Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Banca Generali's 9 months 2020 results presentation. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions.
At this time, I would like to turn the conference over to Mr. Gian Maria Mollosa, CEO and General Manager of Banca Generali. Please go ahead, sir.
Good morning, and welcome to our Q3 results conference call. Let's start saying and let's start by saying international that these 1st 9 months are among the best ever for the bank. We reached the highest level in terms of assets at 70.4 percent, the highest level in terms of managed solutions €34,500,000,000 and the highest level in terms of assets under advisory 5.4. These numbers are the consequences of a very sound commercial activity with total net inflows at €4,100,000,000 in the 1st 9 months of the year. As a consequence, all the operating components increased significantly and while the net profit has been in line with last year due to one off components.
In terms of capital position, we provide 2 different measures, the stated TCR and the pro form a. The stated is once we reallocate the 1st tranche of the dividend to the equity, while the pro form a continue to consider the capital ratio ex the first tranche of dividend. And I can anticipate the numbers are continuing to increase and we confirm our intention to distribute this amount of money as soon as possible, but we will come soon on this topic. Page 4, there is our usual representation of P and L. First of all, it's pretty evident that there is some increase in total banking income 10% driven by net interest margin and net fees.
Cost on like for like basis, so excluding the 2 acquisition are in line with our expectation with core cost in at 2%, up 2% year on year. And as we said, the net profit are in line with the record year over the last of 2019 due to basically higher provision. If you look at the scheme at Page 4, you see that we had a piece of information. So we allied the contribution to banking funds. Contribution to banking funds jumped from minus $7,000,000 $7,000,000 up to $11,000,000 And another negative impact in terms of provision is that we have changed the discount rate for the different provisions.
So provision for social security, provision for the portfolio valuation and the provision for, for example, the Fidelity plan of our network. Tax rate at 22% that is in line with our guidance for medium term guidance. And so the result is that net profit at €196,000,000 If the number is in line with last year, the quality in my opinion is much better and you can see it at page 5 where we break down we have the breakdown net profit, 2 main components, recurring net profit on like for like basis and variable net profit. Recurring net profit increased from €108,000,000 to 116,000,000 and you see on the right that on the positive side in the buildup, net interest income and net fees contribute positively for more than €13,000,000 while on the negative side you see a negative impact of the increase of provision and the level of tax. So page slide 7, as usual, let's go through line by line, starting from net financial income.
Net financial income in the 1st 9 months jumped at jumped to 77.1 with the trading income almost flat and the net interest income increased by €13,000,000 On quarterly trend, you see that in the 3rd quarter, the contribution, the net interest income increased at 24.7%. This is also thanks to the LTRO contribution. The yield of net interest income in the 3rd quarter reached 0.86 and this increase in the net interest income is confirmed and is driven by basically asset expansion. So interest bearing assets increased $1,000,000,000 in the last 12 months. We optimize cash management in the banking book, so minus 0.04 compared to minus 0.13, a stable financial yield on financial assets and a marginal reduction in the yield loans to clients basically because as you know, we introduced a number solution and we reduce a margin risk of the lending activity.
Page 8, we go through the gross fees. Gross fees increased by almost EUR 40,000,000 pretty impressive jump in the Q3 due to some seasonality effect. We haven't achieved the highest level for the year. You see that the Q1 is still a little bit higher, but we are confident to exceed these numbers in the Q4 for this year. If you look at margins on total assets, you see that Q2 we bottomed out with 1.12% increase Q2, sorry, and the number for Q3 is at 1.1 3.
In terms of variable fees, 3rd quarter was pretty good with a contribution of €27,200,000 and for the Q4, we do expect a smaller contribution, in particular October closed with €5,000,000 and we do not expect other significant contribution for November December. Page 9, there is a focus on management fees. In this case, we achieved the highest level in the 3rd quarter with EUR 170,500,000. This is driven by basically the asset expansion €50,800,000,000 and the average assets in the 3rd quarter. And as we said, a gradual recovery on margins 1.37.
