Good afternoon. This is the Chorus Call conference operator. Welcome, thank you for joining the Banca Generali 2019 preliminary results conference call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Gian Maria Mossa, CEO and General Manager of Banca Generali. Please go ahead, sir.
Good afternoon, and welcome to our full year results conference call. Let's start saying that 2019 results are, for several aspects, the best ever. On commercial side, we reached EUR 69 billion of assets, EUR 5.1 billion of net inflows, and EUR 4.7 billion of assets under advisory. On the financial side, net profit at EUR 272 million, and the core net profit at EUR 150 million. Thanks to these results, and thanks to a very solid capital position, we're going to propose a dividend at EUR 1.85 per share. Last but not least, all the initiatives we announced during our Investor Day in London are well on track, and they will contribute positively also to the results of this year. Starting from page four, there is a focus on the dividend proposal to the AGM. It is a two-step dividend at the highest end of the guidance.
In particular, the proposed DPS is EUR 1.85, as we already said, of which EUR 1.55 to be paid on May 2020, and EUR 0.3 to be paid on January 2021. The overall payout ratio on total earnings is at 79%, and this two-step dividend payment has been introduced in order to smooth the dividend trend over the time. Next page number five, you see our usual short representation of the P&L. Total banking income up 28.6%, operating profit up 41.1%, once included, investment and cost for accelerating the strategies for M&A and some one-off. If you consider the contribution below operating line was positive, let's say positive, thanks to lower adjustment and lower tax rate. Net profit EUR 272, the best ever for the bank. Page six, there is a representation of net profit trend, just to give a medium-term view.
If you look at the graph bar, the gray part is about the variable net profit, and you can see the volatility over 10 years. The red one is about the recurring net profit. You see that stayed improved over the times, with impressive growth of 181% over the last five years. The driver of this growth is basically the asset expansion. Overall assets in five years increased 89%, and this is connected to two main factors. The first one, the increase of the FA network, up 24%. Second, most important, the increase of the portfolio average of our financial advisors, more than 50% in five years. From page eight, we go through the single line of the P&L, starting from the net financial income. Total net financial income increased 5%, despite the reduction of trading income and the negative impact of IFRS 16 implementation.
In particular, if we focus on net interest income, in 2019 was at EUR 74 million, like for like basis EUR 77.5 million. If we focus on the last quarter, the fourth quarter was in line with the third one. For net interest income, we confirm for this year in one-digit growth, even in a context of lower yield compared to the last year. On page nine, you can see the contributors of this increase of net interest income. First of all, asset expansion, EUR 11.8 billion. You see loans to bank, a reduction from EUR 1.5 billion to EUR 1.2 billion. A slight increase in the loans to client from EUR 1.8 billion to EUR 1.9 billion, and a significant increase in the financial assets up to EUR 7.8 billion. The second reason of this increase in net interest income comes from higher total yield.
On the bottom of the page, left, you can see a breakdown of the three main contributors. In particular, a better management of liquidity, so loans to bank, the yield is at - 0.12%. The yield on financial assets increased at 0.82%. There is a marginal reduction in the yield of loans to clients, which is linked to the launch of Lombard solutions for retail clients at 1.13%. On the right of the page, you see the loans portfolio that, as we said, is around EUR 2 billion. We have more than EUR 4 billion of collateralization. Zero risk, zero credit risk in this case. On the bottom of the page, you see the classification of the banking book. In particular, 83% is held to collect, 17% held to collect and sales.
If you look at the bond classification, total Italian gov bonds are below 70%, + 18% in European gov bonds and 13% in corporate and financials. We continue to maintain a very conservative approach. Bond maturity at 3.5 years, bond duration at 1.6 years. Moving on to management fees. Total management fees closed at EUR 646.3 million, up 2% from the previous year, but with a very different trend during the year. If you compare the first half with the second, the latter is up 6% and the last quarter reached EUR 169 million. Even most important, you can see the stabilization of the margin, and we are confident to see this level of margins also for this year on like for like basis, once excluded Nextam and Valeur to compare the numbers historically.
The most important news, I think, is at page 11 because banking and entry fees had an impressive acceleration up EUR 18.5 million or 27%. The profitability of this revenue increased from 0.12% to 0.14%. Looking at the quarterly trend, you can see a further acceleration. Q4 at EUR 27.4 million, it means almost EUR 10 million higher than the previous period in 2018. This strong acceleration is driven both by advisory, structured product, and brokerage fee. Always on page 11 on the right, you can see another way to present numbers. We split the overall bank and entry fees between the traditional components and the new revenue engines. The green bar, as you can see, is stable or declining over time, while the darker red is about the new revenue engine. From EUR 14.9 million in 2017 up to EUR 46.4 million.
