Rathbones Group Plc (RAT) Earnings Call Transcript & Summary

Well, good morning. Good morning, everybody. Nice to see you all and particularly in spite of train strike aftermath, and of course, difficulties and lots of companies announcing today. We appreciate everybody that's joined us physically here today in Finsbury Circus and, of course, anybody else that is online. So a very warm welcome to you all. Could I just remind you the usual mobile phone rules. We don't need special guests on our Internet presentation. If you could just check those, that would be very helpful. So what we're doing today, this is Rathbones' results, and we're trying to get the slides to move. You've got 2 presenters today, myself, Paul Stockton, Group Chief Executive. I'll be talking about what we've been up to in the last 6 months in a moment. We'll then pass to Jenny to talk about the half year and some of the numbers and the highlights of those. And then I'll return for a bit of a look forward a couple of slides at the end. We do have a Q&A session as normal at the end of this presentation. And where we're also joined by Mike Webb and Andy Brodie. Mike, who leads the Trust business. Andy, who is our COO. We also have Gaynor Gillespie here, our Chief People Officer, if there's any questions that people have. So very much look forward to that. As always, we've got a wealth of detail in the presentation pack, which I hope you continue to find very useful. So let's look back a little bit to when we set the strategy out in 2009, all I can say is nearly 3 years on from that, we're continuing to deliver on all fronts of that strategy. There's considerable momentum in the business in Rathbones today as well as a resolute focus on improving our propositions, driving organic growth, inspiring our people and, of course, searching for areas of operational efficiency. Really, it's this resilience that is coming through in the business model in spite of short-term fluctuations in investment markets, and we'll talk about that in just a second. So no question. If I look back at the last 6 months, not been the easiest for investors, I think, would be the understatement of the year quite a difficult 6 months. And in a way, if you look at those headwinds in terms of how they've impacted Rathbones, there are probably 2 factors that have done that. The top left graph that you can see here is actually the U.K. Market Investment Association, U.K. market net outflows in Asset Management and net flows in Asset Management. You can see a stark difference here between what was pre-year-end at December 2021 and post-year-end. So in a pure asset management business, battling net outflow should be no surprise to all of you. But of course, at the same time, we've had the great rotation as it was away from growth stocks towards value stocks, which you can see in numbers, 29.3%, 22.3% just gives you some indication of the size of that. And that, of course, impacts a long-term investment business, possibly more than a short-term investment business. And clearly, that's had an impact on our funds under management with FUMA down 14% since the end of the year. But it's worth reminding everybody that our market is still structurally attractive, and fundamentally growing. So embedded structural growth, expected to grow as I put here 30%. That sort of rate up to 2024. There's obviously growing demand for financial planning solutions and responsible investment solutions, and that's a backdrop to that market growth as well. Rathbones is very well positioned as a direct-to-customer market. So we're very close to the mood and very close to the ambitions of our clients. And that's really important at this time. The way we invest is generally in balanced portfolios as well. So effectively, what that's meaning is we shouldn't see the extreme volatility that some models will see. And this is also a market that will continue to create consolidation opportunities, and we continue to be in a strong position to take advantage of those. Now Jenny will talk through our positive flows in a moment, but perhaps a little discussion on client behaviors. There's no question that client behaviors do change in these types of investment conditions. And that change is pretty much represented by effectively a threat of recession, never very good for getting clients to commit to markets. And as you can see here, in some of the forecasts, the quarter-on-quarter top left of the chart of U.K. GDP growth, you can clearly see the difference year-on-year in terms of what sentiment is about in terms of recession in the U.K. But again, the Rathbones' model is about client engagement. We've been working extremely hard to keep our clients engage with us, pick up the phone, engage with them digitally and provide advice and reassurance at this time. What does that do? It builds engagement, it builds longevity, it builds affinity and effectively supports what is a long-term growth model for Rathbones. We've even had the opportunity to discuss a few buying opportunities in investment portfolios. If you think back to Warren Buffett's fear and greed analogies. The other thing I think is we've been investing over the last 2 or 3 years, very much in our investment process and the skills in the business. Those skills are providing exceptional thought leadership and material that we're sharing with clients today, not only clients that are direct private clients, but also into the indirect market to IFAs. The quality of that output is good and well received and builds our long-term brand. All of that, of course, as we're increasing our digital footprint can be delivered much more flexibly, either in video content or in e-mails or other form of digital communication. I think the other thing to point out, as I reflect, I've been here a long time now, and many of our people have seen these types of investment and conditions before. And that's really helpful at a time when markets are not terribly favorable. So what we've been focusing on in the first 6 months is sharing that expertise because we've also built a lot of capacity in our front office, and there will be some people who joined us, who perhaps haven't seen these conditions. So sharing that extensive knowledge has been a real focus in the first half and great to see some of the younger teams and indeed some of the older teams responding to that level of sharing of knowledge. Now of course, what that does is continue to support and secure long-term client retention, which, as you can see in the graph on the bottom left-hand side of the slide, continues to be high. We're not standing back either in terms of developing our propositions. Now Rathbones has propositions both in the wealth management space, the financial advice space and indeed, the asset management space. What's very clear in the wealth management space is the level of digital engagement we've already achieved, and there's plenty more to go is