Good morning, thank you those of you who are joining us today to hear from Tatton Asset Management, who announced their full-year results earlier this week. If you haven't seen it already, we have published a note and put it up on our website. The purpose of today is to go through the numbers and take Q&A at the end. As a reminder, you can submit questions as we go through, but for now, I will hand over to Paul Hogarth, CEO.
Thank you, Hannah, good morning. Yes, it's been an amazing week. We announced our numbers on Tuesday, the roadshow has been going very well. It was lovely to see the share price bounce finally on Tuesday, which was good to see. Yes, if we can move forward to slide eight and have a look at our financial and operational highlights. I won't focus on everything on there, but obviously some key ones are the increase in revenue, the adjusted profit coming in ahead of consensus, which was lovely. A nice upgrade. A movement on the profit margin, again, a healthy movement, from 50.6%- 52.3%. An increase in the dividend, which was discussed at board level, pushing the expected GBP 0.12 up- GBP 0.15 for the full-year dividend.
Obviously that then takes us to GBP 0.27 for the year, which is a significant increase of 42.1%. Pleased to say that the trajectory on flows has continued. We had a lovely 2.8% underlying increase in the flows, that has also moved forward post the year-end. At the end of March, we've had April, May, and some of June, we are trending exactly in line with our forecasting flows of GBP 200 million-GBP 250 million a month. We're at about GBP 0.6 billion there now. A lovely rounded number of GBP 26.5 billion, which has taken us into a fair bit of debate around our GBP 30 billion target, which we set for FY 2029. The suggestion has been that we might just achieve that a little bit sooner, but I'll come back to that later.
The next slide really just shows the CAGR on revenue and obviously on profit too. It's lovely to see that profit margin that I alluded to earlier, that's gone up since the flotation in 2017, about 14.3%. The rest is just data on that slide. If we look at slide 10, this is us looking at Tatton shareholder returns. As you can see previously, up until very recently, we've actually been trading and performing on the share price very well, with a lovely premium to the peer group and also to the FTSE All-Share. That, of course, has kind of dissipated, the lines have converged, as you can see at the end. Obviously, there's an improvement on the share price move over the last few days. But it still shows that sentiment has been weak.
We still trade at a decent rating, but we've had a few, not concerns, but we've literally been disappointed at the share price of late. We've put it down to a few things. There was a situation where two fund managers in a fund was closed down by a leading life co, and they had a position that has been fed into the market. We've obviously had the Altruist fear over AI, which I'll come back to later. The headline there is AI is not a threat, it's an opportunity. Also then we've had the Gulf crisis as well. When you put the whole lot together, it has been disappointing, but as I say, it was lovely to see that adjustment starting on Tuesday and continuing through the week so far. Yes, the rest is just showing how we've returned GBP 64.5 million to shareholders.
We have always worked on the progressive dividend piece, as you can see from the bottom. We still maintain that we should still work towards that 70% of earnings being distributed as a dividend. We'll change our policy to 1/3, 2/3 moving forward to next year. The final slide is just our position on FUM, which obviously is corrected on the back of the Perspective loss, which is now, as I say, we've kind of bashed through that and drawn a line underneath it. You'll see it coming through in some of the stats later on. Without further ado, I'll pass you over to Paul. He'll take you through the financial performance, and then we'll pop up later and give the strategy.
Okay. Thanks, Paul. It's been another strong year of profitable growth in the business. I think Paul's just touched on the revenue. You'll see our pricing profit growth of 20% and 24%. Obviously that consistent progress on the margin, really pleasing to see up to 52.3%. The adjusting items there of GBP 4.2 million. We rarely have exceptional items on the face of our P&L. We have our normal adjusting items which are share-based payments and amortization. This year we had half a million related to project management costs relating to our ACD transfer from two ACD providers down to one. That should have a benefit of improving the bits going forward. The net finance income, I think it's an important number for us now. It's over GBP 1 million or GBP 1.1 million.
That's actually interest all on our balance sheet cash. It's our own cash. It's not taking a clip from any client cash, which can happen in other businesses. Adjusting for valuation gains per share is up 22%, so overall in line with general growth. As Paul mentioned, the annual dividend is up 42% with a strong final dividend, which I think it just reflects the confidence in the ongoing cash generation of the business and also the capacity of the business and our commitment to a progressive dividend over the medium term. In the divisional performance on the next page, clearly, Tatton is the primary growth engine of this business. Revenue and actually operating profit pretty much increased in line with the overall group, which is not surprising when you think that it consists of 87% of the total revenue.
