The directors present the strategic report for the year ended 28 February 2023.
The company continued to undertake its two main activities during the year, this consisted of Discretionary Investment Management services offering a broad spectrum of investment strategies and Financial Advisory services offering advice and solutions to individuals.
2022 was another turbulent year for markets as rampant inflation affected the global economy exacerbated by the war in Ukraine. Escalation in inflation, in particular related to energy prices led central banks around the globe to embark on a number of interest rate hikes in a bid to cool economies. Rising prices, which in the UK sparked a cost-of-living crisis affected sentiment over the year triggering fears of a global recession midyear, and whilst growth slowed considerably, a recession was narrowly avoided.
Given the economic backdrop set out above it was not surprising that it was a challenging year for the business. Gross inflows into our discretionary management service saw an 8% fall compared to the previous year, however, this was more than offset by a 20% reduction in gross outflows, leaving an improved net flows position when compared to 2021-22. There was also a slight decrease in new business fees from our Financial Advice service as clients showed some reluctance to take advice given the broader economic situation.
The ARC Balanced Index, which provides a good proxy for the asset mix of our money under management, fell 4.32% over the 12 months to the end of February 2023. Investment performance over the 12 months was mixed with a broadly equal number of strategies underperforming and outperforming when compared to their benchmark ARC indices. Overall, client money managed via our discretionary fund management service fell over the past year due to the combination of a small net outflow of funds and market performance. Money under management at the end of the 2022-23 financial year stood at £347,727,404 (2021-22 = £375,102,285).
For our financial advisory business, new advice fees fell for the year, and totalled £201,953 (2021-22 = £206,639) and as a result our advisory business returned a small loss for the year. Whilst this performance was a little disappointing, activity levels remain strong, and we are still receiving many new business leads so we are optimistic that fees will remain healthy through the coming financial year. We also continue to look for opportunities to purchase client banks from retiring advisers and have one purchase in the pipeline along with a small number of enquiries at an early stage.
Despite the challenges set out above our employees continued to successfully implement our hybrid working arrangements and we remain hugely appreciative of all our employees and their efforts during the year.
Given the headwinds experienced during the financial year it was encouraging to see the business remain profitable and we can confirm that pre-tax profits for 2022-23 totaled £116,602 (2021-22 = £530,434) based on turnover of £4,648,684 (2021-22 = £5,212,425).
The entire Board is responsible for the company’s risk management and for ensuring that suitable processes are in place to identify, manage and eliminate risks that threaten the company. These include Regulatory, Financial and Operational risks, and processes have been designed to mitigate risks where identified.
Markets remained volatile over the year as the war in Ukraine and extensive inflation affected investor confidence. The rising interest rate environment supported the rotation of market leadership seen at the end of 2021 and value stocks remained the standout performers for most of the year whilst growth stocks lagged. As 2023 progresses inflation is easing in many regions which should in turn lead to both improved consumer confidence and an eventual, albeit potentially slow reduction in interest rates.
Competition in the industry also presents an ongoing risk to the business. We continue to see aggressive pricing structures amongst competitors and platforms as well as significant levels of consolidation as competitors, backed by private equity finance, look to scale up their businesses.
Whilst we were able to continue to trade profitably throughout 2022-23, we have completed a thorough review of all costs incurred by the business and have removed those not adding value and we will expect to see the benefit of this in 2023-24.
We continue to maintain a strong compliance team which allows the company to pre-approve all new advice cases to reduce the risk of bad advice leading to poor client outcomes. As the number of clients advised grows through our asset purchase program, we continue to improve our processes to ensure that we meet our ongoing commitments to clients, and provide the service expected via our agreements. Whilst it is difficult to eliminate complaints completely, during the past twelve months, upheld complaints stood at three, which was a decrease of four when compared to 2021-22.
The investment management business continues to focus on increasing the number of external financial advisers that are using our discretionary management service, whilst maintaining relationships with current introducers. Our Ethical strategies, now with a 7 yr. + track record, continue to be extremely popular, and we also have our newer Responsible Dynamics (passive) range.
We continue to see increased use of platforms by external advisers and will look to expand our external links and available strategies where appropriate. Our Ethical and Dynamic strategies (including Responsible Dynamics) are available via platform as well as directly. In 2021 as part of our commitment to ESG we signed up to the UNPRI and put in place a ‘Net-Zero’ policy for the company which along with our Responsible Investment policy is now available on our website.
The FCA’s Consumer Duty requirements will result in a large amount of work during the 2023-24 financial year, and we are currently working through the requirements in order to meet our deadlines.
For our advisory business we will continue to seek opportunities to acquire client banks from retiring financial advisers and this will remain a key focus in the coming years. We are currently in discussion with one such adviser and hope to complete this deal during 2024. Discussions have also been held with several other advisers looking to retire further into the future and we believe we can continue to grow sensibly via this approach by agreeing to a small number of deals each year where the business and client profiles match our own.
Due to the expected economic conditions in 2023, we believe markets will remain volatile and this could have an adverse impact on income during the 2023-24. However, we are confident the underlying business is strong and will continue to grow due to the addition of clients via the recent asset purchases and our ongoing relationships with external introducers.
On behalf of the board
The directors present their annual report and financial statements for the year ended 28 February 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 9.
Ordinary dividends were paid amounting to £185,217 (2022: £658,302)
The company maintains insurance policies on behalf of all the directors against liability arising from negligence, breach of duty and breach of trust in relation to the company.