much, much deeper and is much more extensive. MyRathbones has now been in place for some time. And forgive me, I'm getting quite loud -- and it has been in place for some time. And at least half of our clients are already on MyRathbones, the level of integration and the level of use of MyRathbones and the level of content in MyRathbones has increased quite substantially over the last 6 months. Again, building us more towards a seamless integration between face to face and digital. In our direct business, we've refreshed our proposition to IFAs. And what that means is clarifying suitability as well as improving data flows that can be accessed by those IFA groups. We've signed over 100 new IFAs to that group, of which 20% of that are new IFAs who now see us much easier to do business with. That's very important because it supports ongoing channel growth. We continue to support our responsible investment agenda that is very much embedded into Rathbones now. We continue to work on our charity proposition. And we've been investing in Rathbones Greenbank as well as adding expertise, business development resource and delivering Greenbank teams more regionally. All of that very much is about delivering what is a strong brand and strong proposition into the future. As I move into the financial planning space, the story, of course, is dominated this year by Saunderson House. And from a proposition perspective, what we said some months ago was that we would combine the best of Rathbones with the best of Saunderson House. And in the first 6 months of this year, we've very much done that. Propositions that put together all of those capabilities have been launched and are now real and being talked to real clients about. So more on that as we embed that over the next 6 months but good progress there in terms of developing a proposition. We've also had a chance to refresh our overall financial planning proposition across Saunderson House and indeed Rathbones financial planning. There continues to be a very high conviction in our funds business, and the flows in our funds business have been very resilient in the first 6 months compared to some of those industry flow numbers I was presenting earlier. This is down to a proactive client engagement and ongoing conviction. In the first half, we've added a dedicated CIO in our funds business, and we are well on track to deliver some investment tools which will put the business in good shape for the future. Let me talk a little bit about digital. We set ourselves a few objectives at the start of 2022 to improve client prospecting, onboarding and servicing, to add this asset management capability in our funds business and make enhancements to MyRathbones. All of those are proceeding very well. In terms of the client prospecting on onboarding, servicing, InvestCloud project, what we're doing there is we've worked very hard on design, very hard on data management which puts us in a good position to be on track to deliver the first InvestCloud release this year. In terms of our asset management, again, we're on track to deliver that by the end of this year. Enhancements to MyRathbones have been regular. And it's been very interesting to hear client feedback come back on that. And you can see the app store rating here, which is pretty high. That's a result of the flexible technology we've employed, and our ability to reflect what clients want to be delivered significant and deeper engagement in MyRathbones. The other thing we've done is there's a cornerstone of our client communications, which effectively is in valuations, how they look and feel and tax packs, which are important. The work that's been undertaken in that in the 6 months has been extensive. Our tax packs now readily aligned to self-assessment, making it so much easier for our clients to use those tax packs effectively. They, of course, can be downloaded off MyRathbones. And indeed, I pass the test, I've heard this personally of our most discerning clients. So as you much imagine, our financial services professionals in London. Also in terms of the client valuations, as much richer data and analysis included in those. So as I said, Charles River, very much an exciting capability to add to our fund management teams, and that will make a big difference as we head into 2024. So overall, we are building a modern technology platform in Rathbones, and we're proceeding very well after a lot of good hard work. We've got a strong delivery team. We have the right strategic partners and overall making good progress. Now that progress, would not happen without the level of resources. So our strategic pillar to inspire our people you can see that we've actually been putting in place the resources to deliver. That would be the worst thing to not do that in advance. What you can see from the graph in the left-hand side is very deliberate investment in headcount. We said it would be focused on front office and support. And you can see in the first bar here that's exactly what we've done, building investment skills, business development skills and adding in capability and capacity in investment teams, including Greenbank and indeed, our funds business, as I mentioned earlier. We deliberately added change resource to support what is an extensive change agenda at Rathbones, and of course, the other big thing in head count and people terms is the acquisition of Saunderson House. So we've highlighted that for you in the chart as well. So inspiring our people continues to be a priority. Very nice to see that the Saunderson House integration has done very well in terms of integration so far. And very nice to see from a people perspective that they can now work seamlessly from their existing offices and work in 8 Finsbury as well. So very important from a culture perspective that, that business sits well in the firm, and I can confirm that it does. And that supports regular engagement generally as well across the firm, regular surveys, particularly as people are working more in hybrid, very important to keep communication levels high and feedback levels high. It's very clear that there is a big difference as well in terms of the diversity of our workforce year-on-year. That was very plain to us, and we will keep going in that effect. Our staff turnover is sub-7%, which allows us to refresh our resources, but also maintain a level of stability that is so important at this time. We continue to look at our space requirements very carefully in terms of the working environment and have used opportunities where lease breaks happen to reinvigorate offices, and Edinburgh would be a very good example, and set them up for future hybrid working model after running a pilot in Liverpool. So these have been challenging markets, but don't look short term. We are trying to build long term. And for the moment, I will hand over to Jenny to talk about the first half and the impact on financials. There's a lot going on.