You can also see the operational gearing coming through there on Tatton increasing its margin just under 65%. Obviously driven by strong AUM, 24.2 at the end of March, an 11% increase, which also includes a Perspective outflow of 3.3, so very strong. Underlying inflows, I think we mentioned earlier, is GBP 2.8 billion. That brings you to GBP 234 million per month, which is towards the top end of our range, which still remains at GBP 200-GBP 250. We've also had investment performance this year of GBP 2.5 billion. The revenue yield this year is around 20 bps. That would have increased, adjusting for Perspective, to about 22 bps.
You can see there the final bullet in the commentary for Tatton is really just setting out the impact of Perspective, which is a negative 3.3 on the outflows. While optically that seems like a big number, actually, due to the relatively low yield, it actually only had GBP 1.2 million impact in the year. Paradigm. Paradigm here has seen really good growth this year, 8% in revenue, 4% in operating profit, and has still maintained a strong margin of 28%. The mortgages had particularly strong performance around completions, totally GBP 18 billion. That's a record for us, up from GBP 14.2 billion the prior year. Applications year-over-year have also seen positive movements as well in terms of the overall performance. On the next slide, this is a new slide that we've included.
In many ways, it's actually quite a simple point, but it's one that can get actually easily overlooked. I think it's worth pausing on for a moment. The core message really is that the prior year revenue that we have in FY 2026, FY 2025, and prior, all that revenue, which comes from a combination of recurring revenue of the year, any market appreciation in that year, and also underlying flows, falls into the following year as recurring revenue. It starts off with 100% of the prior year's revenue in the new year coming. That just shows that the characteristics of this business and the scalability of the business model shows that you've got real visibility of the revenue of this business. There's also a sort of nuance in this financial year in that the flows were weighted H1 to H2 and slightly stronger in H2.
I think it was about GBP 100 million. Actually, the H2 flows were also weighted to the back end as well. What that means is that the amount of revenue in FY 2026 from those flows is relatively minimal, but you will get the annualized flows coming forward in FY 2027. What you also have, not do you only have the 100% of revenue from the prior year, but pretty much you also have embedded growth in this year. We wouldn't need to take on a new firm or a new client or a new client give us new flows, and we still see growth come through. I think that's just a really strong message, again, like I say, for the visibility of revenue. Just to sort of lay the trail, really.
If you look at our exit run rate and you take the fact that if we had GBP 100 million of flows, that would have an annualized impact of about GBP 200,000. A 1% market movement on the ending AUM would also have about half a million impact on revenue. You can see how the growth comes through the business in FY 2027. Actually, on the right-hand side of that slide, you can see the growth in the AUM from the underlying businesses is still tremendously strong. If you strip Perspective out of FY 2025, the actual AUM growth is just under 28%. That's clearly driven by the strong firm growth with the compound growth over that period from 2020 of 13% and new client growth of 18%. The underlying drivers of growth in the business are really, really strong.
On the next page, we give some overhead analysis. I think the key message here really is two things, actually. The cost allocation within the group is very consistent. There's no significant change in the cost. We always say, and we never have since IPO, hit a cost cliff, and there's no reason that we should do that going forward. The other point that I'd like to make is that the 60% of our total overhead is actually people cost. More importantly, the variable pay within that people cost, around 28% of that 60% or GBP 4.3 million, is variable pay and paid on performance.
That's a way of us managing the business in terms of if we get a downturn in markets or a downturn in flows, then clearly that variable pay doesn't get paid and protects earnings and therefore protects shareholder value. On the right-hand side, we just show the wall really between the 15.6% growth in total. Actually underlying is around in our guidance of 12%-12.5%, split pretty much evenly between inflationary and investment. You can see there the 0.8, which is the performance-related pay on the back of a very strong year this year. On the next page, on the balance sheet, I think the key message here is we have a pretty pristine balance sheet. Net assets of GBP 55 million, strong return on capital employed, which is very unusual to see from a business of 53.4%.
Good cash with GBP 34 million. It's probably an important point to make that we're debt-free also. The GBP 1 million in goodwill is our investment in Absolute, so that's the only significant movement in the balance sheet this year. From a regulatory capital perspective, clearly we have qualifying capital resources of GBP 21.5 million or 400% headroom there. Actually pure headroom is actually 300% or GBP 16.1 million. From a cash flow perspective, cash from operations was a strong 120% of operating profit. You've also got the inflows of the interest, which we discussed earlier as well. There's relatively normal elements of cash flows going out with dividends and tax and so forth. The two elements that need probably highlighting is we acquired GBP 4.9 million with our own shares as a sort of hedge in our EBT for future options.
