,959)
–
(35,959)
20,695
19,387
–
(799)
(17)
113,944
24,155
19,387
(10,033)
–
(17)
325,651
24,155
–
–
–
–
56
–
–
–
–
2,874
–
–
–
–
4,153
–
–
–
–
215,092
–
–
–
–
–
–
–
–
–
–
(4,682)
(4,682)
1,668
(3,014)
1,668
(3,014)
(37,831)
–
(37,831)
4,209
–
–
–
–
39,921
–
(5,077)
304
–
(46,744)
43,634
–
(304)
(140)
140,444
43,634
(5,077)
–
(140)
351,587
53
49
44
54
54
54
53
49
44
54
54
54
The accompanying notes form an integral part of the company financial statements.
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203
203
Company balance sheet
for the year ended 31 December 2020
Non-current assets
Investment in subsidiaries
Other investments
Right-of-use assets
Deferred tax
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Lease liabilities
Current tax liability
Provisions for liabilities and charges
Net current assets
Non-current liabilities
Retirement benefit obligations
Total liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Own shares
Retained earnings
Equity shareholders’ funds
Note
45
46
48
49
47
50
52
2020
£’000
2019
£’000
323,055
15,728
43,897
6,100
388,780
112,361
12,611
124,972
273,055
14,587
48,540
5,106
341,288
124,722
4,204
128,926
513,752
470,214
(89,804)
(55,123)
(5)
(7,448)
(152,380)
(69,990)
(60,026)
(647)
(5,886)
(136,549)
(27,408)
(7,623)
53
(9,785)
(162,165)
(8,014)
(144,563)
351,587
325,651
54
54
57
54
2,874
215,092
39,921
(46,744)
140,444
351,587
2,818
210,939
39,921
(41,971)
113,944
325,651
As permitted by section 408 of the Companies Act 2006 the company has elected not to present its own statement of comprehensive
income for the year. Rathbone Brothers Plc reported a profit after tax for the financial year ended 31 December 2020 of £24,155,000
(2019: £29,451,000).
The financial statements were approved by the board of directors and authorised for issue on 3 March 2021 and were signed on their
behalf by:
Paul Stockton
Chief Executive
Jennifer Mathias
Finance Director
Company registered number: 01000403
The accompanying notes form an integral part of the company financial statements.
204
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Company financial statements
Company balance sheet
Company statement of cash flows
for the year ended 31 December 2020
for the year ended 31 December 2020
Note
45
46
48
49
47
50
52
2020
£’000
2019
£’000
323,055
15,728
43,897
6,100
388,780
112,361
12,611
124,972
273,055
14,587
48,540
5,106
341,288
124,722
4,204
128,926
513,752
470,214
(89,804)
(55,123)
(5)
(7,448)
(152,380)
(69,990)
(60,026)
(647)
(5,886)
(136,549)
(27,408)
(7,623)
53
(9,785)
(162,165)
(8,014)
(144,563)
351,587
325,651
54
54
57
54
2,874
215,092
39,921
(46,744)
140,444
351,587
2,818
210,939
39,921
(41,971)
113,944
325,651
Cash flows from operating activities
Profit before tax
Change in fair value through profit or loss
Net interest and dividends receivable
Net charge for provisions
Depreciation and amortisation
Defined benefit pension scheme charges
Defined benefit pension scheme contributions paid
Share-based payment charges
Changes in operating assets and liabilities:
– net decrease/(increase) in prepayments, accrued income and other assets
– net increase in accruals, deferred income, provisions and other liabilities
Cash used in/(generated from) operations
Tax (paid)/received
Net cash inflow/(outflow) from operating activities
Cash flows from investing activities
Interest received
Interest paid
Inter-company dividends received
Investment in subsidiaries
Purchase of right-of-use assets
Purchase of other investments
Proceeds from sale of investments
Net cash generated from investing activities
Cash flows from financing activities
Net (repurchase)/issue of ordinary shares
Dividends paid
Payment of lease liabilities
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes form an integral part of the company financial statements.
Note
2020
£’000
2019
£’000
26,920
(494)
(54,764)
(428)
4,643
200
(3,111)
39,986
12,952
12,579
25,413
50,944
(2,876)
48,068
66
(3,299)
58,000
(50,000)
(182)
(1,063)
417
3,939
(868)
(37,831)
(4,901)
(43,600)
8,407
4,204
12,611
29,327
(482)
(53,980)
1,590
4,499
255
(3,128)
31,012
9,093
(22,177)
4,309
(8,775)
(814)
(9,589)
107
(4,127)
58,000
–
–
(899)
–
53,081
(4,340)
(35,959)
(4,375)
(44,674)
(1,182)
5,386
4,204
52
53
53
54
45
45
54
44
59
Non-current assets
Investment in subsidiaries
Other investments
Right-of-use assets
Deferred tax
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Lease liabilities
Current tax liability
Provisions for liabilities and charges
Net current assets
Non-current liabilities
Retirement benefit obligations
Total liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Own shares
Retained earnings
Equity shareholders’ funds
(2019: £29,451,000).
behalf by:
Paul Stockton
Chief Executive
As permitted by section 408 of the Companies Act 2006 the company has elected not to present its own statement of comprehensive
income for the year. Rathbone Brothers Plc reported a profit after tax for the financial year ended 31 December 2020 of £24,155,000
The financial statements were approved by the board of directors and authorised for issue on 3 March 2021 and were signed on their
Company registered number: 01000403
The accompanying notes form an integral part of the company financial statements.
Jennifer Mathias
Finance Director
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205
Notes to the company financial statements
Notes to the company
financial statements
41 Significant accounting policies
Statement of compliance
The separate financial statements of the company are presented as required by the Companies Act 2006 and have been
prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, and IAS 27
‘Separate Financial Statements’.
On publishing the parent company financial statements here together with the group financial statements, the company is taking
advantage of the exemption in section 408 of the Companies Act 2006 not to present its individual statement of comprehensive
income and related notes that form a part of these approved financial statements.
Developments in reporting standards and interpretations
Developments in reporting standards and interpretations are set out in note 1.3 to the consolidated financial statements.
Principal accounting policies
The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments.
The principal accounting policies adopted are as set out below.
Investments in subsidiaries
Investments in subsidiaries are stated at cost less, where appropriate, provision for impairment.
Management charges
Intra-group management charges arise in relation to staff costs and other administrative expenses that are initially borne by the company
and then recharged to other group companies, when incurred.
Accounting policies in relation to impairment, interest income, dividend income, operating leases, foreign currency, retirement benefit
obligations, taxation, cash and cash equivalents and share-based payments are set out in note 1 to the consolidated financial statements.
42 Critical accounting judgements and key sources of estimation uncertainty
The critical accounting judgements and key sources of estimation uncertainty arise from the company’s defined benefit pension schemes
and valuation of the provision for the Speirs & Jeffrey earn-out consideration. These are described in note 2 to the consolidated
financial statements.
43 Expenses for the year
The auditor’s remuneration for audit and other services to the company is set out in note 7 to the financial statements.
The average number of employees, on a full-time-equivalent basis, during the year was as follows:
Investment Management:
– investment management services
– advisory services
Funds
Shared services
2020
2019
932
123
37
379
1,471
956
118
35
377
1,486
206
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| Company financial statements
Notes to the company
financial statements
41 Significant accounting policies
Statement of compliance
The separate financial statements of the company are presented as required by the Companies Act 2006 and have been
prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, and IAS 27
‘Separate Financial Statements’.