Thank you, Paul, and good morning to everyone here in Finsbury Circus and to everyone joining us virtually. And as Paul said, it's been a difficult first half for investors, and market conditions have not been what they were when I spoke to you in February. However, Rathbones is a resilient business. And despite those concerns, we've delivered good performance in the first half of 2022. So whilst external factors have adversely impacted revenues, the inclusion of Saunderson House and the benefits of our diversified income streams has helped us deliver an operating income growth of 9% year-on-year. Expense growth reflects the first half of 2022 with the inclusion of Saunderson House and the initiation of our digital program that we shared with you earlier this year. So taken together, that means we've delivered GBP 50 million underlying profit before tax for the first half of 2022. Now let's take a look at some details starting with funds under management and advice. So total group FUMA stands at GBP 58.9 billion, down GBP 9.3 billion since 31 December '21, and reflects the impact of the downturn in markets of 10% over the same period. In spite of a tough market environment, we've continued to attract new business, and I'm pleased to say we've delivered overall net inflows in our discretionary and managed services. So positive net organic flows of just under GBP 600 million in the first half of this year equates to an annualized growth rate of 2.3%. In addition, we've continued to see the momentum in our indirect channel, where we've seen annualized flows year-to-date in discretionary running at 5% growth. The multi-asset funds with the all-weather investment style continue to attract strong net new inflows. So levels consistent over the last 3 periods. And you can see here on the top right of the chart in the lighter blue color. By contrast, the single strategy funds have seen net outflows as a result of the pivot away from growth in the ESG funds Paul mentioned in the first half. So the market's preferred value funds in light of continued market uncertainty. However, it's important to note, although there's been net outflows, the outflows here are only equal to 2.4% of the opening AUM of the single strategy funds, which compares very favorable with the industry and peers. Moving on to looking at income -- yes, this was playing up. There we go. Moving to the next slide to look at our income performance. So total operating income, as I mentioned, up 9% on the same time last year, just under GBP 232 million, an increase of over GBP 18 million despite the lower FUMA. As you can see from the indices in the top left of the table, there was considerable divergence between the FTSE 100 and the MSCI PIMFA index during the first 6 months of the year. Our fee income close -- has closely tracked the MSCI PIMFA index and is the index that better represents our investment portfolios. Although funds at AUM has fallen in 2022, half-on-half comparisons still benefit from the high growth we saw in the second half of 2022 -- sorry, second half of 2021. Funds income, therefore, is up 16%, yet FUM down just 4% year-on-year. And you can see on the bottom right, the margin is up due to the mix of funds changing and driving a more favorable yield. Next is commission income. It's down nearly 14% year-on-year following pandemic-related highs in trading activity I spoke to you about this time last year. Normal seasonality will be seen in the second half but will be partially offset by the rising interest income, which is an opportune time to turn to the next slide.

Good timing I think.