The investment in Absolute, GBP 4.7 million, which we'll no doubt touch on later as well. Finally, we have a guidance and outlook slide. I think we've split this into two sections, really. The prior year guidance, it's really just to demonstrate that the guidance that we gave you last year and where we've landed with that guidance, we've pretty much either hit all the guidance or exceeded, which I think is a very positive point. We take our guidance super seriously. The FY 2027 guidance on net flows at GBP 200 million-GBP 250 million. That's what we're guiding to in FY 2027. A consistent GBP 2.7 billion there. Our bps or yield on that revenue should increase to 22 bps now Perspective wash through.
Our underlying cost increase will be that 10%-12%, which we guided in the prior year as well. From a future dividend policy, we're maintaining our dividend policy, which we've always said is progressive. It's 70% adjusted earnings, and this year we're going to split it on a 1/3, 2/3 basis.
Thank you, Paul. I hope we can move forward to the strategy piece and start off with slide 21. This is our roadmap for growth. The GBP 30 billion being the finishing line in 2029. As you can see, we're making really solid progress towards that. Our sort of target area should be around about 40% of the target at this stage. In reality, we're running at 72%. As I mentioned earlier, there's been some question about what speed or what pace we will get to that GBP 30 billion target. We've also been sort of asked about what the next target would look like. We're very keen to get the first one or the second target before we start revising and coming forward with a new number. That's all very positive.
I think on slide 22, you can actually see exactly how this lovely world is growing. Assets continuing to pile into platforms. You can see the number there in adviser-led platforms is now up to 991, but that's at December 2025. We're well and truly through the GBP trillion mark now within the platforms, which is obviously very encouraging. You can see that MPS is sort of 22% of that position. That actually has doubled over the last five years when you look at it. It's still 22%. The question that gets asked there is what percentage of those total FUM sitting on their platforms will actually ultimately end up in MPS. We think over the next five to six years it could go to 45%, maybe 50% of the total.
There are others within the industry that are coming forward with similar comments as well. We're looking good. When you look at our market share as well, and you strip out the prospective piece, our underlying market share is actually up a couple of notches to 11.3 from 10.9. We're competing in the same place with the same kind of competitors. There are lots and lots of MPS providers out there, probably over 200, 220, 230. It really is a question of who isn't an MPS provider. We're very happy with where we sit. We're happy with our pricing at 15 basis points, and we've got a slide on that later. We're competing nicely and getting our just deserves. Of course, as a CEO, I'd like to see us improve our market share.
As this is a growing market and we're performing relatively well, we can't be disappointed on holding and, as I say, just a slight little uptick on our market share moving forward. When you look at the competition, ourselves and Quilter control around about 25% of the flows going into MPS. If you drill down a little bit deeper on that, you can see that actually the top 10 MPS providers get sort of 60% of the flows moving forward. It's very difficult for the smaller ones to actually build scale and get moving forward. We are seen as a first mover. Some people have used the word pioneer, which is a little bit strong. We are being rewarded for our position, and we've got a lovely, consistent investment performance, which goes back 13 years now.
We've got a real solid base on investment returns. We've got the right price, we're very active, as you know, in the IFA community, going to as many IFA meetings as we possibly can every single week. We've got another slide on 23, which looks at our evolved or tailored selection from co-branded to white labeling. Seen a nice healthy increase in the number of arrangements there, up to 71 now. Did say last time that we'd like to see that get to 100, and we still would. As you can see, over the year, we've had GBP 1.2 billion from those 71 arrangements, which is fantastic. Just to make the point that these are all at full margin of 15 basis points and not on a reduced margin.
Funnily enough, IFAs start saying, "Actually, I'd quite like be joining you on the investment committee room for the appointed investment adviser position." When they actually sit down with our investment team, they really quickly come to realize that they're not really going to add any major benefit to that team. The team are so well equipped on research, et cetera, that they just decide to go further down towards the white labeling or co-branding. The conversations do start with the IFA saying, "I'd like to be part of the committee," and then dropping back from there. Another new slide from us is slide 24, I think this is an incredible slide, really. We've got a lot of data now. We can drill into how much, on average, assets we get in year one from IFAs, from new IFAs.
We can see how much we get on average in year two from them. We can see in year three what we can get, in year four, and we've just for the first time went to extrapolate what this could look like over the next 10 years. I make the point that this isn't a forecast, this is really an extrapolation. When you look at it's really interesting. If you look at what we've done so far, Tatton's grown on a compound basis of about 23.9 in FUM terms. We've got a base of 22.8 AUM in March 26th. We've got 1,218 firms who are already working with us, as you can see from that first slide.
