The directors present the strategic report for the year ended 31 December 2023.
The financial highlights of the year were as follows:
Revenue increased from £2.769m to £2.923m, an increase of £0.154m (5.56%).
The majority of the revenue is recurring which enhances the company’s stability.
The directors continue to consider that the key performance indicators are those that communicate the financial performance and strength of the company as a whole, namely the total funds under management, the operating profit and shareholders' funds.
The total funds under management at the year-end were £137m (2022: £128m).
Operating profit for the year was £440k (2022: £116k).
Shareholders’ funds of £1.209m (2022: £871k) exceeds the capital requirements of the Financial Conduct Authority.
Economic Outlook
The economic outlook remains uncertain as economies and markets adjust to a world of higher energy costs and higher interest rates. With regard to the latter, it appears likely that rates may remain higher for longer than was anticipated this time last year. Whilst inflation has fallen it remains problematic and in general economies, particularly the US, have proved resilient in the face of higher costs, generating jobs and economic growth which have avoided any deep recession in major world economies. This has reduced the pressure on central banks to lower interest rates. Markets are beginning to adjust to this new reality, and this may have the effect of reducing investment returns in the medium term.
As always, the Greystone Funds and Discretionary Model Portfolios remain highly diversified; we do not have a strong positioning towards any predicted future economic scenario, preferring to construct the portfolios in a way that seeks to mitigate risk and the ability to take modest advantage of any of the likely future outcomes as they evolve. This will invariably involve sacrificing some level of investment performance; however, we believe that this is currently a more prudent way of investing than having high conviction in what remains a very unpredictable economic environment.
Consumer Duty
The introduction of the Consumer Duty by the Financial Conduct Authority is intended by the Regulator to raise standards across the entire financial services industry. The primary focus of the Consumer Duty is to ensure that businesses organise themselves in a way that consistently delivers good outcomes to retail clients. The implementation period for the Consumer Duty ended on 30 April 2023 for Foundation Investment Management Limited. The Board considers that these deadlines were met and that the Consumer Duty was successfully implemented. The Board notes that the Consumer Duty is regarded by the Regulator as an ongoing process and that each business will require an annual review of its implementation of the Consumer Duty. The Board has allocated sufficient resources for this to be done and remain confident that we are consistently delivering good outcomes for all their clients.
Principal risks and uncertainties
The activities of the company expose it to a variety of risks, both financial and operational. Those which have a material impact on the company are as follows:
Credit risk
The company neither holds client money nor assets nor lends money. The exposure to credit risk is therefore the risk that:
investment management fees cannot be collected,
clients do not pay their fees,
commissions / fees are not paid by providers, and
banks, where the revenue is deposited, fail.
The credit risk is low as all cash is held with banks assigned high credit ratings. Amounts due from clients and providers are closely monitored and reviewed to assess their recoverability. Provisions are made if recoverability is in doubt.
Market risk
The company is exposed to market risk to the degree that a downturn in the market will usually lead to decreased revenues. These risks are unavoidable in the context of a largely percentage-based fee structure with clients. The risk is mitigated by Greystone’s excellent and long-standing relationship with many clients and the stability that this brings to revenues.
Operational risk
Our business is reliant upon financial, accounting and technology systems and networks to process, transmit and store information, including sensitive client and proprietary information, and to conduct many business activities and transactions with clients, advisers, vendors and other third parties. Failure to implement, maintain and safeguard an appropriate infrastructure could adversely impact our operations. Our back-up procedures, cyber-defenses and compliance with data privacy laws (“GDPR”) are regularly monitored and updated to manage this risk.
Performance risk
The company may under-perform against its chosen benchmarks. To mitigate this risk, performance in all areas of the business is monitored on a regular basis, allowing remedial action to be taken where necessary.
Regulatory risk
The company requires FCA approval to undertake its financial services business. A breach of the FCA’s rules might lead to the withdrawal of this approval. The group continues to mitigate this risk by way of an experienced and dedicated compliance and risk team.
Financial risk management policy
The company has very strong financial controls in place to mitigate any financial risk on the running of the business. These financial controls are continuously reviewed and updated where appropriate.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2023.
The results for the year are set out on page 8.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The auditor, Jackson Stephen LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
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 included within the directors' report, 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 and 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.
Based on our understanding of the company and sector, we identified that the principal risks of non-compliance with laws and regulations related to, but was not limited to, the Companies Act 2006, UK tax legislation and Financial Conduct Authority regulations and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006.
We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls) and determined that the principal risks were related to the risk of fraudulent revenue recognition.
Our procedures to respond to risks identified included the following:
reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the financial statements;
enquiring of management about actual and potential litigation and claims;
performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;
reading minutes of meetings of those charged with governance and reviewing regulatory correspondence with the Financial Conduct Authority; and
in addressing the risk of fraud through management override of controls: testing the appropriateness of journal entries; assessing whether the accounting estimates, judgements and decisions made by management are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any. Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: 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 Statement of Income and Retained Earnings has been prepared on the basis that all operations are continuing operations.
Foundation Investment Management Limited is a private company limited by shares incorporated in England and Wales. The registered office is Foundation House, Scott Drive, Altrincham, Cheshire, WA15 8AB.
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;
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 Greystone Financial Services (Holdings) Limited. These consolidated financial statements are available from Companies House, Crown Way, Maindy, Cardiff, CF14 3UZ.
Basic financial assets, which include debtors and cash and bank balances, 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.
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.
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.
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.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
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.
No critical judgements or estimates have been made by the directors in preparing 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:
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:
A UK Corporation Tax rate of 25% was announced in the Chancellor’s Budget of 3 March 2021, and applied from 1 April 2023. Prior to this, the UK Corporation Tax rate was 19%. Accordingly, the derived Corporation Tax rate for the accounting period ended 31 December 2023 was 23.5%.
Profit and loss account - includes all current and prior year retained profits and losses, net of distributions to shareholders.
During the year the company entered into the following transactions with related parties:
The following amounts were outstanding at the reporting end date: