For all the credit-crunched banks that boarded the sub-prime gravy train
before it derailed in such spectacular fashion, there are still some financial
institutions around that resisted its lure and so enjoy a rare stability.
Rathbone Brothers is one of them.
When Rathbones FD
Paul Stockton was having his interview pictures taken outside the company’s New
Bond Street offices in London, a fund manager colleague called out: ‘Looks
‘I’ll send him an email explaining we weren’t paying for that one!’ jokes
It’s a neat illustration of the cost management ethos that prevails at the
267-year-old investment management business. Stockton cites it as one of the
main reasons for Rathbones’ longevity. The FTSE 250 business has survived so
long because it successfully manages costs in a downturn and incremental growth
in the upturn.
‘I feel I can add to that, but without being too radical,’ says Stockton. He
adds that while the Rathbones catchphrase ‘established in 1742’ is well
deserved, ‘to be honest it’s not traditional when you join it. It’s very dynamic
In spite of the market gloom, Stockton says there is still wealth looking to
‘We’ve had more calls from clients about “Where do I put my cash?” Not
necessarily in their Rathbones portfolio, but “Should my cash be in Bank A or
‘And that says two things: A, clients have other cash, and B, they are
calling our fund managers about their overall financial relationship. It’s been
quite interesting to see how clients have reacted to the downturn.’
Stockton has been FD since mid-August, and the married father-of-one is an
avid Liverpool supporter. It seems fitting as that 1742 date refers to the
earliest record of the business enterprises of the Rathbones, a prominent
Liverpool merchant family.
The bulk of the company’s 35-strong finance function is still based in the
city, although some of it is in London. Stockton says that the group function
and city-facing activities are handled in London, close to the executive team.
The operational side the investment management business is based in
Liverpool, as are most of the banking and treasury operations.
Stockton says Rathbones subscribes to a ‘steady as she goes’ philosophy. The
business doesn’t rely on wholesale funding it was the closure of the wholesale
markets that crippled major banks like Northern Rock or do its own proprietary
trading. Its loan activity is also small compared with the overall size of the
It has all contributed to keeping Rathbones safe from the ravages of the
‘It gives a lot more stability and a little more to spend on future
acquisitions,’ Stockton says.
But Rathbones has also taken steps to avoid future wrangles with the taxman by
selling its Jersey offshore trust operations recently.
‘We didn’t feel it was the right strategic fit, so we sold it to the
management for a £29m consideration. From our perspective our core business is
investment management. We looked at the general risk profile: do we expect more
focus from HM Revenue & Customs on offshore tax structures? We felt the
answer was yes.
‘Therefore in terms of an overall risk call and an overall strategic fit for
the business we thought that the business would flourish much better away from
UK plc ownership’.
The Singapore offshore trust, which has also been earmarked for sale, is a
much smaller part of the business, but how it was treated on the books once the
sale had been agreed brought its own challenges for Rathbones.
‘The Singapore deal was certainly subject to due diligence going forward.
Clearly from an accounting perspective we have to respect that if a deal goes to
a certain level of commitment, then available for sale is the right treatment.
We had a long debate with auditors PricewaterhouseCoopers about what “available
for sale” really meant.’
But the knock-on effects of a difficult economic climate can prejudice
disposal prices and some disposal discussions.
‘There was a natural tension when we started to talk about that, but we came
out on the side of disclosure,’ says Stockton.
The business’s Swiss and British Virgin Islands offshore trusts may also be
in the shop window. ‘It’s very much part of our current strategy to review
those. We’ll likely be looking at options for those businesses on similar
The UK is still committed to being competitive although most businesses face
a rising tax burden.
Stockton predicts more to follow as penalty regimes get tougher in the face
of greater self-regulation and compliance demands.
‘Inevitably the UK is going to get tougher from a tax perspective,’ he says.
Looking inward, Stockton says the finance function itself is in ‘pretty good
nick’, but still sees room for improvement. ‘There are some things which need to
In such a cost-focused environment, Stockton believes that the challenge is
to make sure that information is timely and relevant. ‘I think we can do a lot
in that space to support decision-making,’ he says.
Before moving into plc work, Stockton spent more than a decade with Price
Waterhouse after university, even gaining the chance to spend some time in New
York before coming back to London, but then wanted to experience the other side
of the coin.
‘I was thoroughly enjoying practice, but after 12 or 13 years in the
profession, it felt time to get a little more practical, a little bit more
hands-on. I’d seen a lot of businesses being run and I was itching to be part of
‘I spent the last four to five years working very much as an operational FD.
I really enjoyed the day-to-day systems reporting accuracy, process risk control
type of work, but having had the chance to join Rathbones it was a great opportu
nity to face investors and deal with a lot of people who are challenging you all
the time on where the organisation is going.’
With the fair value storm still raging and accountants caught right in the
middle of it, Stockton says that the IAS 39 accounting standard as it stands
causes issues for the banking industry at large.
Rathbones manages a lot of client portfolio money, which means that it avoids
most of the effects of IAS 39. Its banking book and treasury book typically deal
with certificates of deposit, gilts and money market funds.
‘That level of conservatism has been a big advantage in terms of any
financial statement valuation issues,’ Stockton says. ‘It [IAS 39] is a very
tricky topic in terms of current value accounting, but what other value do you
use? Inevitably you have to strike a value at some point.’
Pension fund accounting is another bugbear for Stockton. ‘Corporate bond
spreads have widened this year and that discounts the liability value of your
pension fund at a higher rate, shrinking the size of the shortfall. You can
potentially understate deficits and overstate surpluses. It’s a measurement
challenge in addition to IAS 39 for this year-end.’
Stockton says that the business is founded on long-term relationships with
clients very used to changes in the marketplace, even the more dynamic ones
being observed at the moment. That’s not to say that anyone is being lazy, he
says. ‘It’s a relationship that we want to keep, so we have to manage our
clients through the situation.
‘I look forward to more fun and games as we go forward.’
The all-important audit relationship
When Accountancy Age drops in on Stockton he has just come out of
fee discussions with
‘Always a challenge,’ Stockton quips about the sensitive negotiations in
‘Whenever or wherever I’ve worked, I’ve used the auditors as a trusted
business adviser. I value that now in a way even more than I did when I was
working in the audit world. An element of not being able to see the wood for the
‘Back then I was struggling to see the value of an audit to an organisation
because I was doing it day in and day out. Having been a finance director for
some years now, and looking back, having your auditors as a good technical
backstop as well as an adviser that can share best practice is an essential
‘Audit relationships are crucial. I make it a point to let them know of
issues early and we can work them out.’
Cash is king in any business and the economic downturn has also had to be
factored into negotiations.
Stockton says: ‘In approaching the fee discussions I’m applying the same
methodology that I’m applying in the budget discussions and that’s been
responded to by our auditors, who understand the pressure we’re under. Equally,
they’ve been very good about letting me know about the pressures they are under
and we try and strike a balance between that.
‘The key point for me is audit quality rather than being parochial about
fees. I value the relationship and will always reflect that in any discussion
Stockton is happy with the relationship with PwC, but points out that he has
to keep his options open, as any business does with service providers.
‘Continuing to remain commercial at this time in the marketplace is even more
important, so if we believe there is more value elsewhere, then we will look in
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