If we work on our averages of those firms coming in in year one, year two, year three, and actually adding to the situation, we can see a further GBP 23.1 billion there. If we continue to bring new firms on at a pace of, say, 100 new firms per annum for the next five years, and then we reduce that down for the second five years, culminating with a total of 1,850 firms. That's not a massive number. For example, I think the last time I saw anything from Brewin, it was around about 1,600, 1,650 firms that they were working with. If you did that, you could add another GBP 13.9 billion of FUM. Add the three together, in 2036, you're just about at GBP 60 billion.
That would obviously be a reduced compound rate of growth. I think when we did the maths, it looked at around about between 10% and 11% compound. It's realistic, and I think it just really goes to show, again, as Paul said, the strength of the model. If we keep doing as we have been doing and keep executing the plan, this sort of number is not a crazy number to shoot for. I'll leave that one for you to ponder. The next slide 25, is a further endorsement of that. That's our old saturation slide, which again, you can see the total opportunity. If we can get as close to the firms as we have done with the Paradigm firms is that GBP 26.3. It backs up the stats that we had in the previous slide.
We move on to have a look at a few surveys. I thought this was really interesting on slide 26. How many firms now see MPS as core? It's now 38%, that's a healthy increase. That's up from 26% last year, a 12% increase on that. MPS is a core proposition for them, kind of endorses the fact that we think we'll get to 40%-50% of the total FUM on advisory platforms. multi-asset multi-manager is still playing a major part. When you look at multi-asset multi-manager compared to the fund performance of MPS does really well there. Reduced costs and good performance, it's a real true competitor to multi-asset multi-manager.
This is the amazing one for me, is there still are such a huge amount of firms who are still running their own portfolios, still running advisory model portfolios, which as Reece says, it isn't scalable, it's not a good use of their time, and it's low-hanging fruit for us. If you look at the right-hand side, you can see that 59% of the firms have gone for the outsourced Tatton-type MPS proposition, and 41% are still doing it themselves under that advisory piece, which is very clunky and time-consuming, and not an efficient use of their time. Go to our next slide on AI. AI, we had the Altruist thing, didn't we? We had this situation where everybody thought the world was going to completely and utterly change. Would IFAs exist? Would they be replaced by an AI bot?
Would MPS continue or would that be replaced totally by AI? Would the platforms be replaced by AI, and would we continue to thrive? We had that sort of melee of concern around it. We got a wee bit angered at times at some of the comments that were made. Just to sort of go back to my point at the start, AI is superb for both the IFA community and the way that we operate, and we embrace it, and we should all embrace it like crazy, but we shouldn't see it as a threat to what we're doing. Let's go back and look at IFAs first of all. IFAs can really, really benefit from AI. AI can get rid of a lot of the mundane stuff that they spend an awful lot of time on.
I'm thinking of suitability reports, the annual confirmation to the client of the suitability of the advice that's been given. A lot of the areas where the IFA is spending time can be replaced by AI. We are seeing IFAs adopting AI and winning on the back of that, saving time and enabling to get more clients on board because only 9% of the population get IFA advice, which frankly isn't a great number. There's huge demand for what they do. IFA world not being replaced by an avatar will continue to thrive in our eyes. When you look at MPS is a service, it's not a product. IFAs have decided to outsource and remove themselves from that responsibility of managing clients' portfolios.
It's released them to have a better, more scalable business underneath them and enable them again to go for more clients and build up their FUM at a time where PE is all over the industry and basically consolidating. We like consolidation. We think it's a good thing, and it's given great valuations to businesses, which is encouraging people to build businesses and bring their families into the business to move it forward. We actually think when you look at MPS, it is a service, it's a proposition for the IFA to go back and use AI and create their own MPS models. This would take them back an awfully long way to taking responsibility for fund management again, and that just does not seem to make any sense whatsoever. They've got to rebalance all the time. They'd have to go back to the client to get a signature.
They'd have to go back onto the platform every time to make the change. It's just not a feasible proposition, therefore we're not at all concerned around that. Finally, if you look at our own operational piece, we're using AI extensively within the business when we're reconciling trades. We have a six eyes principle where we check, double-check, and triple-check, but we can now use AI to do that as well and add into that and actually start to look where maybe a cell or two has gone slightly awry, and that can pick us up. We're already utilizing AI within the business. I'm sure Lothar will talk about that later on. You've got this regulatory mode too. You've got a situation where these AI tools aren't authorized by the FCA, and a lot of them go at great pains to explain that.