On publishing the parent company financial statements here together with the group financial statements, the company is taking
advantage of the exemption in section 408 of the Companies Act 2006 not to present its individual statement of comprehensive
income and related notes that form a part of these approved financial statements.
Developments in reporting standards and interpretations
Developments in reporting standards and interpretations are set out in note 1.3 to the consolidated financial statements.
The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments.
The principal accounting policies adopted are as set out below.
Investments in subsidiaries are stated at cost less, where appropriate, provision for impairment.
Principal accounting policies
Investments in subsidiaries
Management charges
Intra-group management charges arise in relation to staff costs and other administrative expenses that are initially borne by the company
and then recharged to other group companies, when incurred.
Accounting policies in relation to impairment, interest income, dividend income, operating leases, foreign currency, retirement benefit
obligations, taxation, cash and cash equivalents and share-based payments are set out in note 1 to the consolidated financial statements.
42 Critical accounting judgements and key sources of estimation uncertainty
The critical accounting judgements and key sources of estimation uncertainty arise from the company’s defined benefit pension schemes
and valuation of the provision for the Speirs & Jeffrey earn-out consideration. These are described in note 2 to the consolidated
The auditor’s remuneration for audit and other services to the company is set out in note 7 to the financial statements.
The average number of employees, on a full-time-equivalent basis, during the year was as follows:
financial statements.
43 Expenses for the year
Investment Management:
– investment management services
– advisory services
Funds
Shared services
2020
2019
932
123
37
379
956
118
35
377
1,471
1,486
44 Dividends
Details of the company’s dividends paid and proposed for approval at the Annual General Meeting are set out in note 12 to the consolidated
financial statements.
The company’s dividend policy is described in the directors’ report on page 127.
Reserves available for distribution as at 31 December were as follows:
Net assets
Less:
– share capital
– share premium
– merger reserve
Distributable reserves
Movements in reserves available for distribution were as follows:
As at 1 January
Profit for the year
Net remeasurement of defined benefit liability
Dividends paid
Other movements
As at 31 December
45
Investment in subsidiaries
At 1 January 2019
Additions
Disposals
At 1 January 2020
Additions
Disposals
At 31 December 2020
2020
£’000
351,587
2019
£’000
325,651
(2,874)
(215,092)
(39,921)
93,700
(2,818)
(210,939)
(39,921)
71,973
2020
£’000
71,973
24,155
(3,014)
(37,831)
38,417
93,700
Equities
£’000
273,055
92,552
(92,552)
273,055
50,000
–
323,055
2019
£’000
68,887
29,451
257
(35,959)
9,337
71,973
Total
£’000
273,055
92,552
(92,552)
273,055
50,000
–
323,055
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207
Notes to the company financial statements continued
45
Investment in subsidiaries continued
Equities
On 1 July 2019, ordinary shares of 5p in Rathbone Investment Management Limited were issued to the company at a price of £90 per share
in exchange for the company’s equity holding in Speirs & Jeffrey Limited.
On 30 April 2020, 588,235 ordinary shares of £1 each in Rathbone Investment Management Limited were issued to the company at a price
of £85 per share for cash consideration.
At 31 December 2020 the company’s subsidiary undertakings were as follows:
Subsidiary undertaking
Rathbone Investment Management Limited
Rathbone Investment Management International Limited*
Rathbone Trust Company Limited
Rathbone Unit Trust Management Limited*
Arcticstar Limited
Vision Independent Financial Planning Limited
Castle Investment Solutions Limited
Rathbone Trust Legal Services Limited*
Laurence Keen Holdings Limited
Rathbone Directors Limited*
Rathbone Secretaries Limited*
Laurence Keen Nominees Limited*
Neilson Cobbold Client Nominees Limited*
Rathbone Nominees Limited*
Citywall Nominees Limited*
Penchart Nominees Limited*
Argus Nominee Limited
Rathbone Pension & Advisory Services Limited
Rathbone Stockbrokers Limited*
Dean River Asset Management Limited*
R.M. Walkden & Co. Limited*
Rathbone Funds Advisers Unipessoal LDA*
Speirs & Jeffrey Limited*
Speirs & Jeffrey Client Nominees Limited*
Speirs & Jeffrey Portfolio Management Limited*
Speirs & Jeffrey Fund Management Limited*
* Held by subsidiary undertaking
Activity and operation
Investment management and banking services
Investment management
Trust and tax services
Unit trust management
Introducer of private clients
Financial planning services
Investment support services
Trust and legal services
Intermediate holding company
Corporate director services
Corporate secretarial services
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
Non-trading
Non-trading
Non-trading
Non-trading
European fund marketing
Investment management
Corporate nominee
Corporate nominee
Corporate nominee
The registered office for all subsidiary undertakings is 8 Finsbury Circus, London EC2M 7AZ except for the following:
Subsidiary undertaking
Rathbone Investment Management Limited
Rathbone Investment Management International Limited
Vision Independent Financial Planning Limited
Castle Investment Solutions Limited
Speirs & Jeffrey Limited
Speirs & Jeffrey Client Nominees Limited
Speirs & Jeffrey Portfolio Management Limited
Speirs & Jeffrey Fund Management Limited
Rathbone Funds Advisers Unipessoal LDA
Registered office
Port of Liverpool Building, Pier Head, Liverpool L3 1NW
26 Esplanade, St Helier, Jersey JE1 2RB
Vision House, Unit 6A Falmouth Business Park,
Bickland Water Road, Falmouth, Cornwall TR11 4SZ
Vision House, Unit 6A Falmouth Business Park,
Bickland Water Road, Falmouth, Cornwall TR11 4SZ
George House, 50 George Square, Glasgow G2 1EH
George House, 50 George Square, Glasgow G2 1EH
George House, 50 George Square, Glasgow G2 1EH
George House, 50 George Square, Glasgow G2 1EH
R Tierno Galvan 10 Torre 3, Piso 6 Sala 602, 1070-274,
Campo Ourique Lisbon, Lisbon, Portugal
The company owns, directly or indirectly, 100% of the ordinary share capital of all subsidiary undertakings.
208
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| Company financial statements
45
Investment in subsidiaries continued
Equities
On 1 July 2019, ordinary shares of 5p in Rathbone Investment Management Limited were issued to the company at a price of £90 per share
in exchange for the company’s equity holding in Speirs & Jeffrey Limited.
On 30 April 2020, 588,235 ordinary shares of £1 each in Rathbone Investment Management Limited were issued to the company at a price
of £85 per share for cash consideration.