Overall, in the 1st 9 months, total measurement fees amount at 496.8 percent. Next page, so Slide 10, we see other fees, so banking fees and entities. Also in this case, year on year, the increase is pretty impressive, more than €18,000,000 On the quarterly trend, you see a lower contribution, €22,800,000 basically due to some seasonality effect and market conditions. So we had less and lower contribution in terms of structured product. We accelerate on this initiative at the beginning of the year and we announced a sort of back to normal for the 2nd part of the year.
And October started pretty well. On the right of the Page 10, you see the contribution of the new revenue streams. Also in this case, the increase in the last 12 months is pretty impressive, is almost €14,000,000 and so total contribution is at EUR 45,600,000 and we can see the breakdown at Page 11. At Page 11, there is a representation of the 3 new revenue engines and the target that we announced during our roadshow in London at the end of 2018. BG4 Advisory, so asset under advisory, The contribution for the 1st 3 quarters is at 18.3 and we do expect to exceed €24,000,000 for the full year.
It means that we reach the upper band of the range 1 year in advance. Certificate contribution at 12.3 €1,000,000 and the target at the end of 2021 was €10,000,000 And also in this case, we are confident to exceed €16,000,000 And then brokerage fees, we closed at €15,100,000,000 the 3rd quarter. We are pretty confident to exceed $20,000,000 So it means 1 year advance the lower band of the range. So all the projects are in line or in advance compared to the targets. And I continue to be very optimistic in both trading and advisory services, while the structured products, as I said, we reach the target and from here it will be ordinary business.
Page 12, we move on to fee expenses. From this side, positive news. Let's say, the total fee expense closed at €305,400,000 where the payout ratio to the network closed at 40 7.2%. So it means 1 percentage point lower than the previous year. Here you have the ordinary payout component that is in line with our targets, it's around 36%.
Cost of growth a little bit lower year on year basis. This is basically due to a lower activity in the recruitment. And then there is determination on of one off items. For the end of the year, we do expect a number almost in line with last year because we see an acceleration in recruitment. Payout to third parties, payout to asset managers is in line with the last year, payout to others increased by 0.5.
This is basically driven by the payout to for the Robo4 Advisory platform for UBS. And from this year, we do expect a progressive reduction of this cost. So you will see in the next 12, 18 months again a reduction of the percentage. Page 13, we move on to operating costs. The core operating costs increased by $2,600,000 or 2% and basically the increase is driven by the volume expansion.
So you can see that the G and A increased by €1,800,000 and due to an increase in depreciation, It is about all our investments, while the staff cost is in line with last year. On top of core operating costs, we have an increase in sales personnel costs and this is driven by commercial activity is going better than expected. 0.9 percent the cost of COVID and 14.6 percent is the once we include in the perimeter, next time and volume. Slide 14, you see the cost ratios. We are best in class.
Operating costs on total assets at lowest level ever, 0.31, confirming the good number over last year and cost income lower than 40%, both the reported and the one was adjusted by performance fee and other variable components. So last page of this section is about capital position. Focusing on TCR, you can see that the 1st 9 months of this year closed at 16.5%. This is a pro form a with an increase of 0.8%. Consider that we applied a payout ratio on the net profit over here at 80%.
So it's a very conservative approach. On top of this 16.5%, you have the impact of the reload of the first tranche of dividend for 2019. It accounts for 5.2%. So the final result is in TCR above 20% at 21.7%. So let me spend some more words on the dividend policy and on our intention.
I confirm the intention of the bank to distribute all the dividend in 2019 in next year. So it means that the second tranche is confirmed that it's 0.3 in the Q1 and we will call for an AGM next year and we will have to distribute also the first tranche, so €1.85 On top of that, we confirm our intention to distribute at least EUR 1.25 for this year. So summing up the 2 main components, it means that at the end of next year in 1 or more tranches, we will pay a minimum of €3.1 That means a dividend yield higher than 10% as of today price of the stock. And so just to be clear, 0.3 is the 2nd tranche and it will be paid in the Q1. We will ask for payments also to pay also the first tranche that is 1.5 5, sorry, and then a minimum of 1.25 for the result of this year.
