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May 1, 2008updated 04 Apr 2017 3:58pm

Punching above its weight

Rathbone Brothers, a wealth manager whose origins date back some 250 years to its Liverpool home, has emerged as one of the most successful of the UK wealth management independents Now, it has got its first foothold in Asia.Rathbone Brothers, looking for the right expansion moves to suit its history as a highly regarded discretionary wealth manager, has quietly built up an international trust network to cater for the complex needs of rich individuals and families The strategy has fallen into place with the purchase of Federal Trust (Singapore) by Rathbone Trust International, marking the first time an independent trust company has been acquired in Singapore.The transaction provides the firm with an excellent base on which to build its presence in Singapore, says Rathbone chairman Mark Powell

By PBI Editorial

Rathbone Brothers, a wealth manager whose origins date back some 250 years to its Liverpool home, has emerged as one of the most successful of the UK wealth management independents. Now, it has got its first foothold in Asia.

Rathbone Brothers, looking for the right expansion moves to suit its history as a highly regarded discretionary wealth manager, has quietly built up an international trust network to cater for the complex needs of rich individuals and families. The strategy has fallen into place with the purchase of Federal Trust (Singapore) by Rathbone Trust International, marking the first time an independent trust company has been acquired in Singapore.

The transaction provides the firm with an excellent base on which to build its presence in Singapore, says Rathbone chairman Mark Powell. Alongside existing offices in London, Jersey, Geneva and the British Virgin Islands, it will enhance the ability to offer clients a quality service internationally, he declares.

Federal Trust is a licensed Singapore trust company regulated by the Monetary Authority of Singapore. It offers a comprehensive range of trustee and company management services to both private and corporate clients, primarily within the Asia-Pacific region.

Rathbone’s Powell describes Singapore as “a well-regulated centre and the middle of a real growth area”. Other bankers say that Singapore’s prospects as an alternative global wealth centre have been significantly enhanced by the German regulatory investigation of nationals with accounts in Liechtenstein and signs that the EU may embark on a simultaneous toughening up of its savings tax directive (see Liechtenstein affair jeopardises future of EU offshore banking).

Singapore is an “attractive place to move further away from Europe”, says one trust expert. “In the current new investigative environment, for example, non-domiciled individuals in Britain will probably not be looking to go to Jersey or even Switzerland” because of the extent of the prospective clampdown in Europe.

Daniel Truchi, head of SG Private Banking, is on record as stating that because of the controversial German investigation in tax evasion in Liechtenstein, “we will see a higher flow of funds into Singapore”.

Rathbone has just announced record results and says that, unlike many private banking rivals, it has actually benefited from the credit crunch. Pre-tax profits rose 16.8 percent to £52.2 million ($103 million) last year while funds under management rose by 7.2 percent to £13.12 billion.

The credit crisis linked to US subprime mortgage markets has hit the profits of banks and financial institutions worldwide as the cost of the bank funding they need to finance their operations has risen.

But Powell says that his firm is a net provider of money to the financial system, due to the cash it holds on behalf of its clients, and so the credit crunch has been “beneficial for profitability”. He explains: “Our banking margins benefited because we provide liquidity to market, lending into the three-month maturity in particular.”

In the last quarter of 2007, high short-term interest rate margins helped expand net interest income at a time when liquidity in client portfolios rose to £990 million.

Future paths

Rathbone sees the future for UK wealth management falling into two phases. “For the long term, we are very confident,” says Powell. “The immediate future has some choppy waters but we not dependent on stockbroking income, generally part of business that is affected first when stock markets fall.”

In addition, discretionary wealth management is “extremely long term and sticky” with clients, he adds. Discretionary management, Rathbone’s largest division with £11.23 billion under management, grew 8.2 percent last year.

For the immediate future, the main expansion move is likely to be in Scotland, where plans call for Rathbone to open an office in Aberdeen. It has also moved farther into south-west England with the acquisition of Citywall Financial Management, based in Exeter. Richard Lanyon, Rathbone’s head of investment management, said: “Citywall shares our philosophy of providing high-quality, personalised investment services to private clients, drawing on a wide variety of investment options.”

Rathbone now employs 800 people within the UK and across its international network. Although the firm professes that it will chiefly grow by organic means, rivals think that it may have to do a “transforming” acquisition to put on significant new scale and so remain competitive and prevent itself from swallowed by rivals keen to grow in the UK, Europe’s largest single wealth management market.

Rathbone ranks 11th among the top 40 UK wealth managers, measured by assets under management. That puts it in close company with rivals such as HSBC (with £12.7 billion of client assets in the UK), Rensburg Sheppards (£13.3 billion) and Lloyds TSB (£15.1 billion). Based on discretionary mandates alone, Rathbone is ranked in the top five in the UK.

Says Powell: “I don’t accept the premise that we need to make an acquisition. Of course, the market is competitive – as to reputation, performance and service, but not necessarily as to actual size. What drives us as a firm is that anything we acquire or the people who join us must share our values and our belief about looking after clients. We are independent so we don’t distribute investment products and consider ourselves a best-of-breed buyer in marketplace. The power of intermediaries as introducers of clients has grow and will continue to grow, in my view. So any transaction will have to meet our twin objectives of being a good cultural fit with us and earnings-enhancing within a reasonable time-frame.”

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