At 31 December 2020 the company’s subsidiary undertakings were as follows:
Subsidiary undertaking
Rathbone Investment Management Limited
Rathbone Investment Management International Limited*
Investment management and banking services
Activity and operation
Rathbone Trust Company Limited
Rathbone Unit Trust Management Limited*
Arcticstar Limited
Vision Independent Financial Planning Limited
Castle Investment Solutions Limited
Rathbone Trust Legal Services Limited*
Laurence Keen Holdings Limited
Rathbone Directors Limited*
Rathbone Secretaries Limited*
Laurence Keen Nominees Limited*
Neilson Cobbold Client Nominees Limited*
Rathbone Nominees Limited*
Citywall Nominees Limited*
Penchart Nominees Limited*
Argus Nominee Limited
Rathbone Pension & Advisory Services Limited
Rathbone Stockbrokers Limited*
Dean River Asset Management Limited*
R.M. Walkden & Co. Limited*
Rathbone Funds Advisers Unipessoal LDA*
Speirs & Jeffrey Limited*
Speirs & Jeffrey Client Nominees Limited*
Speirs & Jeffrey Portfolio Management Limited*
Speirs & Jeffrey Fund Management Limited*
* Held by subsidiary undertaking
Subsidiary undertaking
Rathbone Investment Management Limited
Rathbone Investment Management International Limited
Vision Independent Financial Planning Limited
Castle Investment Solutions Limited
Speirs & Jeffrey Limited
Speirs & Jeffrey Client Nominees Limited
Speirs & Jeffrey Portfolio Management Limited
Speirs & Jeffrey Fund Management Limited
Rathbone Funds Advisers Unipessoal LDA
Investment management
Trust and tax services
Unit trust management
Introducer of private clients
Financial planning services
Investment support services
Trust and legal services
Intermediate holding company
Corporate director services
Corporate secretarial services
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
Non-trading
Non-trading
Non-trading
Non-trading
European fund marketing
Investment management
Corporate nominee
Corporate nominee
Corporate nominee
Port of Liverpool Building, Pier Head, Liverpool L3 1NW
Registered office
26 Esplanade, St Helier, Jersey JE1 2RB
Vision House, Unit 6A Falmouth Business Park,
Bickland Water Road, Falmouth, Cornwall TR11 4SZ
Vision House, Unit 6A Falmouth Business Park,
Bickland Water Road, Falmouth, Cornwall TR11 4SZ
George House, 50 George Square, Glasgow G2 1EH
George House, 50 George Square, Glasgow G2 1EH
George House, 50 George Square, Glasgow G2 1EH
George House, 50 George Square, Glasgow G2 1EH
R Tierno Galvan 10 Torre 3, Piso 6 Sala 602, 1070-274,
Campo Ourique Lisbon, Lisbon, Portugal
The registered office for all subsidiary undertakings is 8 Finsbury Circus, London EC2M 7AZ except for the following:
The company owns, directly or indirectly, 100% of the ordinary share capital of all subsidiary undertakings.
46 Other investments
Fair value through profit or loss securities
Equity securities:
– listed
Money market funds:
– unlisted
47 Trade and other receivables
Prepayments and other receivables
Amounts owed by group undertakings
Current
Non-current
48 Right-of-use assets
Cost
At 1 January 2019
Additions
Acquisitions
Other movements
At 31 December 2019 and 31 December 2020
Depreciation and impairment
1 January 2019
Charge for the year
Acquisitions
Other movements
At 1 January 2020
Charge for the year
At 31 December 2020
Carrying amount at 31 December 2020
2020
£’000
2019
£’000
5,728
4,587
10,000
15,728
10,000
14,587
2020
£’000
4,526
107,835
112,361
112,361
–
112,361
2019
£’000
7,989
116,733
124,722
124,722
–
124,722
Property
£’000
50,186
601
2,506
(134)
53,159
–
4,499
139
(19)
4,619
4,643
9,262
43,897
Total
£’000
50,186
601
2,506
(134)
53,159
–
4,499
139
(19)
4,619
4,643
9,262
43,897
There was no indication of impairment of the company’s right-of-use assets as a result of COVID-19 during the year.
During the year, the company recognised a charge of £7,000 in profit or loss in respect of short-term leases and low-value assets
(2019: £370,000).
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209
Notes to the company financial statements continued
49 Deferred tax
The UK Government legislated in the Finance Act 2020 to maintain the UK corporation tax rate at 19.0% from 1 April 2020, rather than
reducing the rate to 17.0% as previously enacted. The Finance Act 2020 was enacted on 22 July 2020. Deferred income taxes are calculated
on all temporary differences under the liability method using the rate expected to apply when the relevant timing differences are forecast
to unwind.
The budget on 3 March 2021 signalled an increase in the UK corporation tax rate to 25.0% in 2023. This will be reflected in the deferred tax
calculations when the change is enacted.
The movement on the deferred tax account is as follows:
As at 1 January 2020
Recognised in profit or loss in respect of:
– current year
– prior year
– change in rate
Total recognised in profit or loss
Recognised in other comprehensive income in respect of:
– current year
– prior year
– change in rate
Total recognised in other comprehensive income
Recognised in equity in respect of:
– current year
– prior year
– change in rate
Total recognised in equity
Pensions
£’000
1,360
(553)
–
(618)
(1,171)
890
–
778
1,668
–
–
–
–
Share-based
payments
£’000
3,545
398
22
445
865
–
–
–
–
(38)
(17)
7
(48)
Staff-
related
costs
£’000
304
(11)
(211)
11
(211)
Fair value
through
profit or loss
£’000
(103)
(97)
–
(12)
(109)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
5,106
(263)
(189)
(174)
(626)
890
–
778
1,668
(38)
(17)
7
(48)
As at 31 December 2020
1,857
4,362
93
(212)
6,100
Deferred tax assets
Deferred tax liabilities
As at 31 December 2020
Pensions
£’000
1,857
–
1,857
Share-based
payments
£’000
4,362
–
4,362
Staff-
related
costs
£’000
93
–
93
Fair value
through
profit or loss
£’000
–
(212)
(212)
Total
£’000
6,312
(212)
6,100
210
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| Company financial statements
49 Deferred tax
to unwind.
The UK Government legislated in the Finance Act 2020 to maintain the UK corporation tax rate at 19.0% from 1 April 2020, rather than
reducing the rate to 17.0% as previously enacted. The Finance Act 2020 was enacted on 22 July 2020. Deferred income taxes are calculated
on all temporary differences under the liability method using the rate expected to apply when the relevant timing differences are forecast
The budget on 3 March 2021 signalled an increase in the UK corporation tax rate to 25.0% in 2023. This will be reflected in the deferred tax
calculations when the change is enacted.