Of course, this depends on any other recommendation of ECB. But we are pretty positive that sooner or later we will be able to distribute extra capital in excess. So to sum up, I'm very proud of these 1st 9 months results because the revenues are very sound and solid and are the results of 2 different elements. It's really important to understand our business model. On one hand, we announced at the end of 2018 a multi project approach.
So we released several initiatives asset under advisory, structured product, brokerage, wrappers and wealth management services and so forth. And this gives different opportunities in the commercial approach. So this is the first element. And the second element is a financial advisory network able to leverage these capabilities, these platform to increase productivity. So a very diversified approach in terms of revenues and the most efficient distribution channel.
Page 17, we deal with total assets, 70.4, as we said. In terms of managed solution, a new record high 34.5, where if you compare this number with the same number in over the 1st 9 months of last year and we are at the top right of the page, you see that in terms of the stock, all the different kind of products contribute positively. In house funds, 3rd party funds, financial wrappers and insurance wrappers. Traditional life policies are pretty stable and this is the confirmation of a change of approach. We want to keep almost flat and change the stock of traditional life policies and focus more and more on insurance wrappers and in house products.
And if you look at the numbers for the 1st 9 months, you see that in house funds and wrappers, insurance wrappers are the higher contributor to the increase. So as we announced now we are more focused on this kind of solutions in order to maintain the yield inside the traditional life policies for the existing client and to focus on the development of other line of business. In banking products, from 18,300,000,000 to 19,300,000,000 so 1,000,000,000 up where you see an higher contribution of current account and this is basically driven by uncertainty. Page 18, a focus on our BG Fund Measurement, Luxembourg Company. Also in this case, we achieved a new record high €17,200,000,000 focusing on the right of the page, you see on the top the representation in terms of share classes, where on a year on year basis, you see that institutional fund classes are flat, while the retail fund classes jumped by €1,200,000,000 That is pretty impressive because if you look at the 2nd bar graph, we are running off our selection.
So in 1 year, we reduced our total exposure to selection for an amount of €600,000,000 while the Laxim increased by an impressive €1,800,000,000 It means that for every €1,000,000 of reduction in selection, we recorded €3,000,000 in the Luxe Hime. Page 19, there is the focus on net inflows for the 1st 9 months. We accelerate in terms of total inflows 4.1% compared to 3.8 Different positive news. 1st of all, this year inflows has been pretty constant over the year and this is pretty impressive to me. The floor is 1.3.
And if you look at the contribution of the managed solutions, all the different families of products contribute positively to the final result. On the recruitment side, Page 20, as we announced, we resumed the recruitment activity. In the Q3, we had 24 new colleagues joining the bank, split equally 50% coming from FA Networks and 50% coming from retail and private banks. And I'm confident to continue with this path and we do expect in the 4th quarter a number close to 24, 25 new colleagues. In terms of total net inflows by acquisition channel and I'm on the second graph on the right of the page, you see that the contribution of the existing sales force is probably the best ever at 78%.
In the next page, we give also an overview of the numbers for October, one of the strongest month of the year for the bank, above €600,000,000 compared to the 3.67 of the last year, where you see that the mix is more conservative due to the uncertainty in the 2nd wave of COVID. Overall, total net inflows reached EUR 4.7 billion compared to the EUR 4.1 billion of the previous year and managed solution exceeded EUR 2,000,000,000 towards EUR 1,200,000,000. For this reason, for the state of health of our financial advisers, we decided to increase to raise the target for total inflows for this year from the initial number of €4,500,000,000 to €5,500,000,000 It means other at least €800,000,000 in the next 2 months. Now in the last section, we decided to give you an overview on our financial advisory networks, because we received a study provided by a consultant leased company, Reply, on the state of our industry, on the state of health of our industry and they run these study analyzing numbers from 2,008 up to 2019. And in this study, Banca Generali tops the rank, so ranked 1st both in terms of asset expansion as well as in terms of the growth of the portfolio average of financial advisers.