Okay. So we see on this slide, the progression of the key drivers of our revenue. So in the top left, we have a discretionary investment management fees. So the largest contributor of our business. Basis point returns holding up well, and it's our ongoing strategy to convert low margin or commission-only business into full fee. Bottom left, we have the commission income just mentioned, where you primarily see the impact to trading volumes and activity. Top right, we can see the impact of the Saunderson House acquisition on our advisory income stream. And it's GBP 17 million that shows the underlying in-house planning tax and trust services have continued to grow year-on-year. Finally, to the bottom right is where we see the benefit of our banking license and the rising interest rates we expected when I spoke to you in February. To date, the average Bank of England base rate for 2022 is at 70 basis points, up from the 10 basis points it was the same period last year. Rates are currently at 1.25%. And at that level, we expect the full year interest income to be approximately GBP 18 million, and this includes passing interest to clients on the cash balances in their client portfolios. Let's take a look at costs. Okay. So expenses grew in line with very deliberate investment in our organic growth strategy and our digital program. Headline expense growth rate at 21% reduces to 11.8% when you exclude the Saunderson House costs not present in the first half this time last year. On the right-hand side of the slide, we sort of -- I detail out the strategic and exogenous or external factors that we've seen half-on-half. In February, we discussed our digital program and how it would predominantly be expensed through the P&L over 2 years. For the first half 2022, that GBP 7.8 million and around 40% of the planned full year spent. After Saunderson House and the digital program, the third driver of our strategic growth plan was increased hiring to support organic areas, organic growth in areas such as responsible investing, client proposition, the funds growth and managing the capacity and succession in our investment management teams. Paul touched on this earlier. You can see here the increase in targeted hiring of just over GBP 6 million. This is the cost of hires that joined late in 2021 and to date in 2022. None of these costs were present in H1, and you'll see them flow through into '22. Hiring remains consistent between client-facing infrastructure and capability, and as you heard earlier, Paul mentioned that. Now we do expect the rate of recruitment to reduce in the second half when we've nearly completed our strategic targeted hiring, and that's on track. We planned for 5% salary inflation and national insurance increase, and that's what we've seen here, of which there's just 1 quarter's impact. So you will see that work through in the second half as well. The last item to highlight on the right-hand side of the slide is the unwind of some of the temporary COVID savings many of us saw relating to the return of some travel, client events and marketing, and they are all as expected. Finally, just turning to the left of the slides. I'd like to cover the increase in the performance-related pay as a percentage of the underlying profit before tax ratio. So during 2021 and '22, we've introduced a number of variable reward schemes that target business growth and key employee retention whilst also increasing employee share ownership. These schemes are deferred over a 3- to 5-year period, allowing the cost to be smoothed over that period. They, therefore, less readily track the in-year profit but to reward longer-term growth and retention of funds. This is resulting in with profits at this sort of level of ratio of performance-related to pay to underlying PBT to be more in the mid-40s range going forward. So turning to Slide 15, we take a look at underlying profit before tax. As Paul mentioned, market conditions are clearly very different to the same periods in 2021, and we covered the drivers for this. Our underlying profit before tax is down 21% of GBP 50 million but includes the items I've just covered. The impact of acquisitions, market levels impacting lower FUMA, our deliberate investment as well as the impact of rising interest rates and inflation. You see here the acquisition-related costs for Speirs & Jeffrey and Saunderson House as very much planned and detailed before and the integration of Saunderson House is well on track. The tax rate is slightly high year-on-year due to the amortization of client intangibles, which has increased, and primarily relating to Saunderson House. And tax rate expected as guided to be around 4 percentage points over the statutory rate as these items work through. So the underlying operating margin at 21.5% includes the start of our digital and data program. Turning to capital. We have a strong capital position with a surplus over total requirement and combined buffer requirements of GBP 97 million. As we've discussed before, we do expect to hold a management buffer over the regulatory requirements. And Paul and I have regularly talked to you about how that is for investment in our organic strategies, so a number of things we've talked about today and for our inorganic opportunities that advance our growth strategy, of which we're constantly looking at and scanning. In June, the Financial Policy Committee announced the return of countercyclical capital buffer requirements. And based on our current risk-weighted assets, that's going to increase our capital requirement by GBP 16 million in December and a further GBP 16 million in July 2023. As you can see, they're more than covered by our surplus. And as we recognize profits, we still anticipate the surplus level to hold up at current levels. Finally, to the dividend. The Board is recommending an interim dividend of 28p per share, 1p up on the 27% we announced this time last year. And this is consistent with our generally progressive policy and supported by a strong capital position and robust and conservative balance sheet. So turning to my last slide. The business has performed resiliently in what has been a challenging 6 months sector-wide. We've seen continued positive net organic new inflows in our wealth management, our financial planning and our advice propositions. Asset management has not escaped the sector-wide outflows but has held up extremely impressively, and that is a testament to the ongoing client engagement and conviction. So looking to the second half. As mentioned earlier, we expect normal seasonality in our commission income to be offset partially by the rise in net interest income. For expenses, our digital program costs remain in line with our earlier guidance, which is up to GBP 20 million expected to be incurred through the P&L in 2022. Acquisition costs are detailed and our ongoing expense discipline is a constant around the business. In February, which happened to be the very day Ukraine and Russia declared war when I spoke to you, I gave you guidance that at market levels consistent with 31 December 2021, we would manage our digital program and its P&L impact within our mid-20s operating margin guidance. Markets are not what they were right now. And whilst our mid-term aims remain to be upper 20s from 2020 -- the end of 2024 onwards. For now, the near-term operating margin and the impact of our digital program is expected to be in the low 20s for 2022. So I'll hand you back to Paul, but I look forward to any questions I'm sure you'll have later.

