RBC sees attractive UK wealth management outlook; budget risks limited

Investing.com -- RBC Capital Markets projects a broadly positive outlook for the UK wealth management sector, even as investors navigate uncertainty ahead of the Nov. 26 UK Budget, in a note dated Monday. 

The brokerage expects healthy net flows and assets under management (AUM) growth in the third quarter of 2025, supported by favorable market conditions.

“A continued supportive macro backdrop means we expect the sector to mostly report healthy flows and AUM development over Cal Q3,” RBC noted, citing higher equity markets and stable interest rates as key factors driving investor sentiment.

The upcoming Budget is expected to create only a minor headwind for net flows in the fourth quarter. 

RBC flagged potential speculation around pension policy, including reductions in tax-free lump-sum withdrawals and changes to pension tax relief, as possible drivers of client behaviour. 

“However, we also expect debate and uncertainty to once again drive greater engagement with advice and investment professionals,” the brokerage said, noting that this could benefit net flow prospects into 2026. 

Historical trends suggest such speculation may prompt earlier pension withdrawals, but structural consolidation of accumulated defined contribution (DC) pots is expected to support medium- to long-term sector growth.

RBC expects Q3 flows to remain positive despite a minor seasonal slowdown. Organic growth rankings are projected to remain consistent, led by Tatton Asset Management, AJ Bell, IntegraFin, Quilter, St. James’s Place, Brooks Macdonald, and Rathbones. 

Market performance to date has prompted upgrades across FY25 earnings estimates, with St. James’s Place, IntegraFin Holdings, and Quilter seeing the most significant revisions. 

Positive market returns of approximately 3% year-to-date have reinforced AUM growth and fee-related revenue, while interest income has remained resilient.

Valuations for most firms remain below five-year average price-to-earnings ratios, despite broad year-to-date gains.

RBC noted the narrowing gap between advice-led wealth businesses and UK banks, which could increase merger and acquisition activity. 

“We can envisage banks increasingly giving consideration to making acquisitions in the wealth space,” the brokerage said, citing Quilter as a particularly likely target due to its national distribution network and advice-led model.

Among individual stocks, Tatton Asset Management and Quilter maintain “outperform” ratings. 

Tatton Asset Management leads the sector with operating margins of 47%, organic growth of 13%, and earnings growth of 11%, trading slightly below its five-year P/E average at 20x versus 21x. 

Quilter has demonstrated substantial improvement in organic growth over the past three years, offers sector-leading capital returns of 9% including a special dividend or buy-back, and trades at an undemanding 15x FY26E P/E.

Capital returns are expected to remain robust, with five of seven sector names anticipated to deliver buy-backs or special dividends. 

For instance, Quilter may distribute an 8.5p special dividend or a £120 million buy-back, while Rathbones is projected to return roughly 13% of market capitalization over the next two years. 

RBC also flagged the potential value of FCA-targeted support for banks in boosting strategic synergies with wealth managers.

The brokerage expects sector flows in the second half of 2025 to remain strong, up 22% year-over-year, even if fourth-quarter flows see minor sequential moderation. 

Structural growth in DC pensions and supportive markets underpin FY25-27 earnings growth, reinforcing the sector’s resilience and attractiveness for investors.