So we decide to present these numbers. Numbers are slightly different from these the research of reply, probably in the research of reply numbers are even better. But we would like to emphasize and to take your attention on the impressive track record in terms of asset expansion, in terms of the increasing portfolio average and that is basically driven on the turnaround and the change of strategy in 2013 where we decided to focus more and more also on private clients. I just published also the MagStart study on the private banking industry. Also this year we are ranked 3rd, first is in Tejas and second is in New Credit, but we are definitely the fastest growing company in this rank.
So if we start from Page 24, we have 3 pieces of information, number of financial advisors and in this period we increased by 26%, while in the industry, we saw a significant consolidation and in the top 5 excluding Banca Generali steady numbers. The second information is about assets. We increased assets with a multiple of 3.5. It means almost 50% higher than the industry. Industry closed at 2.4 and the top 5, 2.6.
And the third information is about assets per financial advisers. This is probably the most impressive information, an increase of €21,000,000 again 50% higher than the average of the industry. And increasing the asset per financial advisor in a context in which you are expanding the number of the financial advisors means that you are recruiting the best in the market. And another information that probably impressed me even more is Page 25, because we run another exercise, We decided to clusterize all the financial advisors in 2 main cluster. In 2013, we decided to accelerate in the strategy.
We decided to open up the architecture to focus on digitalization and wealth management. And so from 2014, we start recruiting also from the private banking industry. So here the 2 clusters are the first, all the colleagues recruited starting from January 2014 and the second cluster is about the most experienced financial advisors, the colleagues in Banca Generali before 2014. And if you focus your attention on the last column, you see that at the end of the day, the portfolio average of the 2 clusters are almost the same, 3435. That it means basically that these acceleration in the strategy in 2013 allowed us to recruit on one end the top bankers in the network and on the other hand to help our financial advisors to increase productivity, efficiency, reaching a portfolio average that is 50% higher than the industry as a whole.
Page 26, there is another piece of information, in my opinion very important, that is about the sense of belonging, the trust in the company, because when you successfully add financial advisors to increase the portfolio and so to increase their remuneration, there is a sort of increasing sense of belonging and recognition in the brand and the translation of all of these is about the numbers of FAs leaving the company. So the FAs that decide to exit the bank. And again, focusing on Page 26 on the first graph, you see that in the 1st 9 months of this year, 31 colleagues left the bank. We have a portfolio average of 7.2 and focusing on these 31 financial advisors on the right, you have a pie with a breakdown of the reason behind this decision. For competition is just about 29%, it means 9 colleagues.
When you have network optimization, it means that we let these financial advisers go away. And then other, other reasons means pension, it means negative event and so forth. On the second graph, on the bottom of the page, you have the churn rate. So these 9 colleagues left the bank and it means that 9 out of more than 2,000, the churn rate is below 0.5%. That's really, really impressive because in our industry is more easier to expect at 5% instead of 0.4%.
Last two slides is a deep dive on the results of the 1st 9 months in terms of contribution to the net inflows by cluster of financial advisors as well as cluster of clients. Just to give you again an idea of the quality of these results, Page 27, you see the inflows organized by FA's vintage. So you have financial advisors joined the bank, who joined the bank before 2008, before 2013, before 2018 and then the most recent colleagues 2019 and the 1st 9 months. And again, I would like to focus your attention on the last row where you see the net inflows per financial advisor by clusters. So colleagues in the bank, at least since 2007, contribute positively to the total inflows by an impressive €1,300,000 each on average, €1,500,000,000 1.9,000,000 It means that even if a colleague has been working for Banca Generali for 15 years at least, we continue to have a very positive and significant inflows.
And this is the best result we can achieve to be sustainable. Page 28, there is the same exercise in terms of clients, 3 main clusters. So the existing clients, clients total clients amount at almost 300,000 clients with an asset per client around EUR 220,000,000 EUR 220,000 sorry, and because it accounts also all the it takes account also of all familiar and so forth. So it's all it's a total assets divided by head, number of head in our customer base. The new clients almost 13,000, it means that also during this difficult year, lockdown, COVID, we successfully expand our customer base within a portfolio average of $150,000 Reactivate clients, this is very positive for a business like ours, because it means that you have clients that in the past decided to leave the company and then thanks probably a brand repositioning, we successfully attract them again.
