The Directors present the strategic report for the year ended 30 June 2023.
TIML Limited trades as Tacit Investment Management and throughout this report references to Tacit are interchangeable.
Fair review of the business
TIML Limited continues to be regulated by the Financial Conduct Authority (FCA) as a Small and Non-Interconnected (SNI) firm.
TIML’s principal activity is the investment management of (mostly) discretionary portfolios for private individuals and for some corporate entities in the form of pension funds. Known as Tacit Investment Management in the industry, the firm has a clear and consistent approach to investment which focuses first on the preservation of investors’ capital and, for those investors willing and able to take a higher level of risk, to grow their wealth in absolute terms. Tacit offers four core strategies in which investment risk is managed using the Growth/Stabiliser investment philosophy which Tacit has espoused consistently since its inception. These four strategies now have nearly thirteen complete years of public performance history.
The company continued to acquire new clients through the year and has been successful in winning new business from private investors in a higher net worth bracket, confirming the appeal of high quality personalised professional service, and the depth of market experience of the senior managers in Tacit.
Investment markets were resilient in the face of an increasingly complex geopolitical landscape, the entrenched war in Ukraine, and persistent core inflation leading to further rises in the cost of borrowing. However, they were unable to break into higher levels and remained range-bound through the year. This limited the market growth in assets under management and total revenue decreased by 2.1% from £2.12m to £2.07m. Operating costs were higher than in the previous year, due to a range of factors, including increases in advertising spend, wages and salaries, professional fees, and rent. The Directors agreed a policy of increasing reserves to fund future growth of the business and to provide maximum resilience; this is reflected in the balance sheet on page 14 of the financial statements which shows that net assets have increased by £288k.
Business plan
From its inception, Tacit has acknowledged the role of financial advisers in structuring client investments. As Tacit’s business has matured, and consolidation of IFA businesses has intensified the move to large network-type operations, the Directors have recognised the opportunity to broaden the range of services to clients who regard Tacit as their trusted adviser. The Directors have embarked on a business plan to expand the permitted regulated business of the Group to provide financial advice to clients who require investment management supported by financial planning expertise, particularly in relation to pensions and inter-generational wealth planning.
To achieve this, the parent company, Tacit Holdings Limited agreed to acquire a small, directly regulated, IFA business, Lucus Wealth Limited. The FCA approved the change of control for Lucus Wealth during the financial year under review. The acquisition of Lucus Wealth was completed after the 30 June 2023 and is noted in the Directors' Report as a post balance sheet event.
Principal risks & uncertainties
Operational Risk
Operational risks arise from the people, processes, and systems in use within TIML Limited, or from external events. The firm has continued to develop operational processes and procedures, using workflow technology and a range of Management Information (MI), to mitigate operational risks directly under the control of the business.
Regulatory environment
The new FCA Consumer Duty regulations came into effect during the year. TIML has invested time in ensuring that it is fully equipped to meet its obligations under Consumer Duty. Although Consumer Duty brings with it additional reporting requirements and a different way of thinking about the delivery of investment services to retail investors, Tacit has approached the changes with confidence that the principles underlying the new regulations are already firmly embedded in how Tacit delivers its services, and the Directors see opportunities for the firm to benefit from Consumer Duty, particularly as small IFA firms conclude that the new environment is not one in which they can continue to operate profitably.
Staff training will be critical to embedding Consumer Duty principles into the operations and client culture of Tacit. The quarterly Team Day gatherings have become the forum for collective training and communication of new principles and procedures in the delivery of Tacit products and services.
This is the first full financial year for TIML operating under the FCA’s Investment Firms’ Prudential Regime (IFPR) which came into force on 1 January 2022. The Directors have agreed to build the balance sheet to improve resilience and provide flexibility for future growth.
Technological environment
TIML Limited relies heavily on digital technology and believes in making the best use of technology to remain competitive and to provide an excellent service to clients. The Directors are very conscious of the risks of cybercrime and data breaches. Tacit employs a professional IT support firm to advise on security measures and to maintain system protection software on all devices. An encryption process is used for the transmission of all sensitive client information and clients can view details of their investments through a secure portal supported by AJ Bell.
The Directors have implemented cybercrime insurance cover and will continue to tighten the firm’s digital security measures as the IT support consultant advises.
TIML Limited has incorporated the UK Government’s 10 Steps to Cyber Security into our day-to-day management of TIML Limited.