Also you look at all the changes that have been made over the last 11 years. I think there's 77 changes that have been made to legislation around pensions, inheritance tax, et cetera. You've got this trust paradox where actually it could even enhance where the IFA sits with the client. Clients may end up actually paying a premium for this advice piece moving forward. I think we're comfortable on AI. If we move to slide 28, you can see that MPS has got a competitive position. Why do IFAs love it? It actually takes them away from it and puts it into a specialist's hand. It reduces their compliance risk, and it really, really sits very well under Consumer Duty. That's the reason why we actually believe that the assets will move forward and obviously improves efficiency.
You can see on the right-hand side where Tatton fits in. We were the leaders at 15 basis points. We've been 15 basis points right from the start. We think that is the industry norm. If it isn't, it's so close to being. We saw Fidelity join the MPS world about two months ago, and they came in at 15 basis points. I'm sure they did a really good sort of study of the marketplace before they came into the market, albeit late. I thought it was interesting they would come in at 15 bps. Yes, there are one or two that actually are cheaper, but I think you get what you pay for, and there's always certain nuances between us and the competition.
We've got that lovely 13-year track record that has been so consistent, that is our watch word when it comes to our investment outcomes, and we have an extensive range. On slide 29, we've actually drilled in to show how competitive we are because it's not just about the IM fee or the MPS fee, it's also about what is the total cost of investing for the client. As we get bigger We can demand better discounts, because of our scale, we can reduce the OCF. As you can see from the table, we've got a very attractive OCF when you look at it and add our normal holding charges and our IM fee, you can see that we are super competitive around that level. We did a little bit of work internally on brand awareness. I personally think this is a great slide.
My colleague on my right actually thinks, is it so good? I'm going to lead with why I think it's so positive. I think that's the yin and yang of the CEO and the CFO working together. That slide basically shows how firms think of us if they've not used us, and those firms that have used us, how they think about us. I personally love the fact that people who are using us actually see that we're professional and credible, that we're a brand they can trust with their clients, and it feels totally relevant in this good quality situation. They're really strong parameters for me. That says that we've got a lot of satisfaction from the firms that work with us. Obviously, if you don't work with us, it's hard for you to judge.
Once we've actually won them over, we're doing incredibly well with that. I think that's a real strong piece. That's further endorsed by slide 31, which basically just shows you that we're seen as delivering good, strong performance. We're weak where it looks-- when you look to see are we a large provider? Are we a leading brand? I think we're a punchy brand in MPS. I think our brand does very well in MPS. You wouldn't say we're a leading brand right the way across the piece in the financial services industry, and we're still relatively young, aren't we? Obviously, I think there's a little bit of work there, but that will come as we mature and grow moving forward. Finally on Paradigm. Paradigm's done so well.
The Paradigm consultancy piece has continued to do what it says it will do, and we've seen lovely improvements in mortgage completions, which the team have done incredibly well with. We've seen an increase in our member firms, and we've actually had some real big accounts that have moved across to us, and have joined us, and are helping us on those completions. I think whilst the mortgage market is still difficult, the housing conditions are still impacted obviously by the macro piece, and confidence isn't as great as it should be or could be, we're in great shape on that. Whilst Paradigm becomes a smaller and smaller part of the group, I think it's now 13% of our total revenue. It's still playing its part, and we're very pleased with the performance there. I think without further ado, I'll pass over to Lothar.
Thank you. Thank you very much, Paul. Yes, just a couple of words on the investment side of the business. It was another year where you could have really gotten it wrong, starting with the Liberation Day drawdown, and then the very strong earnings growth that persisted throughout last year drove markets higher, even led to certain frenzies or heights, if you think about what happened first in crypto than in gold, very obviously the Mag Seven, which came down. Nevertheless, overall, last year, for the first time in a long time, the U.S. market underperformed the global markets. We were well-positioned for that. We had underrated the U.S. while staying somewhat neutral on the Mag Seven and AI. Nevertheless, from time to time, you suffer a little bit with your positioning as things go against you.
Overall, it resulted in a very decent outcome for our portfolios. Our base case for this year is, well, we already sit on pretty healthy single-digit to almost double-digit returns across our portfolio. I wouldn't mind if we closed the year on that. There isn't even that much more required. If we look at just the one-year returns on the next slide, we can see as per the end of March, very healthy returns. That was obviously, to a large extent, also driven by the base effect of starting from the low point of the approach of the Liberation Day market drawdown last year. I'm very happy to say where we stand now, and the Liberation Day drawdown well behind us, that the portfolios still look quite similar as the markets have now recovered from Gulf War number three.