And it's almost 5,000 clients for 115,000. And then you have the short rate, the exit amounted 8,000 and the portfolio average is around €20,000 so are the marginal and the smaller clients in our customer base. So just to sum up, I think that to fully understand Banca Generali, you must keep in mind 2 main element. We can approach new businesses. We can launch very complex project because we have the best financial advisors in terms of quality, in terms of productivity.
So they can then implement the strategy and take advantage of the several initiatives to provide better quality to the clients and to expand their business. So I'm confident to continue to obtain great results in the short term and we are fully aware that the situation is pretty complex. And so we are all focused in working on the strategy for the medium term to continue to have such a kind of numbers and to continue to over perform the industry and the market as a whole. Thank you.
Thank you, sir. Would you like to begin the question and answer session?
Yes. Thank you. And over for Q and A.
Thank you. Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. The first question comes from Domenico Santoro of HSBC. Please go ahead.
Hello. Hi. Good afternoon. Thanks for the presentation. I do have three questions.
The first one is on dividend. I mean, we don't know yet whether the ECB is going to lift the dividend ban in December. Maybe there is going to be a cap to net profit as we heard from the banks. I mean the language from ECB has been more and more negative recently, but you are not under the supervision of ECB, but the national regulator. And we have seen also some banks in Germany, the cooperative ones, paying the dividend given they are basically under the German regulators.
So I'm just wondering how should we look at this entering into 2021, whether you had already completely different from Commercial Banking. The second question is instead on M and A. Actually, this time, you had been on the press for different reasons compared to the sum. So my question is, in the event of a change in the ownership, what do you think the financial advisor network needs in terms of condition in order to preserve the quality of the franchise that you showed in this slide has been pretty resilient and has improved quarter by quarter. I mean, is it the autonomy of the network that needs to be guaranteed?
Is it better condition, better payout? So a little bit of your thoughts on the on this will be helpful given that, I mean, you have been on the press consider a target actually over the couple of months? And then a question on the pricing mechanism. We know that there is going to be a change that is going to favor more recurrent fees. Can you please give us some color on this?
And whether in the short term there's going to be any loss of revenues or instead this is going to be accretive? Thank you.
Thank you, Domenico for the three questions. Let's start from the dividend ban. You are right. There is some skepticism on the possibility to pay dividends. I think that from next year, the different business model will matter.
And I had informal talks and at the moment, I haven't any significant news. The only my consideration is that my impression is that the business model is a key driver of the decision. It will be a key driver. And I strongly communicate that the retention of extra capital has just 2 negative effects. The first one that it's lowering my return on equity because my business model is cannot change.
And the second that I cannot distribute liquidity in the market, so paying the dividends. I would like to add also a sort of, let me say, unfair competition because if you limit the payments of dividend at Banca General for example, And you do not introduce this band for competitors or if other banks in other regions can distribute, you are creating asymmetry in the market. So for all these reasons, I'm pretty confident, but let's say that it doesn't depend by my opinion, but I'm pretty confident that something will change next year. Even if you decide to cap the dividend, you can pay in terms of percentage of net profit, consider that we still have all the net profit of 2019. So we said that we are talking about a lot of money.
So if we find a way, I assume that we can easily pay the 3 point at least the €3.1 And I'm talking about €3.1 because I'm applying some cap on the distribution of the middle this year. So I'm already applying a very, very conservative approach. The second question, it's very interesting question. I mean, I think that the bank works very well because the perception of the financial advisory network is that there is a full commitment in providing the best solutions and the best products for them. We are a B2B2C company and we are all focused in providing at the 2nd B, the most efficient and powerful platform.
It's about products, services, technology and so forth. So and plus you have to consider that it's not just about this focus 100% on the business, there is also the autonomy because we can decide our priorities and then where is the brand. So these are the 3 key elements. So the focus 100% of this business, autonomy and dependency and a strong brand. And this it's not about better condition, better payout.
I think that we are in line with the market and the financial advisor won't change the brand for a few basis points. Price mechanisms, it's we have been working for the last 2, 3 months to complete the review of our platform. But we are also reviewing our product offering, our banking offering and also some insurance products. And the idea is to offset part of the potential reduction in the performance fee for the next years by increasing margins in different initiatives. We will give full disclosure of this approach in the call for the full year results.