The movement on the deferred tax account is as follows:
As at 1 January 2020
Recognised in profit or loss in respect of:
– current year
– prior year
– change in rate
– current year
– prior year
– change in rate
Total recognised in profit or loss
Recognised in other comprehensive income in respect of:
Total recognised in other comprehensive income
Recognised in equity in respect of:
– current year
– prior year
– change in rate
Total recognised in equity
Deferred tax assets
Deferred tax liabilities
As at 31 December 2020
Pensions
£’000
1,360
(553)
–
(618)
(1,171)
890
–
778
1,668
–
–
–
–
Share-based
payments
£’000
3,545
398
22
445
865
–
–
–
–
(38)
(17)
7
(48)
Staff-
related
costs
£’000
304
(11)
(211)
11
(211)
Fair value
through
profit or loss
£’000
(103)
(97)
–
(12)
(109)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Pensions
£’000
1,857
–
1,857
Share-based
payments
£’000
4,362
–
4,362
Staff-
related
costs
£’000
93
–
93
Fair value
through
profit or loss
£’000
–
(212)
(212)
Total
£’000
5,106
(263)
(189)
(174)
(626)
890
–
778
1,668
(38)
(17)
7
(48)
Total
£’000
6,312
(212)
6,100
As at 31 December 2020
1,857
4,362
93
(212)
6,100
As at 1 January 2019
Recognised in profit or loss in respect of:
– current year
– prior year
– change in rate
Total recognised in profit or loss
Recognised in other comprehensive income in respect of:
– current year
– prior year
– change in rate
Total recognised in other comprehensive income
Recognised in equity in respect of:
– current year
– prior year
– change in rate
Total recognised in equity
Pensions
£’000
1,902
(546)
–
57
(489)
(59)
–
6
(53)
–
–
–
–
Share-based
payments
£’000
1,882
1,586
94
–
1,680
–
–
–
–
(17)
–
–
(17)
Staff-
related
costs
£’000
304
Fair value
through
profit or loss
£’000
(21)
–
–
–
–
–
–
–
–
–
–
–
–
(92)
–
10
(82)
–
–
–
–
–
–
–
–
Total
£’000
4,067
948
94
67
1,109
(59)
–
6
(53)
(17)
–
–
(17)
As at 31 December 2019
1,360
3,545
304
(103)
5,106
Deferred tax assets
Deferred tax liabilities
As at 31 December 2019
50 Trade and other payables
Trade creditors
Accruals, deferred income and other creditors
Amounts owed to group undertakings
Other taxes and social security costs
1,360
–
1,360
3,545
–
3,545
304
–
304
–
(103)
(103)
5,209
(103)
5,106
2020
£’000
117
71,344
–
18,343
89,804
2019
£’000
629
61,799
–
7,562
69,990
The fair value of trade and other payables is not materially different from their carrying amount.
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Notes to the company financial statements continued
51 Lease liabilities
Maturity analysis
Less than one year
One to five years
More than five years
Lease liabilities at 31 December
Current
Non-current
52 Provisions for liabilities and charges
As at 1 January 2019
Charged to profit or loss
Unused amount credited to profit or loss
Net credit to profit or loss
Other movements
Utilised/paid during the year
At 31 December 2019
Charged to profit or loss
Unused amount credited to profit or loss
Net charge to profit or loss
Other movements
Utilised/paid during the year
As at 31 December 2020
Payable within 1 year
Payable after 1 year
2020
£’000
4,654
18,708
31,761
55,123
4,654
50,469
55,123
Property-
related
£’000
6,786
1,300
290
1,590
–
(3,338)
5,038
(589)
(23)
(612)
–
(825)
3,601
–
3,601
3,601
2019
£’000
4,901
18,556
36,569
60,026
4,901
55,125
60,026
Total
£’000
10,223
1,300
290
1,590
4,949
(10,876)
5,886
117
(23)
94
2,521
(1,052)
7,449
1,716
5,733
7,449
Deferred,
variable costs
to acquire client
relationship
intangibles
£’000
1,059
–
–
–
4,770
(4,981)
848
–
–
–
2,521
(227)
3,142
Deferred and
contingent
consideration
in business
combinations
£’000
2,378
–
–
–
179
(2,557)
–
588
–
588
–
–
588
Legal and
compensation
£’000
–
–
–
–
–
–
–
118
–
118
–
–
118
1,010
2,132
3,142
588
–
588
118
–
118
Other movements in provisions relate to deferred payments to investment managers and third parties for the introduction of client
relationships, which have been capitalised in the year.
Following the satisfaction of certain operational targets, contingent consideration of £1,050,000 was paid to vendors of Speirs & Jeffrey in
May 2019 (see note 8). In addition, contingent consideration of £1,507,000 was paid in October 2019 in respect of the acquisition of Vision
Independent Financial Planning and Castle Investment Solutions.
Property-related provisions of £3,601,000 relate to dilapidation provisions expected to arise on leasehold premises held by the group
(2019: £5,038,000). Prior-year balances also included monies due under the contract with the assignee of leases on the group’s former
property at 1 Curzon Street, which was fully utilised in the year.
Dilapidation provisions are calculated using a discounted cash flow model; during the year, provisions have decreased by £591,000
(2019: increased by £1,228,000). The group utilised £825,000 (2019: £3,338,000) of the dilapidations provision held for the surplus property
at 1 Curzon Street during the year. The impact of discounting led to an additional credit of £591,000 (2019: additional charge of £1,669,000)
being recognised during the year.
Provisions payable after one year are expected to be settled within two years of the balance sheet date (2019: two years), except for the
property-related provisions of £3,601,000 (2019: £4,191,000), which are expected to be settled within 13 years of the balance sheet date
(2019: 14 years).
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| Company financial statements
51 Lease liabilities
Maturity analysis
Less than one year
One to five years
More than five years
Current
Non-current
Lease liabilities at 31 December
52 Provisions for liabilities and charges
As at 1 January 2019
Charged to profit or loss
Unused amount credited to profit or loss
Unused amount credited to profit or loss
Net credit to profit or loss
Other movements
Utilised/paid during the year
At 31 December 2019
Charged to profit or loss
Net charge to profit or loss
Other movements
Utilised/paid during the year
As at 31 December 2020
Payable within 1 year
Payable after 1 year
2020
£’000
4,654
18,708
31,761
55,123
4,654
50,469
55,123
Property-
related
£’000
6,786
1,300
290
1,590
(3,338)
5,038
(589)
(23)
(612)
(825)
3,601
–
–
–
3,601
3,601
2019
£’000
4,901
18,556
36,569
60,026
4,901
55,125
60,026
Total
£’000
10,223
1,300
290
1,590
4,949
(10,876)
5,886
117
(23)
94
2,521
(1,052)
7,449
1,716
5,733
7,449
Deferred,
variable costs
to acquire client
relationship
intangibles
£’000
1,059
Deferred and
contingent
consideration
in business
combinations
£’000
2,378
Legal and
compensation
£’000
4,770
(4,981)
848
179
(2,557)
–
–
–
–
–
–
2,521
(227)
3,142
1,010
2,132
3,142
–
–
–
–
–
–
–
–
588
588
588
588
588
–
–
–
–
–
–
–
–
–
–
118
118
118
118
–
118
Other movements in provisions relate to deferred payments to investment managers and third parties for the introduction of client
relationships, which have been capitalised in the year.
Following the satisfaction of certain operational targets, contingent consideration of £1,050,000 was paid to vendors of Speirs & Jeffrey in
May 2019 (see note 8). In addition, contingent consideration of £1,507,000 was paid in October 2019 in respect of the acquisition of Vision
Independent Financial Planning and Castle Investment Solutions.
Property-related provisions of £3,601,000 relate to dilapidation provisions expected to arise on leasehold premises held by the group
(2019: £5,038,000). Prior-year balances also included monies due under the contract with the assignee of leases on the group’s former
property at 1 Curzon Street, which was fully utilised in the year.
Dilapidation provisions are calculated using a discounted cash flow model; during the year, provisions have decreased by £591,000
(2019: increased by £1,228,000). The group utilised £825,000 (2019: £3,338,000) of the dilapidations provision held for the surplus property
at 1 Curzon Street during the year. The impact of discounting led to an additional credit of £591,000 (2019: additional charge of £1,669,000)
being recognised during the year.
(2019: 14 years).
Provisions payable after one year are expected to be settled within two years of the balance sheet date (2019: two years), except for the
property-related provisions of £3,601,000 (2019: £4,191,000), which are expected to be settled within 13 years of the balance sheet date
53 Long-term employee benefits
Details of the defined benefit pension schemes operated by the company are provided in note 29 to the consolidated financial statements.