As I said, more to come this year. Page 12 is a deep dive on the new revenue engine. Let's start with advanced advisory, 16.9% of gross fees. Thanks to asset expansion, EUR 4.7 billion asset under advisory, and stable margins above 46 basis points. Structured products, gross fees at 13.9%, well above the target 2021, thanks to more than EUR 500 million of new issues. It means with margins between 2% and 5%. Brokerage fees up to 15.6%. Here, you see two different trends, a reduction in institutional brokerage fees, and acceleration in the retail brokerage fees. To see the acceleration in brokerage fees, there is the graph of the quarterly retail volumes, third and fourth quarter of last year, EUR 2.3 billion of volumes. If you compare these with the same period of the previous year, you see the impressive acceleration. Third quarter 2018 was EUR 1.1 billion.
Performance fees at EUR 147.4 million. In terms of margin, it implies 0.32% on asset under management and 0.23% on total assets that is lightly above the historical average. These performance fees, in absolute terms, are driven by asset expansion. Total assets of our Luxembourg platform increased by EUR 2.8 billion. The contribution of the new LUX IM to the overall performance fee now is above 50%. On the fee expense side, total fee expense at EUR 391 million with a payout to the network well below our threshold of 50% and thanks to a lower cost of growth. It's very strong, the existing sales force activity.
Also the payout to third parties declined, driven basically by the renegotiation with the third-party asset manager. On the operating cost side, the increase was of EUR 24.6 million, of which EUR 16 million refers to one-off, like moving offices, like implementation of IFRS 16 and acceleration of the strategy, plus M&A activities. Valeur and Nextam. Focusing on sales. Sales personnel expense up EUR 1.5 million, so a sound commercial activity, while core operating costs up EUR 8.7 million. That it means 4.8%, so in line with our guidance. Focusing on the breakdown of the core operating costs, you can see that the G&A increased more or less 2%, 2.3%, while the acceleration was about the staff cost, 7.5%. This is linked to two main factors. The first one, we hire top talented people for the new initiatives, so very important to well equipped for these new initiatives.
Second, of course we pay higher performance related remuneration for the top management and the middle management. Page 16, you see the cost ratios. Operating costs on total assets 0.32%, best practice in the market, and cost income ratio were well below 40%, also excluding performance fee. On page 17, you see the capital position, CET1 at 14.6%, total capital ratio at 16.1%, also after including, first, the full application implementation of IFRS 16, almost 0.9%. First consolidation of Nextam and Valeur, and the dividend payout, the proposal for the AGM with a payout ratio of 79%. Liquidity ratio are well above the average, continue to increase, and the leverage is well above 4%. Three main messages for this first part. First of all, the net interest income will continue to contribute positively at this year.
Second, management fees are accelerating, and we are very confident to keep stable margins over years, of course like for like. Third, the new revenue engines are well above expectation, and they will contribute significantly also this year. Now let's move to the commercial results, starting from total assets. Total assets at EUR 69.1 billion, an impressive increase of EUR 11.5 billion, thanks to very solid inflows, EUR 5.1 billion, as well as very strong performance, EUR 4.2 billion. In particular, if you look at the performance, total assets up 77.2% with a performance of the pure managed solution at 11% and the performance of the traditional insurance solution at 2.7%. We more than offset the negative performance in 2018, and I can say that our clients are very satisfied with these numbers. Page 20, you can see the total asset breakdown.
It's impressive the acceleration of managed solutions up EUR 6.7 billion, traditional life policies up EUR 1.1 billion, and banking products up EUR 3.7 billion. Overall, the managed solutions weigh 49.3% on total assets. If you look on the top of the page on the right, the breakdown of the managed solution, you can see that almost all components increased. It's a well-diversified portfolio. Page 21, there is a focus on asset under advisory. First of all, now asset under advisory account for 6.8% of total assets. You remember we gave a target between 7% and 8%, and the best practice of the market is at 17%. We are very confident, and we will review these targets probably in June. Why this such an impressive acceleration? Two main reasons. First of all, we are seeing an increasing number of active financial advisors.
Now almost 60% of the financial advisor network provide these kind of services to clients. Second, an acceleration in number of contracts. It's not just about absolute numbers, but also average contract for financial advisors. Page 22, you can see a focus on our Luxembourg platform. Almost 25% of total AUM. First in the center, you see an asset by SICAV, LUX IM accounts for EUR 10.6 billion. On the right top, you can see total assets in terms of share classes, where you can see the important acceleration of the retail fund classes from EUR 5.5 billion to EUR 7.2 billion. The continuing growth of the institutional fund classes. Just as a reminder, the price of institutional share classes, selection and LUX IM are almost in line, the switch do not provide any penalization on the P&L. On the bottom of the page, you see retail fund classes and the breakdown.
The LUX IM account for EUR 3.6 billion, and we continue to see the runoff of the BG Selection, now is at EUR 3.4 billion. Consider that we see a slowdown in the runoff. The LUX IM activity more than compensates the numbers of the Selection, and we are very confident of numbers of LUX IM also this year. Moving on total inflows, we said EUR 5.1 billion is slightly above the numbers of 2018. On the left, you see that the mix is similar, but the trend is completely different. If you look at the graph on the right and you see the red bar, the contribution of managed assets started very slowly due to the crash of the market, so EUR 0.1 billion, EUR 100 million, and closed with EUR 1 billion. We continue to see this acceleration also in the first part of this year.
