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RBC Capital Markets has trimmed its price target for Rathbones Group PLC (LSE:RAT, OTC:RTBBF) to 1,950 pence from 2,400 pence, reflecting a surprise regulatory update that adds near-term uncertainty to the wealth manager's turnaround narrative.

The company disclosed on 16 June that it will cease charging investment management fees on client cash and pause onboarding of new enhanced due diligence clients for the next twelve months.

Existing EDD client inflows will also moderate. RBC's earnings per share forecasts have been downgraded 5% for 2026, 2% for 2027 and 6% for 2028, reflecting these headwinds.

The regulatory announcement arguably complicated Rathbones' investment case by injecting uncertainty around reviews into client outcomes and aspects of pricing.

It will likely delay the inflexion to positive organic growth, forcing the market to scrutinise net flows excluding EDD clients as evidence of underlying improvement. That pivot toward closer monitoring of non-EDD flows represents a tactical setback for the narrative around execution quality.

Yet RBC retained its 'outperform' rating, arguing the shares trade at fewer than 9 times 2027 estimated earnings, placing Rathbones among the cheapest wealth managers globally.

The bank highlighted a material valuation discount to peers, which trade at roughly 15 times earnings despite Rathbones delivering solid earnings growth of 5% annually through 2028.

RBC's thesis hinges on multi-year operational improvement under chief executive Jonathan Sorrell as the integration of the Investec Wealth business matures and delivers synergies.

The bank also flagged potential acquisition appeal, noting Rathbones' market positioning in UK wealth and the group's distressed valuation could attract buyers seeking scale in the domestic sector.

The dividend yield stands at 6.2%, with RBC forecasting a combined ordinary dividend and share buyback generating approximately 8% total yield in 2026.

RBC's upside scenario of 3,000 pence assumes the stock re-rates to 16.5 times 2026 earnings, which the ten-year peak multiple of 18 times suggests is not unreasonable. However, the regulatory update has plainly shifted sentiment in the near term, making near-term catalysts less obvious.