54 Share capital, own shares and share-based payments
Details of the share capital of the company and ordinary shares held by the company together with changes thereto are provided in notes
30 and 31 to the consolidated financial statements. Details of options on the company’s shares and share-based payments are set out in
note 32 to the consolidated financial statements.
55 Financial instruments
The company’s risk management policies and procedures are integrated with the wider Rathbones group’s risk management process.
The Rathbones group has identified the risks arising from all of its activities, including those of the company, and has established policies
and procedures to manage these items in accordance with its risk appetite. The company categorises its financial risks into the following
primary areas:
liquidity risk
(i) credit risk
(ii)
(iii) market risk (which includes fair value interest rate risk, cash flow interest rate risk, foreign exchange risk and price risk)
(iv) pension risk.
The company’s exposures to pension risk are set out in note 29 to the consolidated financial statements.
The sections below outline the group risk appetite, as applicable to the company, and explain how the company defines and manages each
category of financial risk.
The company’s financial risk management policies are designed to identify and analyse the financial risks that the company faces, to set
appropriate risk tolerances, limits and controls, and to monitor the financial risks and adherence to limits by means of reliable and up-to-
date information systems. The company regularly reviews its financial risk management policies and systems to reflect changes in the
business and the wider industry.
The company’s overall strategy and policies for monitoring and management of financial risk are set by the board of directors (‘the board’).
The board has embedded risk management within the business through the executive committee and senior management.
(i) Credit risk
The company takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due, through
its trading activities. The principal sources of credit risk arise from depositing funds with banks and through providing long-term and
working capital financing for subsidiaries.
The company’s financial assets are categorised as follows.
Trade and other receivables
Trade and other receivables relate to amounts placed with subsidiaries and staff advances. The prior-year total also includes amounts held
in escrow following the assignment of leases on 1 Curzon Street, which were fully utilised in the year.
The collection and ageing of trade and other receivables are reviewed on a periodic basis by management.
The company places surplus funds with its banking subsidiary, which operates under the group’s credit risk management policies. Group
policy requires that funds are placed with a range of high-quality financial institutions. Investments are spread to avoid excessive exposure
to any individual counterparty.
For the purposes of financial reporting the company categorises its exposures based on the long-term ratings awarded to counterparties by
Fitch or Moody’s.
212
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213
Notes to the company financial statements continued
55 Financial instruments continued
(i) Credit risk continued
Cash and cash equivalents (balances at banks)
The company has exposure to financial institutions through its bank deposits (reported within cash equivalents).
Maximum exposure to credit risk
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
2020
£’000
2019
£’000
10,000
10,006
107,835
6,472
12,611
136,918
116,733
8,429
4,204
139,372
The above table represents the gross credit risk exposure of the company at 31 December 2020 and 2019, without taking account of any
collateral held or other credit enhancements attached.
Other investments
The table below presents an analysis of other investments by rating agency designation, as at 31 December 2020, based on Fitch or Moody’s
long-term rating designation.
AAA
2020
2019
Money
market
funds
£’000
10,000
Total
£’000
10,000
Money
market
funds
£’000
10,000
Total
£’000
10,000
Trade and other receivables
No trade and other receivables have been written off or are credit-impaired at the reporting date.
Amounts owed by group undertakings do not have specific repayment dates and are paid down periodically as trading requires.
Balances at banks
The credit quality of balances at banks is analysed below by reference to the long-term credit rating awarded by Fitch, or equivalent rating
by Moody’s, as at the balance sheet date.
A
214
214
2020
£’000
12,611
12,611
2019
£’000
4,204
4,204
Rathbone Brothers Plc Report and accounts 2020
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| Company financial statements
55 Financial instruments continued
(i) Credit risk continued
Cash and cash equivalents (balances at banks)
Maximum exposure to credit risk
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
Other investments
long-term rating designation.
AAA
Trade and other receivables
The above table represents the gross credit risk exposure of the company at 31 December 2020 and 2019, without taking account of any
collateral held or other credit enhancements attached.
The table below presents an analysis of other investments by rating agency designation, as at 31 December 2020, based on Fitch or Moody’s
2020
£’000
2019
£’000
10,000
10,006
107,835
116,733
6,472
12,611
8,429
4,204
136,918
139,372
2020
Money
market
funds
£’000
2019
Money
market
funds
£’000
Total
£’000
Total
£’000
10,000
10,000
10,000
10,000
No trade and other receivables have been written off or are credit-impaired at the reporting date.
Amounts owed by group undertakings do not have specific repayment dates and are paid down periodically as trading requires.
Balances at banks
by Moody’s, as at the balance sheet date.
The credit quality of balances at banks is analysed below by reference to the long-term credit rating awarded by Fitch, or equivalent rating
2020
£’000
12,611
12,611
2019
£’000
4,204
4,204
A
214
The company has exposure to financial institutions through its bank deposits (reported within cash equivalents).
(a) Geographical sectors
The following table analyses the company’s credit exposures, at their carrying amounts, by geographical region as at the balance
sheet date. In this analysis, exposures are categorised based on the country of domicile of the counterparty.
Concentration of credit risk
The company has counterparty credit risk within its balances at banks in that the principal exposure is to its banking subsidiary. The board
sets and monitors the group policy for the management of group funds, which include the placement of funds with a range of high-quality
financial institutions.
At 31 December 2020
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
At 31 December 2019
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
United
Kingdom
£’000
Rest of
the World
£’000
Total
£’000
10,000
–
10,000
107,279
2,136
12,611
132,026
556
403
–
959
107,835
2,539
12,611
132,985
United
Kingdom
£’000
Rest of
the World
£’000
Total
£’000
10,000
–
10,000
116,334
3,408
4,204
133,946
399
450
–
849
116,733
3,858
4,204
134,795
At 31 December 2020, all rest of the world exposures were to counterparties based in Jersey, the Eurozone, and the United States of
America (2019: Jersey and the United States of America). At 31 December 2020, the company had no exposure to sovereign debt
(2019: none).
Rathbone Brothers Plc Report and accounts 2020
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215
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Notes to the company financial statements continued
55 Financial instruments continued
(i) Credit risk continued
(b)
Industry sectors
The company’s credit exposures at the balance sheet date, analysed by the primary industry sectors in which our counterparties
operate, were:
At 31 December 2020
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
At 31 December 2019
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
Financial
institutions
£’000
Clients and other
corporates
£’000
Total
£’000
10,000
–
10,000
66,110
–
12,611
88,721
41,725
2,539
–
44,264
107,835
2,539
12,611
132,985
Financial
institutions
£’000
Clients and other
corporates
£’000
Total
£’000
10,000
–
10,000
79,271
6
4,204
93,481
37,462
3,852
–
41,314
116,733
3,858
4,204
134,795
(ii) Liquidity risk
Liquidity risk is the risk that the company will encounter difficulty in meeting obligations associated with financial liabilities that are settled
by delivering cash or another financial asset. The company places its funds in short-term or demand facilities with financial institutions to
ensure liquidity. The company has no bank loans (2019: £nil) and does not rely on external funding for its activities.
Non-derivative cash flows
The table below presents the undiscounted cash flows receivable and payable by the company on its non-derivative financial assets and
liabilities by remaining contractual maturities at the balance sheet date.