But I can tell you that first of all, we are exploring the new mechanisms for performance fee and in terms for the Luxim, it won't change significantly. And again, we are working to start increasing the profitability in several initiatives, several products. It's not just about saying I want to increase management fees or administrative fee. Is something is more complex. And it's all based on idea to share this approach with the financial advisor nature, with regulators to be sure of the sustainability of these initiatives.
Thank you.
All right.
Thank you very much.
The next question is from Mr. Alberto Villa of Intermonte. Please go ahead, sir.
Good afternoon to everybody. Just a couple of questions from my side. The first one is your view on the fact that the entire industry is currently sit on a lot of liquidity, customers seems to be more inclined to keep high level of cash. How do you think you can tackle this issue? And do you think this is partially due to the pandemic period we are living in and it's going to be temporary?
Or you think it's kind of a more structural issue? And if you think that in the future you have been successful with the management asset managed assets inflows, obviously, this year as in the past. Do you think you can experience a further acceleration going forward? What are the drivers there in your view? The second one is on recruitment.
You mentioned that you're expecting an acceleration in the Q4. I was wondering if there are specific areas in which you're growing. So if you're focusing on private bankers, if there is any, let's say, part of the competition that offers more opportunities than others to grow. And if given the low activity you have had in the past months, you are entering into 2021 with a little bit of lighter contribution expected from Recruit 22 net inflows for next year or you think this is not going to have any impact? And the final question is on the performance fees.
You mentioned you don't expect November December to contribute. I was wondering why if markets may nicely rebound, is there any specific reason why you mentioned this cap to performance fees? Thank you.
Thank you, Alberto. Part is definitely linked to pandemic and so I consider it temporarily. How to take a lead? We are exploring some dedicated initiatives in particular for the beginning of next year. And I think that also some potential changes at the regulatory level could provide support to switch some of these cash into products.
And consider for example that there is also some trends in the market because in Germany for example you see that more and more banks has launched negative yields and also some digital banks and 26. So let's see also the trend of application negative yields. But basically I think that there is a temporary component that will be managed as soon as the pandemic finish. Recruitment, no particular target, consider that in our business, we are perceived as the safest harbor at least in Italy. We have a very strong brand.
So I see raising interest from coming from retail banks, private banks, financial advisors. So no specific target, it's very well diversified. We received several solicitation from the market and now we are considering how to prioritize these potential candidates. The impact for the new year will be almost in line with the previous year. I do not see any significant changes.
While for the performance fee, it's just a very prudent and conservative approach, I have, let's say, a negative view in the very short term on the market after this rebound. We are very, very close to the high watermark in almost all products. So of course, if you see a potential rally for the end of the year, we will take advantage. So no technical reasons, no reasons to say we won't participate with Israeli, but it's just determined by a very conservative view on the next weeks. Thank you.
Okay. Thank you.
The next question is from Gianluca Ferrari of Mediobanca. Please go ahead, sir.
Yes. Hi, good afternoon, everyone. Ciauja, Maria. Three questions. First one is on the NII, the $2,500,000 increase quarter on quarter.
If I understood correct, half of it is due to the $500,000,000 TLTRO. I was wondering what about the other half. So it is linked to expansion of the loan book more than interest bearing assets or the other way around or a mix of the 2. And the link to these, I think you gave us a guidance of a double digit increase in NII this year. I guess we are getting much closer to a 23%, 25 percent increase year on year.
So I was wondering if you can update a bit this guidance for 2020. And what about 2021? I guess there will be some trasinamenti on some initiatives you made in 2020. So I was wondering what should we expect for 2021? The second question is on the asset management and I have 2 sub questions here.
The first one is the 1 basis point increase in margins in the Q3. I know it is very small. I was wondering if there is any particular effect like change in the mix or new product that are explaining that increase in profitability. And also looking at Page 17, if you can remind me the reason behind the drop in financial wrappers that you have experienced this year. The final question is on certificates.