Economic environment
A changing geopolitical environment increasingly sets the context for global economic and market conditions. Russia’s invasion of Ukraine is now an entrenched war and has become a trigger for the potential reshaping of international alliances, with China promoting a stronger grouping of BRICS nations as an alternative economic power bloc to the Western nations aligned with the US. Oil and natural gas supplies are the principal instruments of economic influence and in the absence of a common purpose between producing and consuming nations, restrictions to output risks prolonging the inflationary impulse in the global economy. Forecasts for economic growth reflect the higher cost of capital for businesses and constraints on consumers adjusting to higher mortgage costs.
The Tacit strategy remains consistent with a bias within growth assets to businesses with strong balance sheets, brand superiority, and the ability to generate strong cash flows, regardless of a weakening in consumer demand or investor confidence. The Tacit preference for index linked and shorter duration bonds to conventional fixed interest assets have worked well in the Stabiliser component of strategies and have contributed positive if modest returns. The regional composition of growth assets in the Tacit strategies favours the United States and selected Asian economies, where we perceive greater opportunity for companies to trade profitably.
Political Environment
Political changes, being so closely linked to the economy, can affect TIML Limited in three main ways:
1. A rise or fall in the markets in which firms invest.
2. An increase or decrease in demand for the products which the industry sells.
3. Changes to the legislative and regulatory environment in which financial services firms operate.
The changing structure of global political conditions has been noted above. In the UK, the political environment is shaped around the prospect of a General Election which might be called early but, in any case, must be held by 28 January 2025. The high level of government borrowing, combined with the cost of necessary national infrastructure renewal, and a call for higher spending on defence, all point to higher taxes at some point. This could mean that the tax rules relating to personal pensions and estate planning arrangements will change and this will be particularly relevant to most Tacit clients. The Directors are confident that the new capacity of the firm to give expert financial advice in addition to investment management will be highly relevant.
Capital adequacy
It is essential for TIML to hold the requisite minimum levels of funds at all times, as outlined in our ICARA report.
As an SNI regulated firm, the company continues to be capitalised in excess of regulator-imposed minimum capital adequacy and liquidity requirements. The firm's capital adequacy requirement has been estimated based on three months' contracted fixed costs.
The Directors have been growing capital reserves through the year by moderating the dividends paid to shareholders, and thereby retaining more profits in the business.
Competitive environment, social and market forces
The company continues to operate in a competitive marketplace with many larger competitors focusing on asset growth rather than investment management as their primary objective. The Directors perceive that the Consumer Duty regulations are already causing smaller firms to reassess their ability to compete in this new regulatory environment and that this presents opportunities for Tacit to acquire established books of business. The performance of the Tacit investment strategies affords it this opportunity and therefore the Directors see the competitive environment as a significant positive factor for its future growth.
Development & performance
The Directors intend to continue to assess relevant opportunities to develop or expand the firm’s activities, provided these are consistent with the company’s business strategy and direction.
The Company's key financial performance indicators during the year were as follows:
Unit 2023 2022
Turnover £ 2,073,768 2,118,048
Operating profit £ 953,486 1,124,839
Investment outcomes and client retention
The four Tacit strategies performed well in absolute and relative terms when compared to the Asset Risk Consultants Private Client Indices. This was achieved by strictly adhering to the Growth/Stabiliser framework which underpins the Tacit Investment Philosophy as well as the ability to pivot towards technology companies following the sharp declines experienced by the Nasdaq during the preceding twelve-month period as interest rates rose sharply. Liquidity was an important factor also as it allowed the team to recycle monies from more defensive holdings towards our longer-term preferred investments. All strategies provided positive returns, outperforming the peer group by 0.73% (Conservative), 3.56% (Real Return), 5.08% (Steady Growth) and 5.37% (Total Return).
Operational matters
The return to more normal social conditions after the Covid restrictions on meeting in person has helped with cultivating prospective new clients, and with providing our personalised services to established clients. Tacit’s Investment Directors now have many more meetings in person.
Hybrid working from home and office locations is now embedded in most businesses, including in Tacit. However, in the course of the year, the Directors decided that training new operational staff is most effective with regular office-based team working, which allows learning through observation and engenders a stronger team ethos. To this end, the Client Services operation was consolidated in the year into Ipswich where the team manager is based and where a pool of experienced financial services administrators exists for future recruitment.
Section 172 Statement and engagement with stakeholders
The company is a discretionary investment management firm which depends on the trust and confidence of its stakeholders to operate sustainably in the long term. It seeks to put its clients’ best interests first, invests in its employees, supports the communities in which it operates and strives to generate sustainable profits for shareholders.