Saffery Champness LLP were appointed as auditor to the company and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.
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 the 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 specific procedures for this engagement and the extent to which these are capable of detecting irregularities, including fraud are detailed below.
Identifying and assessing risks related to irregularities:
We assessed the susceptibility of the company’s financial statements to material misstatement and how fraud might occur, including through discussions with the directors, discussions within our audit team planning meeting, updating our record of internal controls and ensuring these controls operated as intended. We evaluated possible incentives and opportunities for fraudulent manipulation of the financial statements. We identified laws and regulations that are of significance in the context of the company by discussions with directors and by updating our understanding of the sector in which the company operates.
Laws and regulations of direct significance in the context of the company include The Companies Act 2006 and UK Tax legislation. UK Tax legislation and The Financial Services and Markets Act 2000, on which The Financial Conduct Authority (FCA) Handbook is based.
Audit response to risks identified
We considered the extent of compliance with these laws and regulations as part of our audit procedures on the related financial statement items including a review of financial statement disclosures. We reviewed the company's records of breaches of laws and regulations, minutes of meetings and correspondence with relevant authorities to identify potential material misstatements arising. We discussed the company's policies and procedures for compliance with laws and regulations with members of management responsible for compliance.
During the planning meeting with the audit team, the engagement partner drew attention to the key areas which might involve non-compliance with laws and regulations or fraud. We enquired of management whether they were aware of any instances of non-compliance with laws and regulations or knowledge of any actual, suspected or alleged fraud. We addressed the risk of fraud through management override of controls by testing the appropriateness of journal entries and identifying any significant transactions that were unusual or outside the normal course of business. We assessed whether judgements made in making accounting estimates gave rise to a possible indication of management bias. At the completion stage of the audit, the engagement partner’s review included ensuring that the team had approached their work with appropriate professional scepticism and thus the capacity to identify non-compliance with laws and regulations and fraud.
The company is regulated by the FCA. We discussed the company’s authorisation and permitted activities with the CF10a and obtained evidence of this from the FCA register. We obtained additional evidence about compliance by reviewing the breaches registers that have to be maintained under the CASS handbook, correspondence with the FCA and the results of the testing of compliance with the FCA Client Asset “CASS” rules, which is a separate assurance assignment.
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. Also, 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.
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.
Use of our report
This report is made solely to the company's members, as a body, 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 members those matters we are required to state to them 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 members as a body, for our audit work, for this report, or for the opinions we have formed.
The Income Statement has been prepared on the basis that all operations are continuing operations.
Whitechurch Securities Limited is a private company limited by shares incorporated in England and Wales. The registered office is c/o Saffery LLP, St Catherine's Court, Berkeley Place, Bristol, BS8 1BQ.
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 £1.
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 7 ‘Statement of Cash Flows’ – Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues’ – Carrying amounts, interest income/expense and net gains/losses for each category of financial instrument; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;
Section 33 ‘Related Party Disclosures’ – Compensation for key management personnel.
The financial statements of the company are consolidated in the financial statements of Independent Investment Analysis Limited. These consolidated financial statements are available from its registered office, C/O Saffery Champness LLP, St Catherine's Court, Berkeley Place, Bristol, England, BS8 1BQ.
Turnover represents commissions on the sale of insurance and pension products and fees for the provision of investment management services. Commissions are recognised at the point where the clients formally accept the products sold. Investment management fees are recognised in the period when the services are provided.
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.
Basic financial assets, which include debtors, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
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 turnover and profit before tax are attributable to the one principal activity of the company and arises from the provision of services. All turnover arose from activities carried out in the UK.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 6 (2022 - 6).
The actual charge for the period can be reconciled to the expected charge for the period based on the profit or loss and the standard rate of tax as follows:
Details of the company's subsidiaries at 28 February 2023 are as follows:
The bank has a debenture including a fixed charge all over present freehold and leasehold property; first fixed charge over book and other debts, chattels, goodwill and uncalled capital, both present and future; and a first floating charge over all assets and undertaking both present and future dated 21 April 2015.
It also has a fixed charge over book and other debts, goodwill, uncalled capital and intellectual property and a floating charge over all other assets dated 28 January 1994.
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.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
The deferred tax liability set out above is expected to reverse in future years and relates to accelerated capital allowances.
Each share is entitled to one voting right and an equal share of distributions on winding up.
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:
During the year a director was advanced £124,050 (2022: £111,473) and repaid £55,000 (2022: £357,473). At the balance sheet date £69,050 (2022: £nil) was owed to the company by the director. No interest is charged on this balance.
At the balance sheet date, the company was owed £1,775 (2022: £2,913) from fellow group entities.
The company is a wholly owed subsidiary of Independent Investment Analysis Limited, a company incorporated in England and Wales. Group accounts may be obtained from the registered office at C/O Saffery Champness LLP, St Catherine's Court, Berkeley Place, Bristol, England, BS8 1BQ.
The company's ultimate controlling party is Kean Seager by virtues of this majority interest (including family interest) in the company's parent company.
The client monies held by the company at the balance sheet date amounted to £12,358,551 (2022: £17,126,310) and were held in accounts with HSBC Bank plc and Lloyds Bank plc. The market value of client investments held by the company as at the balance sheet date was £306,668,886 (2022: £357,975,975).
Whitechurch Securities Limited, a company that is regulated by the Financial Conduct Authority (FCA) and has documented the disclosures under the IFPR and CRDIV guidelines and these are available on their website at www.whitechurch.co.uk.