Overall, we're quite happy with where we are. It also has to be said that end of March was a slightly strange valuation point for anybody who invests through third-party vehicles, through funds, because the funds tend to price on the previous day, lunchtime. With the U.S. markets, if you think about it, that can be up to 18, that you're trading up to 18 hours. Meaning that if you get a significant upsurge in the markets, as we did this year on 31st of March, then your performance figures versus index figures can lag. That is exactly what happened. I'm still very happy with what we see on the performance slides, relative performance slides, which now follow.
On 36, the next slide, we see our comparison against the ARC peer group, and it has to be said that the ARC peer group there is initially calculated or extrapolated based on index returns. Just taking the historic investment allocations and extrapolating them by index returns. We're looking pretty strong there. Looking even stronger now, but very happy with what you see there in terms of the outperformance for one year, three years, five years in annualized figures. That's the peer group against just the core. If we move on, we've also put it as usual on the risk-return picture just to say this is not just about us taking more risk.
We are aligned with the risk profiles, although the ARC falls a bit short of what's really going in risk profiles in the markets in the U.K. We're very evenly spaced out and putting in a very solid return there. That's the one year. The next page, similar picture over the three years. Our green dots nicely above the black dots of the peer group. The next slide, the five-year. The next slide, even the 10 years, because we have got 13 years of track record now, which also makes us a little bit of an outstanding competitor here in that we are able to show very long performance track record. The last relative slide is the ethical performance of our ethical portfolios, and we're only showing five years here because most of our peers only have five years. We've got 10 years.
As you can see here as well, we are showing strong performance. That gives us a really strong backdrop in terms of where markets stand because we have a wide variety of choices for advisors so they can select from our model portfolio family wherever their client's particular interest lies. If we compare against our closest competitors, that's on the next slide for a five-year annualized return comparison here, we're looking pretty strong. As usual, we're right up there with our closest competitors, Quilter, the Quilter WealthSelect. Quite happy where we stand in terms of the consistency of our returns over time. We tend to be pretty solid where we are there, and we see others fluctuating perhaps a bit more. The quartile rankings on the next slide, we actually took those for April because March was just too distorted.
They've since further improved. We're very happy with where we're standing there. First, second quartile is exactly where you want to be, because that moves you into the first quartile over the longer time periods of three and five years, which is exactly what happened. The distribution of our assets under management across on the next slide shows that we've had a shift more towards the hybrid and blended. That, to some extent, was driven by the efforts from Perspective, leaving us that we're more heavily focused on the tracker propositions. We have generally seen not just a move back more towards hybrid as active managers have been able to find alpha again as we've had quite a bit of rotation opportunities in the markets over the last 12 months.
We've also, and you see that at the bottom, seen a slight uptick in client monies going into the active, aggressive, and global equity, although to a certain extent, that will also have been driven just by the sheer outperformance of equity over bonds over that time period. We mustn't read too much into it. The last slide is just briefly on the FCA's multi-firm MPS review. At long last, the regulator has come out with its long signposted MPS review, sent out a survey to 40 of the 200 MPS providers. Obviously we were part of it being one of the leading MPS providers. We're very comfortable, very happy with their focus on Consumer Duty and how that's applied across the DFM MPS sector.
We have and will go back to them before their deadline early in July, they've already said we can't really expect much feedback from them before the first quarter next year. We'll have to see and wait what they're actually going to come out with. Their focus is, as usual, very much on client outcomes, transparency of prices, and any conflict of interest that may be arising here. That's it.
Thank you, Lothar.
Back to you.
Hannah, I think back to you for questions.
Thank you. We do have a number. Let me bring them up. Do you charge client management fees on cash held in accounts?
No.
Let's see. Very simple.
No, we don't, but there is a platform requirement of 1% cash in portfolios, and the DFM fee is charged on the whole portfolio. If you want to be pedantic, yes, there is a tiny fraction of management fee on 1% that has to be in cash.
Sorry, Paul.
Thank you. You've already mentioned that you're discussing a new target beyond GBP 30 billion. When can we expect an update?
I think what we do there, Hannah, is we go through the GBP 30 billion. I think it is premature to actually come forward with a number until we've actually achieved that GBP 30 billion. I'd rather wait until we get there, and then we will be coming forward with a new plan then. I just don't want to race forward. I think the only thing I can suggest you look at is that slide 24 to get some kind of idea.
Okay. What average management fee are you targeting on that GBP 30 billion?