What should we expect in Q4? I think you have been very clear in saying that second half should be a bit more quiet than the first half in terms of production. At the same time, you said October started pretty well on certificates, but more than certificates, I was wondering more on the entry fees overall. If the Q4 will be closer to the $5,000,000 reported in Q3 or closer to the $11,000,000 reported in Q1. So what should we expect in terms of entry fees given a bit of erratic trend this year?
Thank you.
Thank you, Gianluca. So let's start from net interest income. Let's say that the delta Q3 on Q2 is a mix of factors, so not specific initiatives. You have some positive effect on lending, portfolio expansion and so forth. So no particular initiatives.
We do expect Q4 slightly lower than Q3 or in line, it's very, very close or 2. For 2021, now assuming as say negative scenario for the yield, so at this level or even lower and normal activity in lending, we should have almost the same result for this year. Any improvement in the yield stabilization could give marginal increase. In terms of profitability of asset management products, I mean, I think that we will see a steady recovery of profitability. 1st of all, because we decided to because we are focusing our commercial activity on more profitable products.
Think of, for example, insurance wrappers, think of, for example, the Luxim and we stopped the commercialization of traditional life insurance and we in this moment we pay all the attention on let's say these kind of solutions. So I'm pretty confident to see steady recovery on this. Financial wrappers, why the performance why this trend? Let's say that on one hand, we run off some products. This is not exactly financial wrappers, but we include in this definition.
And second, it's due to performance. So we suffered a little bit in particular in the financial wrappers more focused on the European markets. Certificate, quite is the right word. I mean, in the last 3 months, I want a total focus on selling plan on the solution I mentioned before and more than on specific structured initiatives. So if I have to guess, I would say that we will be in the middle of the range between the Q3 and the second one.
But let's say that this is a very positive activity, the structured products. Now we want to focus on asset measurement insurance products. We think that we can optimize portfolios. It's time to invest gradually and so we will achieve this goal. Thank you.
Thank you.
Next question is from Mr. Luigi De Velez of Equidacem. Please go ahead, sir.
Yes, good afternoon. Just one question on the Switzerland. Could you update us on your strategies for the Swiss activities and target for 20 21 in terms of inflows and assets under management? Thank you.
Thank you, Luigi, for the question. Let's say that the Swiss activity has 2 main goals. The first one is to develop a new business and it depends significantly by the lockdown and the pandemic because we have to recruit new colleagues. The second driver is about, let's say, defensive mode, because it's a way to offer diversification of the booking center, the diversification of portfolio management, for example, for the insurance wrapper in Luxembourg. And this business is working pretty well.
And it's also another it's a way to say that in case of, let's say, a spike on volatility, we are ready. So we do not plan significant inflows because we do expect the end of the pandemic in the second half, so next year. We are setting up all the initiatives to be ready both to accelerate the recruitment as well as to provide this diversification. We will ask to the Board of Director to start the regulatory trend to ask for a green a new license in Switzerland, because we think that it's to be ready to provide and to accelerate on this business, We need a license. At the beginning, we explored the opportunity to for say some M and A activity.
Honestly speaking, I met almost all the boutique banks in Switzerland and it's difficult to close the deal accretive for the shareholders and without reputational risk. So for all these reasons, we decided to start the ITER for a new license. So we probably we will see the positive effects starting from the second half of next year. But again, consider it is another way to diversify our offering. It's not just only a sort of hedging from tail risk, but it's also a way to provide a multi booking center approach.
And when you, for example, open an insurance policy in Luxembourg from a private insurance for alternate to individual, the idea to be managed also from different countries works pretty well.
Thank you.
Thank you very much.
The next question is from Elena Perini of Enteza Sao Paulo. Please go ahead, ma'am.
Yes. Good afternoon. I have only one question left, and it is on an overall outlook for 2020, 2021 because putting all together what you were saying about the net interest income that will likely stabilize compared to this year. And also the fact that performance fees will likely be lower. I was wondering what is your outlook for the net profit for the next year, if you expect a flattish trend versus a quite good year given the pandemic like this one?
Or if you are confident that you can increase margins, as you were mentioning, and then offset some negatives on revenue side and start a growing path? Thank you.