Jenny, thank you. A comprehensive assessment of some of the dynamics there that have underpinned the financials. And look, although markets were lower than expected, I think I would echo what Jenny says about resilient client engagement and positive flows. It's good to see that, and that is reflective of the effort that we put into that and the strategic direction we've set for the company some years ago. Now of course, balancing investment spend as an asset manager in times of market uncertainty is never easy. We're looking beyond a 6-month period to build something that is more resolute for a more medium-term financial outcome. Jenny has just reiterated the margin guidance there. But we are -- we still believe that the data and digital work that we've undertaken is critical to that future success, and we will be pursuing it and delivering to time. So we're very well positioned. And I tried to write-down all of the capabilities that I thought would be worth mentioning that we've got in the group in this chart on the right-hand side of the slide. Venturing from deep expertise through ESG capability, relevant solutions across wealth management, financial planning and indeed, asset management. We're a business now that has an opportunity with strong cash flow, strong balance sheet and a strong M&A track record, which effectively is going to build long-term relationships. So from that perspective, our clients and employees are going to remain the priority in the short term and helping clients and employees navigate through these difficult markets but also helping clients to plan for their future. Combining that in the medium term with digital capability will mean that we're able to meet investor expectations and be in a very strong position, certainly to face the next 6 to 12 months of what is expected to be ongoing market volatility. With that, I will open the session up to Q&A. I hope that's been helpful. And what I'll do first, if you don't mind, is take questions from the floor here. And then we will go to the wires as it were. Any questions from anybody here?

Alex Medhurst from Barclays. A couple for me. First on flows, I noticed that the point mentioning discussing buying opportunities with certain wealth management clients during the presentation. Interested if you could flesh out maybe the music among those clients? And what are the conditions you'd see for worsening flows or improving flows how ready are they to deploy capital liftings were stable and how long a period of stability would you need? Second probably will be a little bit more factual. Can you touch on outflows in Saunderson House? Are these trending in line with expectations? And when would you expect them to subside? And then last on costs. What levers do you have to achieve that 27% to 30% margin target? And how aggressively would you target costs if markets were to remain difficult?

Okay. Alex, thank you very much. I'll take the client sentiment ones and the outflow question, and I'll pass the costs one on to Jenny. Look, in large part, I think what we've seen in client sentiment is a general level of resolve, I think, more generally throughout. I think in terms of clients with portfolios that have seen this, they've generally seen it before. That's not to say that we're taking any of that responsibility that we take lightly, we're working and engaging with them. So I think it is about committing flows. And I think when we get to a point in the second half, which is difficult to predict exactly when that sort of threat of recession is at least known or understood, that should, once again, engage a lot more positive discussions in terms of committing funds to the market. Clearly, there's a need to save. So that tailwind there in terms of available cash, a lot of people sitting on cash right now, hoping to put that to use in the second half. So timing, Alex, difficult to exactly predict, but I think it's about seeing some more certainty in terms of overall recession fear. In terms of outflows in Saunderson House, we sort of expected this. What you will have seen, I think we mentioned this last time, is that the Saunderson House is now a restricted adviser that was always going to position us extremely well for being able to migrate the Saunderson House assets onto the Rathbones platform without really impacting the independence at all of any adviser decisions or indeed client decisions. Now inevitably, what happens there is 1 or 2 clients look at that and say, they either don't quite understand that nuance or, inevitably, they'll have a discussion. So we were sort of expecting this firstly in the next 6 months -- in the first 6 months following acquisition. So no surprise there. I think what we'd hope to be able to update you, Alex, with how things are is with the new proposition, and we'll do that more in March and very excited about that. Jenny, can I pass to you on costs?