We're saying 15 basis points.
Thank you. As Tatton gets much bigger over the next five to 10 years, are there any ways that your IFAs will benefit specifically because of that scale?
I think the big thing really would be, as we continue to gain scale, is we have effectively more bargaining power with the collectives that we work within and in the portfolio. I suppose, the bigger we get, the stronger we get around that, which would be reflected in the reduction in the OCF for the end client. Yeah, that would be the strongest element. I think that would really, really help.
Thank you. Are you seeing any evidence of MPS being used for higher value bespoke clients?
That is a very good question. Yes, we are just starting to see a little bit of that. We're starting to see some IFAs look at their sort of BPS or traditional wealth management investments that they hold for clients and saying, actually, have they performed or outperformed the MPS? Obviously, it's more expensive to be there, we are starting to see this transfer from BPS- MPS. I think you can see that from some of our competitors as well, where there's a movement away from BPS towards MPS.
Yes. One investor is thanking you for your AI comments, suggesting that there was one crucial point missing, which was that AI will lead to fee pressure since you and everyone else can be more efficient. Do you see AI applying pressure to costs?
To be honest, I think, to start off with, we're seeing it as an assistance. It's not actually reducing cost just yet. Maybe in the course of time, that might have an effect, and possibly that could lead us into that. I think these are still very early days for AI, and where we're utilizing it within the business, this isn't affecting headcounts at all. It really is just helping us be more efficient. It's not a point where we're swapping AI for people.
You like the slide, Paul Hogarth, of your brand awareness.
Yeah.
Given your success, why is it so low, and what are you going to do to address it?
I just think it's really because we're still seen as a small business. The question, it's all how you make the question, how the question is framed. You can't say that Tatton is a major brand in the world or in the U.K. financial services industry across the board. It's a major brand in what we do, and we're seen as an industry leader in what we do, so we punch above our weight on that side. We haven't got that broad church of offerings that lots of other players have, and we don't actually go to the consumer for business either. We're very much an IFA-focused business. We're a B2B proposition. I think that's absolutely the right place for us to be. We're still relatively small, aren't we, when you look at where we are in the industry.
As I say, that will come with time, with maturity as we grow. I think also, we're really focused on what we do. We're sitting here saying, actually, we love the world of MPS. We're not rushing to do other things. We're not creating our own platform or offering some sort of integration for our IFAs. We're remaining completely, and that's where we're focused in the world of MPS.
Okay, thanks. A couple of questions on Perspective. One, are there any other Perspective-type risks still out there? Two, now that the contract's gone, are there any of them staying with you? Is there a potential upside from those that, like the Tatton offering?
Yeah. Again, really good question. I think when we look at Perspective concentration-wise, that it was a one-off. We didn't have any other relationships like Perspective. Perspective was done at a reduced fee. We grew up together and moving forward. No is the answer. There's no second Perspective in the wings or anything like that. Concentration risk is not a concern for us at all. Our second largest business was Absolute, which is obviously part of the new Absolute position because that's been bought. I think then you drop down to something like GBP 300 million, would be one of our larger ones. Then you've got this huge sort of number going through to the 1,218, all with smaller amounts. I'm not at all concerned about concentration risk.
And-
The second part of the question, really, have we managed to get assets back? We've had some dribs and drabs so far. It's not been as good as we'd hoped.
Perspective compliance teams are working very hard to retain their clients. I think it very much depends on how the new provider of the MPS process actually does perform. If they make some mistakes or if we start to compare us with them on a regular basis and they're not performing, I think that'll make our job a lot easier to drive some of these assets back.
Okay, thank you. What is the risk that the FCA will require scale benefits to be passed on to clients through tiering of fees?
I don't think it is a risk, to be honest. I don't think that's their scrutiny. When we look at the sort of the MPS review, and the questions that they've asked, they're very high level right now. I think it's really trying to understand exactly the market and the differences between the different providers. The questions are all around, how many portfolios do you offer? How do you do it? What's your pricing like? How do you manage any conflicts of interest that might be? It's all very high level right now. I don't think they're interested in looking at fees and deciding that they need to be scaled or whatever. I think that the regulator has always, in my mind, always left all of that to the market to find its way and the market to sort of push to whatever the pricing needs to be.
I can't see that changing.
Okay. Couple of questions on Absolute. Can you expand on the rationale for it? How big is it, gives you your ability to attract and retain deals from IFAs as part of the deal?