At 31 December 2020
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
Cash flows arising from financial assets
Trade and other payables:
– amounts owed to group undertakings
– other financial liabilities
Cash flows arising from
financial liabilities
Net liquidity gap
Cumulative net liquidity gap
On
demand
£’000
10,000
107,835
53
12,611
130,499
Not more
than
3 months
£’000
–
–
786
–
786
–
146
–
47,659
After 3
months
but not
more than
1 year
£’000
After 1
year but
not more
than
5 years
£’000
–
–
–
3,491
–
3,491
–
1,338
–
1,338
–
7,083
–
61,315
–
52,506
After 5
years
£’000
–
–
804
–
804
No fixed
maturity
date
£’000
–
–
–
–
–
–
–
Total
£’000
10,000
107,835
6,472
12,611
136,918
–
168,709
168,709
(31,791)
146
130,353
130,353
47,659
(46,873)
83,480
7,083
(5,745)
77,735
61,315
(57,824)
19,911
52,506
(51,702)
(31,791)
–
–
(31,791)
216
216
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| Company financial statements
–
–
–
–
–
–
–
–
143
–
46,978
–
7,060
–
47,980
–
59,092
–
–
–
3,915
–
3,915
–
1,585
–
1,585
After 1
year but
not more
than
5 years
£’000
After 5
years
£’000
No fixed
maturity
date
£’000
Total
£’000
10,006
116,733
8,429
4,204
139,372
–
161,253
161,253
(21,881)
143
130,915
130,915
46,978
(45,067)
85,848
7,060
(6,157)
79,691
47,980
(44,065)
35,626
59,092
(57,507)
(21,881)
–
–
(21,881)
On
demand
£’000
Not more
than
3 months
£’000
10,006
–
116,733
115
4,204
131,058
–
1,911
–
1,911
After 3
months
but not
more than
1 year
£’000
–
–
903
–
903
At 31 December 2019
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
Cash flows arising from financial assets
Trade and other payables:
– amounts owed to group undertakings
– other financial liabilities
Cash flows arising from
financial liabilities
Net liquidity gap
Cumulative net liquidity gap
The company’s credit exposures at the balance sheet date, analysed by the primary industry sectors in which our counterparties
Financial
Clients and other
institutions
£’000
corporates
£’000
41,725
2,539
44,264
132,985
Total
£’000
10,000
107,835
2,539
12,611
Total
£’000
10,000
116,733
3,858
4,204
–
–
–
–
37,462
3,852
41,314
134,795
10,000
66,110
–
12,611
88,721
10,000
79,271
6
4,204
93,481
Financial
Clients and other
institutions
£’000
corporates
£’000
55 Financial instruments continued
(i) Credit risk continued
(b)
Industry sectors
operate, were:
At 31 December 2020
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
At 31 December 2019
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
(ii) Liquidity risk
Non-derivative cash flows
Liquidity risk is the risk that the company will encounter difficulty in meeting obligations associated with financial liabilities that are settled
by delivering cash or another financial asset. The company places its funds in short-term or demand facilities with financial institutions to
ensure liquidity. The company has no bank loans (2019: £nil) and does not rely on external funding for its activities.
The table below presents the undiscounted cash flows receivable and payable by the company on its non-derivative financial assets and
liabilities by remaining contractual maturities at the balance sheet date.
At 31 December 2020
Other investments:
– money market funds
Trade and other receivables:
– other financial assets
Balances at banks
Trade and other payables:
– amounts owed to group undertakings
– other financial liabilities
Cash flows arising from
financial liabilities
Net liquidity gap
Cumulative net liquidity gap
On
demand
£’000
10,000
12,611
130,499
–
146
146
130,353
130,353
Not more
than
3 months
£’000
After 3
months
but not
more than
1 year
£’000
After 1
year but
not more
than
5 years
£’000
–
–
–
–
–
–
–
–
After 5
years
£’000
–
–
–
–
804
804
–
–
–
–
No fixed
maturity
date
£’000
Total
£’000
10,000
107,835
6,472
12,611
136,918
–
168,709
168,709
(31,791)
–
–
–
–
–
–
–
–
–
47,659
7,083
61,315
52,506
47,659
(46,873)
83,480
7,083
(5,745)
77,735
61,315
(57,824)
19,911
52,506
(51,702)
(31,791)
(31,791)
– amounts owed by group undertakings
107,835
53
786
1,338
3,491
Cash flows arising from financial assets
786
1,338
3,491
Included within trade and other payables disclosed above are balances that are repayable on demand or that do not have a contractual
maturity date, which historical experience shows are unlikely to be called in the short term.
The company holds £5,728,000 of equity investments (2019: £4,587,000) which are subject to liquidity risk but are not included in the table
above. These assets are held as fair value through profit or loss securities and have no fixed maturity date; cash flows arise from receipt of
dividends or through sale of the assets.
Total liquidity requirement
At 31 December 2020
Cash flows arising from financial liabilities
Total off-balance-sheet items
Total liquidity requirement
At 31 December 2019
Cash flows arising from financial liabilities
Total off-balance-sheet items
Total liquidity requirement
On
demand
£’000
146
–
146
On
demand
£’000
143
–
143
Not more
than
3 months
£’000
47,659
–
47,659
Not more
than
3 months
£’000
46,978
–
46,978
After 3
months
but not
more than
1 year
£’000
7,083
–
7,083
After 3
months
but not
more than
1 year
£’000
7,060
–
7,060
After 1
year but
not more
than
5 years
£’000
61,315
–
61,315
After 1
year but
not more
than
5 years
£’000
47,980
–
47,980
After 5
years
£’000
52,506
–
52,506
After 5
years
£’000
59,092
–
59,092
Total
£’000
168,709
–
168,709
Total
£’000
161,253
–
161,253
216
Rathbone Brothers Plc Report and accounts 2020
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217
217
Notes to the company financial statements continued
55 Financial instruments continued
(iii) Market risk
Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market
interest rates.
The company’s principal exposure to cash flow interest rate risk arises from the mismatch between the repricing of its financial assets
and liabilities.
The table below shows the repricing profile of the company’s financial assets and liabilities, stated at their carrying amounts, categorised by
the earlier of contractual repricing or maturity dates.
At 31 December 2020
Assets
Other investments:
– equity securities
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
Total financial assets
Liabilities
Trade and other payables:
– amounts owed to group undertakings
– other financial liabilities
Total financial liabilities
Interest rate repricing gap
Not more
than
3 months
£’000
–
10,000
–
575
12,606
23,181
–
–
–
23,181
After 3
months
but not
more than
6 months
£’000
After 6
months
but not
more than
1 year
£’000
After 1
year but
not more
than
5 years
£’000
After
5 years
£’000
Non-
interest-
bearing
£’000
Total
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,728
–
5,728
10,000
107,835
1,964
5
115,532
107,835
2,539
12,611
138,713
–
121,956
121,956
(6,424)
–
121,956
121,956
16,757
218
218
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| Company financial statements
55 Financial instruments continued
(iii) Market risk
Interest rate risk
interest rates.
and liabilities.
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market
The company’s principal exposure to cash flow interest rate risk arises from the mismatch between the repricing of its financial assets
The table below shows the repricing profile of the company’s financial assets and liabilities, stated at their carrying amounts, categorised by
the earlier of contractual repricing or maturity dates.