Of course. Yes. No, thanks, Alex. So taking your point about the medium-term, long-term margin going back to 27%. Clearly, as we've laid out, the type of investments we're making is going through the P&L. So that GBP 40 million, so GBP 20 million per annum, will drop out. So you have that dropping through. In terms of what that drives, if we go back to what we talked about in February, a lot of our digital capability is to create capacity to take the paper out of the process, take the admin away from the client-facing areas, which, in turn, means we do not need to add on as rapidly as we have had to in the past, increased heads in the front office. So we create that time to spend more time with clients and prospects for more new clients within our existing client-facing resources. Similarly, putting Charles Stanley into the funds business. If we didn't do that, we'd probably, over time, have to double head count. Putting that system in not only opens up new clients and revenue opportunities more in the intermediary space, but it takes out that bow wave of reporting and regulatory administration that's coming into that world that we can then do digitally. So that's very much a cost avoidance one as well as driving revenue. Digital, we're already seeing the day-to-day benefits from having an app that's less valuation packs and tax packs being mailed. So the print, the postage out to clients, so we're already recycling those savings into the investments going forward. So we run a pretty lean cost base, Alex, and the whole firm stands behind that. We're always looking for ways to make ourselves more efficient. I hope that gives you a sense that the digital investment is not purely there for cost saving. It's a lot of cost avoidance and future capacity and revenue generation.

And just maybe to add a little to that. I think, we're an asset management group, and one always has to trade at short term market fluctuations, with an ability to destroy businesses very quickly if you slash cost very aggressively, which is I think what you were trying to get at in your question, what's the sentiment. We are currently in an environment where hiring people is quite expensive. There are less people to hire. So there is a little bit to protect what you have for the good and long-term nature of the business. So as far as we can see into the end of 2024 and beyond, as Jenny said, there are a number of levers that we are planning to press, but it's always got to have that market overlay and that business stability criteria applied to it as well. And of course, we'll keep you updated as we talk about the glide path to that time frame.

Two quick ones for me. I mean, to end the period in net inflow is absolutely an amazing outcome. But in terms of outflows, have you dissected in terms of why are we losing the money and have you done some analysis which you can share, Paul? And secondly is in terms of Saunderson, have we optimized that setup in terms of extracting synergies, reducing cost? Or is that yet to come?

Thanks, [indiscernible]. On the first, thank you. It's very nice to expect to get any compliments today. I think the -- look, on outflows, look, we can have a few lumpy outflows. I don't think there's anything particular in client sentiment or anything like that or indeed service that is changing the outflow profile. We did see, sadly, more deceased clients as we sort of went into the pandemic. We're certainly seeing that come back a little bit. But sometimes, it's just repositioning. We can often have outflows impacted by large charities, deciding to move mandate or change around those businesses do tend to have a 3-, 4-, 5-year review cycle. We're still very successful, but occasionally, they do tick up outflows. But there's nothing from a service perspective or indeed underlying trend that I'd point to.

No, I'd go into [indiscernible] to say we haven't seen any panic, outflows are no more elevated in this level of market uncertainty than we've seen before. And I will corroborate, we've seen the, I think, the tail of COVID, a lot of probate distributions in the last few months as they work through the system, which still was a lag, but we're constantly focused on it and learning from the feedback we get from the reasons for account closure and where the assets are being redistributed.

And on Saunderson House, the deal was very much predicated on revenue growth rather than cost synergy. That's not to say that we had 0 cost synergy targets because, inevitably, as we put the business together, we're already finding that some Saunderson House people can fit very nicely into hires that we would have made otherwise. So some good opportunities there for Saunderson House people and, of course, to sort of save costs overall, but it's not the main driver. In terms of the overall integration activity, we expect that really to be starting at the end of this year. Remember that the migration of clients isn't a block migration, that's going to take throughout 2023 to undertake. And we're going to continue to need to run the infrastructure in Saunderson House to support that. over that period. So from a cost synergy perspective, yes, obviously, we're looking at efficiencies whenever we can take them, but it wasn't the primary driver of the deal.

