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Small firms and limited liability partnerships dominate alternative wealth management profitability ranking
12/01/2018 , Ian Orton

An alternative ranking of a sample of UK non-bank wealth management firms which focuses on return on equity provides further evidence of the underlying profitability of the sector. 

The ranking, which is based on data extracted from the latest sets of accounts deposited at Companies House, shows that 35 of the 45 firms included in the sample posted returns on equity of more than 10 percent.

Many of the 35 firms generated returns much greater than this with three - Maseco, Sarasin and Partners and Cardale Asset Management - all generating returns of over 100 percent.

If nothing else this provides further evidence that the UK wealth management sector is not particularly capital intensive.  

Small companies and limited liability partnerships dominate the upper echelons of the ranking, as with another ranking which ranked firms by pre-tax income margin.

The top 10 firms all had returns of equity of at least 53.80 percent. The top 20 constituents generate returns on equity of at least 28.48 percent.

This may reflect that fact that pre-tax profits at manager-owned firms, which typically tend to be small and/or limited liability partnerships, may be inflated by a tendency to take income in the form of dividends rather than by wages, salaries and other benefits.

Another caveat is that the better resourced a firm as measured by its equity the lower the return on equity will be.

This may reflect the lower second and third quartile positions of those wealth management firms that are either the subsidiaries of much larger firms or stock-exchange listed firms.  

Nonetheless, some “larger” firms such as Quilter Cheviot (43.29 percent) and Investec Wealth and Investment (40.09 percent) did generate returns on equity of more than 40 percent.

Moreover the returns on equity generated by these types are probably much higher than other constituents of the UK banking and financial services sector.  

Of course a ranking based on data from a single reporting cycle says nothing about either the trend or volatility of returns.

There are reasons for suggesting that return on equity could be quite a volatile measure, especially for smaller firms. 

A small change in pre-tax profits, perhaps the result of a one-off event, may generate a big change in the return on equity figure, especially if a firm’s equity remains relatively unchanged. As such a constituent’s place in a ranking of this nature may change significantly from year-to-year.

At the bottom end of the ranking there are three loss-making firms, all of whom are or have experienced some form of corporate restructuring, along with a number of other smaller firms.

Table 1 Return on Equity at UK non-bank wealth at 31 December 2017

Rank Firm ROE (percent)
1 Maseco 315.84
2 Sarasin & Partners 166.67
3 Cardale Asset Management 115.46
4 Ruffer LLP 84.26
5 McInroy & Wood 77.31
7 Speirs & Jeffrey Ltd 74.35
8 Fisher Investments Europe 61.43
9 Wise Investments 54.87
10 Cave & Sons 53.80
11 Waverton Investment Management 52.90
12 Conner Broadley 52.47
13 Hargreave Hale 45.33
14 Quilter Cheviot 43.29
15 Thesis Asset Management 42.12
16 Investec Wealth & Investment 40.09
17 James Hambro & Partners 31.90
18 Bordier & Cie (UK) 3.74
19 LGT Vestra LLP 29.59
20 Cornelian Asset Managers 28.48
21 Close Brothers Asset Management 27.95
22 Schroder & Co 27.81
23 Brewin Dolphin 27.41
24 JM Finn 23.40
25 Church House Investments 21.80
26 LBPB (21 Hill Street) Ltd. 20.96
27 Smith & Williamson Investment Management & Banking 19.32
28 Psigma Investment Management 18.73
29 Rathbones 15.43
30 Barratt & Cooke Holdings Ltd. 15.10
31 Charles Stanley 14.94
32 Sanlam Private Investments (UK)  14.83
33 Stonehage Fleming (UK) Ltd. 14.18
34 St. James's Place 13.07
35 Rothschild Wealth Management 10.44
36 Brooks Macdonald 9.39
37 Standard Life Wealth 8.30
38 Canaccord Genuity  8.04
39 Sand Aire 7.91
40 James Brearley & Sons 7.66
41 Walker Crips 3.68
42 Raymond James Investment Services 2.21
43 Heartwood Wealth -6.32
44 W.H. Ireland Group -27.36
45 Tilney Group -60.72

Source: Company reports and accounts. Ian Orton

Note: The ranking uses accounting data contained in the most recent set of annual accounts deposited at Companies House at 31/12/2017

The sample of firms included in the ranking is neither representative nor definitive

Return is defined as the statutory pre-tax profit figure. Equity is defined as net assets, members interests or shareholders funds.

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