At 31 December 2020
Assets
Other investments:
– equity securities
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
Total financial assets
Liabilities
Trade and other payables:
– other financial liabilities
Total financial liabilities
Interest rate repricing gap
– amounts owed to group undertakings
Not more
than
3 months
£’000
10,000
575
12,606
23,181
–
–
–
–
–
23,181
After 3
months
but not
more than
6 months
£’000
After 6
months
but not
more than
1 year
£’000
After 1
year but
not more
than
5 years
£’000
After
5 years
£’000
Non-
interest-
bearing
£’000
Total
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,728
–
5,728
10,000
107,835
107,835
1,964
5
2,539
12,611
115,532
138,713
–
121,956
121,956
(6,424)
–
121,956
121,956
16,757
At 31 December 2019
Assets
Other investments:
– equity securities
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
Total financial assets
Liabilities
Trade and other payables:
– amounts owed to group undertakings
– other financial liabilities
Total financial liabilities
Interest rate repricing gap
Not more
than
3 months
£’000
–
10,000
–
1,565
4,199
15,764
–
–
–
15,764
After 3
months
but not
more than
6 months
£’000
After 6
months
but not
more than
1 year
£’000
After 1
year but
not more
than
5 years
£’000
After
5 years
£’000
Non-
interest-
bearing
£’000
Total
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,587
–
4,587
10,000
116,733
2,293
5
123,618
116,733
3,858
4,204
139,382
–
119,101
119,101
4,517
–
119,101
119,101
20,281
A 1% parallel increase/decrease in the sterling yield curve would have no impact on profit after tax or equity (2019: no impact).
The company has assessed the impact of climate change and COVID-19 on the carrying amount of its financial assets and liabilities at the
year end, and considers there to be no material impact.
Foreign exchange risk
The company does not have any material exposure to transactional foreign exchange risk. The table below summarises the company’s
exposure to foreign currency translation risk at 31 December 2020. Included in the table are the company’s financial assets and liabilities,
at carrying amounts, categorised by currency.
At 31 December 2020
Assets
Other investments:
– equity securities
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
Total financial assets
Liabilities
Trade and other payables:
– amounts owed to group undertakings
– other financial liabilities
Total financial liabilities
Net on-balance-sheet position
Sterling
£’000
US dollar
£’000
Euro
£’000
Total
£’000
5,728
10,000
107,835
2,421
12,611
138,595
–
121,838
121,838
16,757
–
–
–
118
–
118
–
118
118
–
–
–
–
–
–
–
–
–
–
–
5,728
10,000
107,835
2,539
12,611
138,713
–
121,956
121,956
16,757
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Notes to the company financial statements continued
55 Financial instruments continued
(iii) Market risk continued
At 31 December 2019
Assets
Other investments:
– equity securities
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
Total financial assets
Liabilities
Trade and other payables:
– amounts owed to group undertakings
– other financial liabilities
Total financial liabilities
Net on-balance-sheet position
Sterling
£’000
US dollar
£’000
Euro
£’000
Total
£’000
4,587
10,000
116,733
3,593
4,204
139,117
–
119,101
119,101
20,016
–
–
–
265
–
265
–
–
–
265
–
–
–
–
–
–
–
–
–
–
4,587
10,000
116,733
3,858
4,204
139,382
–
119,101
119,101
20,281
A 10% weakening of the US dollar against sterling would have reduced equity and profit after tax by £21,000 in 2019. A 10% strengthening
of the US dollar would have had an equal and opposite effect. This analysis assumes that all other variables, in particular other exchange
rates, remain constant.
Price risk
The group’s exposure to price risk, all of which is through the company’s holdings of equity investment securities, is described in note 33.
Fair values
The table below analyses financial instruments measured at fair value into a fair value hierarchy based on the valuation technique used to
determine the fair value:
– Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
– Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.
– Level 3: inputs for the asset or liability that are not based on observable market data.
At 31 December 2020
Assets
Fair value through profit or loss:
– equity securities
– money market funds
At 31 December 2019
Assets
Fair value through profit or loss:
– equity securities
– money market funds
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
5,728
–
5,728
–
10,000
10,000
–
–
–
5,728
10,000
15,728
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
4,587
–
4,587
–
10,000
10,000
–
–
–
4,587
10,000
14,587
The company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has
occurred. There have been no transfers between levels during the year (2019: none).
Details of the methods and assumptions used to determine the fair values of the financial assets in the above table, along with how
reasonably possible changes to the assumptions affect these fair values, are provided in note 33 to the consolidated financial statements.
The fair values of the company’s financial assets and liabilities are not materially different from their carrying values, with the exception of
equity investments in subsidiaries, which are carried at historical cost (note 45).
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| Company financial statements
56 Capital management
The company’s objectives when managing capital are to:
– safeguard the company’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits
for other stakeholders
– maintain a strong capital base to support the development of its business.
For monitoring purposes, the company defines capital as distributable reserves (see note 44). The company monitors the level of
distributable reserves on a monthly basis and compares this to forecast dividends. Capital is distributed to the company from operating
subsidiaries on a timely basis to ensure sufficient capital is maintained. The board of directors monitors the level of capital held in relation
to forecast performance, dividend payments and wider plans for the business, although formal quantitative targets are not set.
There were no changes in the company’s approach to capital management during the year.
57 Contingent liabilities and commitments
The company had no contingent liabilities or commitments at the year end (2019: £nil).
58 Related party transactions
Rathbone Brothers Plc is considered to be the ultimate controlling party.
A 10% weakening of the US dollar against sterling would have reduced equity and profit after tax by £21,000 in 2019. A 10% strengthening
of the US dollar would have had an equal and opposite effect. This analysis assumes that all other variables, in particular other exchange
Transactions with key management personnel
The remuneration of the key management personnel of the company, who are defined as the company’s directors and other members of
senior management who are responsible for planning, directing and controlling the activities of the company, is set out below.
The group’s exposure to price risk, all of which is through the company’s holdings of equity investment securities, is described in note 33.
The table below analyses financial instruments measured at fair value into a fair value hierarchy based on the valuation technique used to
– Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
– Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.
– Level 3: inputs for the asset or liability that are not based on observable market data.
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Short-term employee benefits
Other long-term benefits
Share-based payments
2020
£’000
1,435
50
550
2,035
2019
£’000
1,854
52
648
2,554
Dividends totalling £98,000 were paid in the year (2019: £95,000) in respect of ordinary shares held by key management personnel and
their close family members.
All amounts outstanding with related parties are unsecured and will be settled in cash. No guarantees have been given or received. No
provisions have been made for doubtful debts in respect of the amounts owed by related parties.
55 Financial instruments continued
(iii) Market risk continued
At 31 December 2019
Assets
Other investments:
– equity securities
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
Total financial assets
Liabilities
Trade and other payables:
– amounts owed to group undertakings
– other financial liabilities
Total financial liabilities
Net on-balance-sheet position
rates, remain constant.
Price risk
Fair values
determine the fair value:
At 31 December 2020
Assets
Fair value through profit or loss:
– equity securities
– money market funds
At 31 December 2019
Assets
Fair value through profit or loss:
– equity securities
– money market funds
Sterling
£’000
US dollar
£’000
Euro
£’000
Total
£’000
4,587
10,000
116,733
3,593
4,204
139,117
–
119,101
119,101
20,016
265
265
–
–
–
–
–
–
–
265
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,587
10,000
116,733
3,858
4,204
139,382
–
119,101
119,101
20,281
5,728
10,000
15,728
4,587
10,000
14,587
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
5,728
–
5,728
–
10,000
10,000
4,587
–
4,587
–
10,000
10,000
The company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has
occurred. There have been no transfers between levels during the year (2019: none).