Sure. Again, super question. I think when you look at Absolute, we have a lot of member firms, whether they're Tatton or Paradigm or whatever, who are reaching a level where they do potentially want to retire or exit. We were having people saying to us, "Some of these consolidators want us to move platform. They want us to move into their own host version of what you do. We're very happy with what you do. Can't you have a solution that sits out there that's available to us?" I think that's where Absolute takes us. That Absolute position means that we've got somewhere where we can refer that IFA to where we know they're not going to have to, or be forced to actually move to another provider. We've seen Absolute has had a lovely start.
They've bought about 12 businesses post the purchase of the Absolute business, and about a third of them have actually been Tatton firms and Paradigm firms, which is great. From a defensive point of view, that's good for us. Also from an offensive point of view, we believe that, when you look at the firms that they bought, 2,000 of them aren't utilizing us right now. Maybe in time they may want to use us, and we'll get that business by performing and being at the right price. We're not going to mandate any usage of Tatton within Absolute. It's just where it can be done and IFAs want to do it, and then of course, they can avail themselves of our services.
Right. You yourself said it's a question of who isn't in MPS these days. On that basis, can we assume that acquisition opportunities have been on the ground? Are you seeing anything with prices, valuations?
Yeah. Do you know it's still not happened yet, 220 odd. There's got to be consolidation of the MPS world at some stage, it hasn't actually happened yet. As and when it does, we would love to take part in that if we can see that we can buy businesses that's earnings enhancing, which is obviously been our promise to the city.
Okay. Finally, two questions again on international opportunities. Which countries would you look at? What's got the right profile?
Yeah. I think as we said earlier, MPS is not just a U.K. phenomenon. There are lots of territories that adopt and utilize MPS. Some are much more mature than others. The States, for example, and Australia are very mature. We would look for a territory, and we are in discussions and having early discussions with certain territories where we believe that there's a thriving IFA community, where they use platforms as their custody, so it would all fit into us. Also where the regulator, I suppose, is starting to focus on reducing the cost of investing in that particular country. That would fit into where we were sort of five or six years ago.
If we could get that kind of backdrop, we would like to be involved and maybe take a stake in somebody who's already on the ground and operating in the MPS world in that country. That's what we'd look to do. I can't actually give a territory right now. We are just doing our research and also in early discussions, so, hopefully there'll be more of that later.
Thank you. What news can you offer on the JV, which was acquired a few years ago?
Certainly, Paul can talk about 8AM.
Yeah, I mean 8AM, we acquired back in 2021. We own 50% of the business. We have an option to buy the further 50% in FY 2027, October 2027.
The business has been performing well. I think the AUM last year was just under GBP 1 billion. It's closer to GBP 1.5 billion now. It's had very strong flows over the last six months. Yes, I'm super happy with its performance. We'll see how it gets on over the next six, 12 months or up to the point where we look to acquire the second 50%. If and when we do acquire that 50%, we'll keep that business separate. It won't be rolled into Tatton. It'll be a separate brand and a separate business.
Okay, thanks. Sorry, last question's coming in. GBP 16 million headroom in capital. What are your plans for it and how much is freely deployable?
The GBP 16 million is all headroom. There's an element of the acquisition that I just talked about, potentially closer to 18 months' time, 15, 18 months' time. We also have the other GBP 5.3 million that we will be investing into Absolute. We've committed up to GBP 10 million for Absolute. We expect that to be over the next 12, 18 months, perhaps even two years. There is a runway. That said, though, over that period of time, we will obviously increase our headroom as well. Certainly once we file these accounts, and obviously when we file the interim accounts as well. Essentially what you should also expect to see is the cash to continue to increase as well.
That's it for the questions.
Hannah, sorry. I just wanted to put the earlier question on the cash, a little bit of perspective around it. I think it stems from the fact that one of our competitors, might have been even this week, announced that they wouldn't charge DFM fees on cash anymore. I think it's worth noting that this competitor is talking about assets under their own custody, where they're already taking a clip on the interest on the cash, and therefore really you could argue that there is a conflict of interest then also charging a DFM fee on it. I think it might have been cleaner to actually not take the clip anymore rather than the smaller bit of the DFM fee. That's just to put that into perspective. We obviously haven't got our own custody.
We only operate on platform, and therefore we are not taking any clips on cash, and that was really what Paul was referring to when he immediately said no, because obviously we're not.
Thank you for the clarity, Lothar. Thank you to you all for your presentation today, to our audience for listening. There's feedback coming up at the end. Please do fill it in, and we'll look forward to hearing from you in six months' time.
Thank you, Hannah. Thank you.
Yeah, thanks everybody.
Thank you. Bye-bye.
Bye.