Thank you, Elena. You say that personally, I'm pretty optimistic on the outlook for 2020 2021 because I'm pretty confident on, 1st of all, the commercial activity, so growth. I'm sure that we will achieve the targets of our 3 year business plan, both in terms of inflows and as well as the financial targets that we announced in London. In terms of margins, I think that if the market stay at these levels, there is room to increase a little bit margins. As I said, for several initiatives we are launching, It will be launched these initiatives will be launched and say between the first and the second half.
So the full effect will be in 2022. I do not expect a significant impact negative impact on performance fee. First of all, because the change of the mechanism will be gradual and will be probably more in the second half and we complete with Jornay in 2022. And then as I said, it doesn't mean to reduce significantly the probability to achieve performance fee, but it's just tiny changes on the Luxembourg platform. We estimate a potential negative effect around 20%, 30% with total performance fee and we do expect to offset this change in the medium term with new initiatives as I mentioned before.
So let's say that if you consider the lockdown, traditional banking are facing probably the toughest period of their life, smart working and compliance issue and so forth. Our entrepreneurs are very close to clients, even if probably in a different way and are providing on average better services than the traditional financial channels. So it's a question of quality, it's a question of professionals, it's a question of business model. I'm very confident to exceed the market and to over perform compared to, let's say, the benchmark or the financial advisers and even more if you consider the distribution as a whole. So when the commercial activity is sound and solid and you are continuing to grow and the margin are in line or even a little bit higher than the ones we reach this year, you cannot be you must be optimistic.
Thank you, Helene.
Okay. Thank you very much.
The next question is from Angeliki Bayraktar of Autonomous Research. Please go ahead. Hello. Thanks for taking my question. Just one left from my side.
Could you give us an update on BG Saxo and when the platform will effectively be rolled to other clients and not just your existing client base? Thank you very much.
Thank you, Angeliki. Hello, BG Saxo, we are very, very close to the last release of the platforms. It implies the joint account and similar account and the royalties instruments. So we are pretty confident to open up the platform to the B2C clients within the end of this year and is one of the revenue streams that will support it's behind my optimism for the future because we are very, very close to realize the partnership. Thanks to the complete journey of the platform, thanks to the 3rd wave opening up the platform to the direct clients B2C.
And then you know there are also other topics important for example the acquisition of Bing from Saxo because clients will be part of the deal with Banca Generali at the end of next year. So I see several positive news in terms of business opportunity for BGSXO. So we are very close. The second wave, so the B2B2C, so supporting our financial advisors with this new platform is going very well. And so I'm confident also to accelerate in the B2C business.
And this explains why I'm so confident on the contribution of the new revenue engines for the next year. Thank you.
The next question is from Filippo Plini of Kepler. Please go ahead.
Yes, good afternoon. Could you give us an outlook for evolution of cost, operating cost for next year? And if I may, on Perfumaspe, a couple of clarification. The EUR 5,000,000 that you disclosed for October are coming, we can say, evenly from BG Select and Eluxim? And if the planned change of mechanical calculation of performance fee for the second half of next year could accelerate maybe faster than expected the rollout from Vigis Selection to Luxim in the meanwhile?
Thank you.
Thank you, Filippo. So the cost projection for the next year are in line with our guidance over the 3 year business plan, so 3%, 5%. Depending on the pandemic and depending on the revenues and can be closer to 3% or 5%. For performance fee, let's say that the runoff of selection is independent from the performance transformation. I'm pretty confident that in the second half probably with the new Luxembourg platform, we probably could stabilize also the outflows on selection because we will work also on these kind of initiatives.
So basically the idea is that in the performance C mechanism, the iWatermark will be in a time horizon, this is longer than 1 year And this will be applied also to the BG selection in 2022. We will review all the price of both the C cap in order to continue to maintain the assets also in the selection. The net result will be a marginal increase in the profitability of the TUSICA and the net result in my opinion will be a reduction of outflows in the BG selection and not vice versa. Thank you.
Thank you.
Mr. Mosta, at this time, there are no questions registered, sir.
Okay. Thank you, and thank you for having attended our conference