Details of the methods and assumptions used to determine the fair values of the financial assets in the above table, along with how
reasonably possible changes to the assumptions affect these fair values, are provided in note 33 to the consolidated financial statements.
The fair values of the company’s financial assets and liabilities are not materially different from their carrying values, with the exception of
equity investments in subsidiaries, which are carried at historical cost (note 45).
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|
Notes to the company financial statements continued
58 Related party transactions continued
Other related party transactions
During the year, the company entered into the following transactions with its subsidiaries:
Charges for management services
Dividends received
2020
2019
Receivable
£’000
209,878
58,000
267,878
Payable
£’000
–
–
–
Receivable
£’000
192,188
58,000
250,188
Payable
£’000
–
–
–
The company’s balances with fellow group companies at 31 December 2020 are set out in notes 47 and 50.
The company’s transactions with the pension funds are described in note 53. At 31 December 2020, no amounts were due from the pension
schemes (2019: £nil).
All transactions and outstanding balances with fellow group companies are priced on an arm’s-length basis and are to be settled in cash.
None of the balances are secured and no provisions have been made for doubtful debts for any amounts due from fellow group companies.
59 Cash and cash equivalents
For the purposes of the company statement of cash flows, cash and cash equivalents comprise the following balances with less than three
months until maturity from the date of acquisition:
Cash at bank (excluding amounts held by employee benefit trust)
2020
£’000
12,611
2019
£’000
4,204
A reconciliation of the movements of liabilities to cash flows arising from financing activities is provided in note 38 to the consolidated
financial statements.
60 Events after the balance sheet date
There have been no material events occurring between the balance sheet date and the date of signing this report.
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Company financial statements
58 Related party transactions continued
Other related party transactions
During the year, the company entered into the following transactions with its subsidiaries:
Charges for management services
Dividends received
2020
2019
Receivable
£’000
209,878
58,000
267,878
Payable
£’000
–
–
–
Receivable
£’000
192,188
58,000
250,188
Payable
£’000
–
–
–
The company’s balances with fellow group companies at 31 December 2020 are set out in notes 47 and 50.
The company’s transactions with the pension funds are described in note 53. At 31 December 2020, no amounts were due from the pension
schemes (2019: £nil).
All transactions and outstanding balances with fellow group companies are priced on an arm’s-length basis and are to be settled in cash.
None of the balances are secured and no provisions have been made for doubtful debts for any amounts due from fellow group companies.
59 Cash and cash equivalents
For the purposes of the company statement of cash flows, cash and cash equivalents comprise the following balances with less than three
months until maturity from the date of acquisition:
A reconciliation of the movements of liabilities to cash flows arising from financing activities is provided in note 38 to the consolidated
Cash at bank (excluding amounts held by employee benefit trust)
financial statements.
60 Events after the balance sheet date
2020
£’000
12,611
2019
£’000
4,204
Further information
Five-year record
Operating income (and underlying operating income)1
Underlying profit before tax1
Profit before tax
Profit after tax
Equity dividends paid and proposed
Basic earnings per share
Diluted earnings per share
Underlying earnings per share1
Dividends per ordinary share
Equity shareholders’ funds
Total funds under management and administration
2020
£’000
366,088
92,530
43,779
26,652
38,728
49.6p
47.6p
133.3p
72.0p
513,827
£54.7bn
2019
£’000
348,071
88,673
39,652
26,923
37,714
50.3p
48.7p
132.8p
70.0p
485,393
£50.4bn
2018
£’000
311,963
91,558
61,306
46,169
35,204
88.7p
86.2p
142.5p
66.0p
325,550
£44.1bn
2017
£’000
286,049
87,520
58,901
46,829
30,429
92.7p
91.9p
138.8p
61.0p
363,278
£39.1bn
2016
£’000
251,283
74,880
50,129
38,157
28,267
78.9p
78.2p
122.1p
57.0p
324,813
£34.2bn
1. A reconciliation between the underlying measure and its closest IFRS equivalent for the current year and the prior year is shown in table 2 on page 35
Corporate information
Principal trading names
There have been no material events occurring between the balance sheet date and the date of signing this report.
Offices
Websites
Investment Management
Rathbone Investment Management
Rathbone Investment Management
International
Rathbone Greenbank Investments
Rathbone Trust Company
Rathbone Trust Legal Services
Vision Independent Financial Planning
Castle Investment Solutions
15
rathbones.com
rathboneimi.com
rathbonegreenbank.com
Funds
Rathbone Unit Trust Management
2
rathbones.com
rutm.com
Company secretary and registered office
Registrars and transfer office
A Johnson
Rathbone Brothers Plc
8 Finsbury Circus
London
EC2M 7AZ
Company No. 01000403
rathbones.com
ali.johnson@rathbones.com
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
equiniti.com
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223
Our offices
Head office
8 Finsbury Circus
London
EC2M 7AZ
+44 (0)20 7399 0000
Investment Management
8 Finsbury Circus
London
EC2M 7AZ
+44 (0)20 7399 0000
1 Albert Street
Aberdeen
AB25 1XX
+44 (0)1224 218 180
The Colmore Building
20 Colmore Circus
Queensway
Birmingham
B4 6AT
+44 (0)121 233 2626
10 Queen Square
Bristol
BS1 4NT
+44 (0)117 929 1919
North Wing, City House
126–130 Hills Road
Cambridge
CB2 1RE
+44 (0)1223 229 229
1 Northgate
Chichester
West Sussex
PO19 1AT
+44 (0)1243 775 373
28 St Andrew Square
Edinburgh
EH2 1AF
+44 (0)131 550 1350
The Senate
Southernhay Gardens
Exeter
EX1 1UG
+44 (0)1392 201 000
Vision House
Unit 6A Falmouth
Business Park
Bickland Water Road
Falmouth
Cornwall
TR11 4SZ
+44 (0)1326 210904
Funds
8 Finsbury Circus
London
EC2M 7AZ
+44 (0)20 7399 0000
George House
50 George Square
Glasgow
G2 1EH
+44 (0)141 397 9900
26 Esplanade
St Helier
Jersey
JE1 2RB
Channel Islands
+44 (0)1534 740500
The Stables
Levens Hall
Kendal
Cumbria
LA8 0PB
+44 (0)1539 561 457
Port of Liverpool Building
Pier Head
Liverpool
L3 1NW
+44 (0)151 236 6666
48 High Street
Lymington
SO41 9AG
+44 (0)1590 647 657
Earl Grey House
75–85 Grey Street
Newcastle upon Tyne
NE1 6EF
+44 (0)191 255 1440
Fiennes House
32 Southgate Street
Winchester
SO23 9EH
+44 (0)1962 857 000
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Rathbone Brothers Plc Report and accounts 2020
Further information It is important to us that all materials used in the production of this
document are environmentally sustainable.
The forest-based material in this report is recycled.
Both the printer and paper manufacturer are certified to the
ISO 14001 environmental standard.
Once you have finished with this report please recycle it.
Rathbone Brothers Plc
8 Finsbury Circus, London, EC2M 7AZ
+44 (0)20 7399 0000
rathbones.com
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