The Directors of the company consider that they have acted in accordance with their duties codified in law, in particular their duty to act in the way in which they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, having regard to the stakeholders and matters set out in section 172(1) of the Companies Act 2006.
On behalf of the board
The Directors present their annual report and financial statements for the year ended 30 June 2023.
The Directors who held office during the year and up to the date of signature of the financial statements were as follows:
The results for the year are set out on page 12.
Ordinary dividends were paid amounting to £462,500. The Directors do not recommend payment of a final dividend.
The business’s principal financial instruments comprise bank balances, trade debtors and trade creditors. The main purpose of these instruments is to finance the business's operations.
In respect of bank balances, the liquidity risk is managed by maintaining a sufficient cash reserve at the bank to allow for short term net cash outflows. The firm’s cash is held in accounts that pay a competitive rate of interest.
Trade debtors are managed in respect of credit and cash flow risk through the Terms & Conditions of our engagement with clients and professional advisers, and through the regular monitoring of amounts outstanding for both time and credit limits. Retail client fees are taken directly by the custodian from client accounts operated by the custodian, thus mitigating credit risk associated with this aspect of the business. Trade creditors’ liquidity risk is managed by ensuring sufficient funds are available to meet liabilities when they fall due.
At all times the Directors must ensure that they meet the capital adequacy requirements stipulated by the Financial Conduct Authority, which must be reported periodically via the FCA Gateway.
There have been no material events affecting TIML Limited between the balance sheet date and the signing of the report. In the interests of transparency, the Directors note the acquisition by the parent company, Tacit Holdings Limited, of Lucus Wealth Limited, an FCA regulated financial adviser, after the balance sheet date. The FCA gave its approval for the change of control prior to the financial year-end.
In the course of the year covered by this report, the firm has continued to explore how its offering to clients could be enhanced through the offering of complementary services in light of the FCA Consumer Duty regime as the Directors believe that providing wider, more holistic advice will become necessary to the client segment the company targets. The acquisition of Lucus Wealth Limited, noted above, will be the means by which this objective is achieved.
Just Audit Limited has completed the fourth year of appointment and the Directors intend to appoint Just Audit Limited for a further year.
After making enquiries, the Directors have a firm expectation that the company has resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and financial statements.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.
As explained more fully in the Directors' responsibilities statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
We gained an understanding of the legal and regulatory framework applicable to the company and the industry in which it operates and considered the risk of acts by the company that were contrary to applicable laws and regulations, including fraud. We designed audit procedures to respond to the risk, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. We focused on laws and regulations which could give rise to a material misstatement in the financial statements, including, but not limited to, the Companies Act 2006 and UK tax legislation. Our tests included agreeing the financial statement disclosures to underlying supporting documentation and enquiries with management. There are inherent limitations in the audit procedures described above and, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. We did not identify any key audit matters relating to irregularities, including fraud. As in all our audits, we also addressed the risk of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
This report is made solely to the company's member in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's member those matters we are required to state to the member in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's member, for our audit work, for this report, or for the opinions we have formed.
The Profit And Loss Account has been prepared on the basis that all operations are continuing operations.
The company has no recognised gains or losses for the year other than the results above.
TIML Ltd is a private company limited by shares incorporated in England and Wales. The registered office is 17 Hanover Square, London, W1S 1BN.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements:
Section 4 ‘Statement of Financial Position’: Reconciliation of the opening and closing number of shares;
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
The financial statements of the company are consolidated in the financial statements of Tacit Holdings Limited. These consolidated financial statements are available from its registered office, 17 Hanover Square, London, W1S 1BN.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.
In the application of the company’s accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The preparation of the financial statements can require management to make judgements, estimates and
assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the
amounts reported for revenues and expenses during the year.
In the opinion of the Directors, there are no critical judgements that have a significant effect on amounts recognised in the financial statements.
An analysis of the company's turnover is as follows:
The average monthly number of persons (including Directors) employed by the company during the year was:
No remuneration was paid to the Directors (2022: £nil). Directors are remunerated by dividends paid by the parent company, Tacit Holdings Limited. Dividends paid to the Directors of TIML Limited and their spouses totalled £770,000 (2022: £696,999).
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
Factors affecting future tax charges
The corporation tax main rate for non-ring-fenced profits increased to 25%, applying to profits over £250,000, from 1 April 2023.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
The company is controlled by Tacit Holdings Limited which owns 100% of the called up share capital.