Trading: stash the family cash in this cheap wealth management firm

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The wealth-management industry tends to keep a low profile. So many investors may not have noticed that while several parts of the financial sector have been under pressure from competition and digitalisation, the subsector that helps people preserve and grow their fortune has managed to keep growing at a strong rate. 

A report by investment bank Morgan Stanley and management consultant Oliver Wyman predicts that the industry could manage $104trn of assets globally by 2024, up from $79trn in 2019. Soaring asset prices mean that there is more wealth to preserve, while an ageing population (as well as the gradual demise of final-salary pensions) produces more people in need of financial advice.

One wealth-management company that looks particularly attractive is Rathbone Brothers (LSE: RAT). It specialises in providing bespoke investment-management advice to individuals and charities; it also runs some of its own funds through its Rathbone Unit Trust Management subsidiary. 

The group’s other services include financial planning for those with more modest portfolios, and banking and loans for its wealth management clients. A few months ago Rathbone took over Saunderson House, which has a good reputation for providing specialised financial advice to law and accountancy firms. 

Fending off rivals

There is always the threat that a low-cost provider, such as index-fund pioneer Vanguard, could disrupt the wealth-management sector by driving down fees and stealing market share. Indeed, in April, Vanguard launched its own bargain-basement financial-advice service. However, the type of specialised advice that Rathbone provides makes it much less vulnerable to such competition. Rathbone has also earned itself a strong reputation in environmental, social and governance (ESG) investing. With people increasingly interested in the environmental impact of their investments, this is another growth area – and a way for wealth managers to justify their fees.

Rathbone has had a strong track record over the past five years. Sales grew from £239m in 2015 to £397m in 2020 – which reflects an average growth rate of just under 11% a year. This is expected to continue over the next few years. It also has a healthy operating margin of around 15%, which allowed dividends to rise from 55p in 2015 to 70p last year. Despite this impressive performance, the stock trades at a relatively modest valuation of around 12 times 2022 earnings. It also offers a generous dividend yield of 4.2%.

While Rathbone shares haven’t quite returned to their March 2020 level, they are above their 50-day and 200-day moving averages, and only 5% down from their 52-week high a few weeks ago, suggesting that market sentiment is positive. I therefore suggest going long immediately at the current price of 1,966p at £2 per 1p. Put a stop-loss at 1,467p, giving you a potential downside of £998. 

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