The Directors present the strategic report for the year ended 30 June 2024.
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 (Tacit) 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 fourteen 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.
The year began much as the previous one had finished, with sticky inflation reads underpinning higher policy rates and acting as a drag on investment returns. The converse of this was that for the first time in over a decade higher bond yields offered attractive returns to investors and allowed a rebalancing of risk to incorporate sovereign and corporate debt for their inherent real returns alongside higher risk growth assets. Towards the end of the calendar year, however, equity markets began to stage a breakout from their range-bound patterns and the second half of the financial year brought a welcome transition to higher levels in all the Tacit strategies. As a result of the market growth in assets under management, the final quarter fee run was at an all-time high.
Total revenue increased by 3.5% from £2.07m to £2.15m. However, as noted last year, operating costs have increased again for several reasons, including a change in the remuneration arrangement for some of the Directors who are now on the payroll, staff promotions and new hires (the total payroll costs increased by 93% over the previous year), and a general increase in most operating costs including third-party service provider costs. As a consequence, post-tax profit was £590k compared with £750k in the previous year. The Directors acknowledge that costs must be contained and reduced wherever possible, and that more energy must be devoted to winning new clients. The balance sheet on page 14 of the financial statements shows that net assets have increased by £135k to £633k, which indicates the underlying strength of the business.
Business plan
The Directors revised the Group business plan to focus on acquiring direct clients within the affluent and high net worth profile who require investment management supported by financial planning expertise, particularly in relation to pensions and inter-generational wealth planning as part of their overall wealth management. The implementation of the business objective requires TIML Limited to have the permissions to give financial advice and qualified advisers to work alongside the Investment Directors. An application to the FCA for additional permissions was approved after the close of the year and is a significant post-balance sheet development.
Tacit successfully recruited a qualified financial adviser in the year, in anticipation that the application to extend the permitted business of the Firm would be granted. Much work has been done to launch Tacit’s additional capabilities to existing and new clients. By providing the relevant financial planning services alongside investment management under a single agreement, Tacit will offer exceptional value to its clients and will also retain professional fees which hitherto have been earned by third-party financial advisers.
Principal risks & uncertainties
Operational Risk
Operational risks arise from the people, processes, and systems in use within TIML Limited, or from external events. In the course of the year, the Firm implemented intelliflo office as its client database and operating system. The analytical capability of intelliflo will greatly enhance the Firm’s range and depth of management information (MI) and will enhance the client reporting experience and interactive communication with Tacit. The use of intelliflo will eliminate use of data extracts to provide monitoring and control analysis and will constitute a single data warehouse and analytical hub.
Regulatory environment
This is the first full year of operation under the FCA Consumer Duty regulations. Consumer Duty is now the foundation of the FCA’s regulatory programme for firms providing financial products and services to retail customers. In the course of the year, Tacit has undertaken work to define its target market, evaluate its value proposition, review its communications, and revise its policies to reflect the impact of the four Consumer Duty Principles and the Cross Cutting Rules on the Firm’s business. A range of MI reports have been developed to enable the Senior Management to monitor compliance with the Consumer Duty obligations. The Directors are confident that Consumer Duty is an opportunity for Tacit and they believe the Firm is in a strong position to compete effectively in the new regulated environment. A programme of staff training will be critical to embedding Consumer Duty principles into the operations and client culture of Tacit.
The FCA’s Investment Firms’ Prudential Regime (IFPR) is now fully embedded in TIML’s regulatory monitoring and reporting. The Firm is comfortably within its regulatory capital and Own Funds liquidity requirements, and it remains the objective of the Directors 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.
TIML Limited has incorporated the UK Government’s 10 Steps to Cyber Security into our day-to-day management of TIML Limited.
Economic environment
The economic backdrop through much of the year was dominated by elevated interest rates and anxiety over economic growth rates. Inflation rates fell round much of the developed economies as energy costs subsided and new supply lines opened up in manufacturing industries. Growth remained subdued, but any fear of a global recession was not realised. Although inflation rates have fallen, this is largely the effect of the 12-month comparator and does not negate the elevated prices of many goods and services through the inflationary cycle, which are in themselves an enduring inhibitor to consumer spending.
Markets watch for signs of the Federal Reserve (Fed) commencing a programme of easing policy rates, but the Fed appears to fear a resurgence of inflation over the risk of recession. Against this backdrop, the indicators from the US point to a robust economy, unlike in China where industrial output has slowed and cracks in the inflated residential property market are a continuing cause of concern.
Political Environment
This year is marked by elections in the UK, several European nations and in the US later in 2024. Uncertainty is rarely a favourable condition for investing, and this is most pronounced in the US presidential election where an undertow of potential civil unrest could erupt whichever candidate is elected. Of immediate concern to investors is the threat of tax rises in countries such as the US and the UK where high levels of public borrowing hang over their economies. In the UK, the election of a Labour government immediately after the balance sheet date brings uncertainty over the future taxation of wealth and asset transfers. This is an area of financial advice which Tacit will be able to offer clients under its new permitted business activities.
Capital adequacy
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 is calculated based on three months contracted fixed costs. As noted above, the Firm is well capitalised in excess of its IFPR capital and liquidity requirements.
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 2024 2023
Turnover £ 2,146,995 2,073,768
Operating profit £ 793,877 953,486
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 after all costs, over the 12 months (the performance since inception on 30 September 2010 for each strategy is shown in brackets next to the 1 year return). Conservative +4.81% (+62.62%); Real Return +8.98% (+110.78%); Steady Growth +11.21% (+140.42%); Total Return +13.11% (+211.58%).
Operational matters
As with all businesses based on relationship and exchange of ideas, being together is important for the development of a common culture and mutual support. For some of the founding Directors, remote working will remain the pattern, but as the Firm grows, the London office will be the working location for new employees. The lease on the office at 17 Hanover Square expired immediately after the financial year end and the business has moved the short distance to 14 Hanover Square.
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 2024.
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 £455,140. The Directors do not recommend payment of a final dividend.
Dividends declared after the year end and up to the date of approval of these financial statements totalled £93,351
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.
Just Audit Limited has completed the fifth 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, and FCA regulation, recognising the regulated nature of the company's activities. 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 14 Hanover Square, London, W1S 1HN.
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, 14 Hanover Square, London, W1S 1HN.
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:
Their aggregate remuneration comprised:
2 Directors were participating in the pension scheme during the year (2023: nil).
Directors are also remunerated by dividends paid by the parent company, Tacit Holdings Limited. Dividends paid to the Directors of TIML Limited and their spouses totalled £459,358 (2023: £770,000).
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:
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:
During the year ended 30 June 2024, the company paid £82,500 for consultancy services (2023: £nil) to another company owned by a director and shareholder of the parent company, Tacit Holdings Limited. As at 30 June 2024, a total of £500 was owed to this company (2023:£nil).