It's Shailesh Raikundlia from Liberum. Just a couple of questions actually. A follow-up on Saunderson House actually, just maybe slightly going forward. I'm just sort of trying to understand sort of whether there's revenue or margin synergies to come through for the rest of the business as you integrate Saunderson House, particularly as you said you've got new propositions coming through next year. Obviously, the margins have held up pretty well in investment management anyway. But I was just wondering whether you could sort of give us a flavor of where they go going forward? And also, just a quick one on interest rate sensitivities. Obviously, you highlight the fact that you expect where current interest rates are around GBP 18 million of NII. I was just wondering whether there was any level of sensitivity, obviously, given the fact that we're growing higher in terms of interest rates.

Look, a couple of things, I think, on Saunderson House. I think the, we've obviously got within Rathbones, Rathbones Financial Planning. So opportunities, I think, for advisers to combine across Rathbones is the first thing. So listen, we're very attracted by the Rathbones brand and what that could deliver to them in terms of much more of an outside M25 footprint in terms of advisers. So we're looking at that and by combining our Rathbones Financial Planning teams over time, and that will be happening over the next 6 to 12 with the Saunderson House teams, gives us an opportunity for a regional footprint. So there's 2 forms of growth with that. The first is, of course, is being able to increase the workflow for financial planning from our existing client base, working very closely with our investment managers. The second is that from a sectoral focus in terms of law firms and financial accounting firms that Saunderson House has such a strong -- had such a strong market presence in we can make that a little more U.K. and Scotland wide. So very much, that's the aim in terms of the growth ambitions. We can also share marketing activity. We can also improve the way that we digitally market as we build that capability and all of those drivers will be out there pressing with a fresh new proposition that we think is competitive.

And on the interest income. So your question is sort of, okay, if rate's going to go [indiscernible] how does that 18 change? The 18 doesn't change very much. And it's -- I'll try and explain why. Rates going up very fast, at a point now at a level where we are passing some of that rate on to the client. It means we're passing interest on the entire cash base, but I've only got maybe 3/4 of that with the Bank of England because I reserve the rest of it for my treasury strategy, which I put out much longer term at much higher rates. So if I just take you back to this slide here, you'll see at the bottom right there. Even when rates were at 10 bps in 2018 and '19, I was still having good levels of interest income and that's from the treasury strategy of putting out CDs and the like are much higher rates of which at the moment, I think we're waiting to rise nicely rather than lock in at a low rate, so that treasury strategy on the balance of that cash will come into play and give much longer tail. So for this year, '18, even if there's another 25 or even 50 bps, it would be marginal impact. But the annualized effect will definitely increase in '23.

And that's -- it's an important point because it's part of our overall revenue resilience. Our ability to have a banking license does cost us more capital but equally does give us much more flexibility in the treasury strategy to offset that. Any other questions in the room? In which case, Shelly, do we have a few online? I maybe tempting fate with a few. Sometimes these get very quiet. I just -- [indiscernible].

We do not.

We do not have any. We must have an extremely comprehensive presentation. Are there any other questions, Shelly, that we need to respond to.

Is there any audio?

Any audio questions?

Are there any on the conference call line?

[Operator Instructions] And our first question is from Ben Bathurst, RBC.

Paul, hopefully you can hear me okay. Actually got a couple if that's okay. Firstly, on cost for Jenny. I think I recall some of the digital program is denominated in U.S. dollars. So I just wondered if there's some contingency in the guidance that can absorb the adverse exchange rate moves we've seen year-to-date? Or might that GBP 20 million cost increase absolutely spot the FX, stays where it is now for the rest of the year. And then just on Saunderson House, Paul, I think you said no surprise in terms of the negative net flows in the first half, but to probe a bit further, is that something we should expect to continue into the second half. And then finally, just on [indiscernible], you mentioned, I think, 45% of clients now interacting with MyRathbones, I think that's up 2% from where you were at the full year, realistically, where do you hope that might get to over the next few years?

Ben, thank you. I'll let Jenny talk about dollar hedging.

Look, it's a short answer, Ben. Look, we're managing within the guidance we gave. We've got other dollar income to offset. We haven't formally hedged it. We don't need to, given our treasury setup. So nothing to worry about at the moment unless Mr. Brodie who is in the room, if you want to ask him a question, anybody, would add. But no, all good there.

That's a good layup. Ben, let me take your second question on Saunderson House. Look, we would expect the impact of what we were talking about earlier to fade during 2022. I can't guarantee that that's going to happen, but that's what we expect. So we're much more optimistic for the second half now that we've got particularly a new proposition. If you're thinking it in sort of on the ground terms, whenever you're putting in a proposition, it takes a few months to do that. And what do you do as a financial adviser with a client if that proposition isn't easily in place, delivering the old one is not the sort of thing that you'd want to do when you know there's a new one coming. So that's what we're hoping to unlock with the launch of the new proposition, and that will create momentum in the second half and beyond on Saunderson House. On MyRathbones, I'm dying to get Andy on a question. Andy, are you okay to talk about MyRathbones, certainly the level of engagement and where we aspire to be in terms of penetration.

Yes, Ben, thank you. It's a really good question. So as you can see, we're continuing to tick up in our penetration rate. And we think over the next few years, we'll be looking at probably about 60% of our client base being actively using MyRathbones and our digital tools. And what will help next year is, again, as we launch InvestCloud, we'll be offering a sort of pre-client portal ahead of MyRathbones as part of our digital offering. And again, that will help attract even more new clients as they join. So I think we're in a good place we're seeing the engagement continue to increase, and that would be our end game.

Andy, thank you. And I think, obviously, the more we encourage, I think the more people will see the value of MyRathbones. So there's a little bit of a momentum game that we're playing as well. Some clients, of course, do prefer the old routes and providing optionality to clients with wealth is really important and an important principle for us. Ben, thank you very much.

Yes, we have a question here from Rahim Karim of Investec.

Three if I may. The first is just a clarification with respect to the medium-term margin guidance. Does that assume any recovery in markets? Or is the move from low 20s to 27% to 30% deliverable at current market levels? Second question, just around the new propositions in financial planning. Does that include a potential rebrand of the 2 existing propositions into one? And then how are you thinking about that? And then the third question was just to press you a little bit in terms of your comments with respect to inorganic opportunities. Obviously, lots of activity in the industry. Just trying to get a sense of how you see multiples, competition for assets and perhaps a little bit of an insight into the areas that you're most focused on at this moment.

Thanks, Rahim. Thank you. That's all very helpful. Jenny, can you take that?

Yes. I'll take the margin, Rahim. So my guidance for 2022 is low 20s in light of what I said in February. We continue to aim for north of 27% at the end of 2024, but yes, mindful of markets. If I'm me exactly what was going to happen, Rahim, I wouldn't be set here. So that's, we're holding off -- holding on to that goal of 27% we can find a way. We can see our path to that. But just this short term, and it may trickle into the first half of next year, it will be very market dependent. As Paul has said, we are not going to take deep cuts to the organization. This is asset management, and we are midway through a very well-planned organic growth strategy and in that delivery phase. So those benefits will support that rising margin as guided in the future.

Rahim, thank you. Yes, we will be putting Saunderson House and Rathbones together. We'll give you an update on the brand decision when we get back to you in February. But there will be 1 brand important then that we will be running 2 financial planning models there, a combined Rathbones Financial Planning & Saunderson House team and business, together with, which is effectively employing advisers within the Rathbones Group and operating our vision independent financial planning network, which has about 130 advisers in it, and those advisers being self-employed. So taking advantage of both aspects and advice and both preferences that advisers have in the market. So that's what we're at. That's what we're planning to do. More news on that, Rahim, when we see you next. Look, in terms of inorganic, clearly, life has changed a little bit with a rather large acquisition. I think we were talking in February about RBC. So yes, we're well capitalized as the first point. So we've got a strong balance sheet to be able to use, and we're looking all the time and opportunities to do that, whether it's looking at buying particular investment management capability that has close client affinity or whether it's looking at medium-sized businesses, either advisory businesses or indeed investment businesses that fit our culture. Very important point that, this isn't just by anything, culture. We're very disciplined about that in terms of our ROI, which has to be above 10%, but also the culture needs to be accretive and adding to what we've got already. In terms of scarcity, yes, there has been a fair degree of consolidation, and we can reasonably expect that to be continued into over the next couple of years, maybe even longer. I've always been surprised by the speed of consolidation in this industry. I've been expecting accelerated consolidation for probably 20 years now. We're seeing a little bit of that, but I don't expect it to be materially different to historical rates. So at the end of the day, it's important to acquire the right thing and make sure that, that's accretive in terms of both IP into our business and overall value to our P&L. So that's very around about way of saying, Rahim, we will continue to look. We do all the time, but we will be very selective. Any other questions?

Thank you. We have no further questions at this time.

In which case, plenty to do today. Can I thank you all again for attending and giving us your time this morning. And we very much look forward to seeing you again. We've got quarterly results in 3 months or so, and we'll see you again in February for prelims. Thanks again, everybody. We'll finish now.

Thank you.