Page 24, another way to see the inflows is by acquisition channels. 76% of net inflows comes from the existing sales force, definitely above our range of 55%-60% and is well-spread among the FAs. Also the black bar is in line with the past. That is about the financial advisor leaving the company. In terms of recruitment trend, as we announced several times last year, we slow down the activity, 86 new colleagues. You can see a recovery in the last quarter, 27 new colleagues. I confirm that from this year, we will start again with our, let's say, standard path, around 100 financial advisors per year. It means 10 per month with some seasonality. Page 25, there is a focus on the inflows in January. First of all, total net inflows, very strong, EUR 438 million.
You can see a comparison with January of the previous year. It's impressive, the acceleration of LUX IM and BG Stile Libero, and you see a lower interest in the traditional insurance policies. Again, also in February, we are seeing an acceleration in the LUX IM and in insurance wrappers. Very confident to have also great number in February. Assets under advisory continue to perform better than expected. We are almost at EUR 4.9 billion, almost EUR 200 million above the number at the end of 2019. The recruitment activity started pretty well, eight new colleagues in the year. In the first month, sorry. Again, to sum up this part, three takeaways. The first one, last year we saw an impressive acceleration of total assets with a significant performance, so clients are happy. We more than offset the negative performance of the previous year.
The commercial activity is very strong and sound and is well spread among the Financial Advisors, which is probably the most important thing for the sustainable growth. Third, if you look at the overall mix, the overall mix has been changing and improving over time significantly, and we start in the right way the 2020. The last part of the presentation is about business update. As you know, our three-year business plan is based mainly on a multi-project approach. I'm pretty sure that this year we'll see the impact of all initiatives for the first year. We divided all the initiatives in three main blocks, what we call key business drivers. It means new initiatives on core business, and in particular, there are news on LUX IM, ESG commercial approach, and wrapper solutions.
There are new revenue engines that will start providing support to the P&L this year, and I include lending, private markets for retail clients, and internationalization of the bank. The last but not least, there is a cluster of the new revenue engines that started contributing significantly last year. Advanced advisory, certificate, and BG SAXO. Consider that on these three initiatives, we are planning a dedicated roadshow for our financial advisors to keep the focus very high. Now let's go through these three plus three initiatives to give you the flavor of the number of initiatives and how we are implementing the strategy. Page 28, we start from LUX IM. You remember that the LUX IM is a project based on innovation of the investment solution and on the concept of diversification, and you have a representation in the pie chart.
The first graph, the gray bar, represents the inflows, the quarterly inflows. You know we start launching the LUX IM with different waves. In the second half of this year, there will be the fourth wave. You can see the correlation of numbers with waves. Again, we deliver on promises. When we launch initiatives, we see an immediate impact on the numbers. There is a new initiative in the LUX IM that is about saving plans. During our investor day, we said, "Now we will provide solution also for affluent, upper-affluent client." We worked on that topic, on the second half of last year, we start providing these new services to clients. If you look at the numbers of January are pretty impressive. EUR 50 million of net inflows for the overall plan, February is still accelerating.
Again, this can create a good support to the inflows over the years to the LUX IM. The last but not least, LUX IM is a pretty recent story. We launched it, let's say, a couple of years ago, and we start working on retail last year. If you look at the participation rate of the financial advisors, we are just at the beginning because 50% of the fees are with zero, with a total exposure of less than 5% of total AUM. We are confident to see an acceleration this year. Page 29, you see the sustainability approach of Banca Generali. First of all, thanks to Generali, we had the opportunity to present our new commercial approach, on SDGs in Davos, because we think we are first mover on this topic.
It's not about products, it's well above and beyond product because we allow, thanks to a proprietary platform, the clients to select their own Sustainable Development Goals. We optimize portfolios and we provide reporting to emphasize the positive impact on society of the investment. If you look at on the top right of the page, you see the inflows connected to this new platform. I have to be honest, the number are very impressive, and it's probably the number that impressed me more because we had EUR 800 million of net inflows thanks to this new proposition. It's on top of the existing proposition. It's a different way to build the investment solution driven by the personal feeling and personal choices of clients in terms of Sustainable Development Goals.
We've just started also collaboration with Generali, and we provide this approach for a dedicated unit link in Generali Italy. Page 30 is the third levers of core business. We said LUX IM, very strong support from several initiatives. ESG, a new commercial approach, very supportive for inflows. Now the insurance solutions. In the last quarter of the last year, we introduced a new concept of Stile Libero, and this explained the acceleration of the last part of the year of numbers and the good start of this year. We have just launched a new, very important initiatives. It's called LUX Protection Life. What is about is a Luxembourg solution. Generali launched a very, very efficient, in my opinion, probably best in class private insurance solution. You know that this kind of solution are probably the most wanted product in Europe.
Last year, almost EUR 23 billion of inflows, of which seven are from Italian clients. Now we are there. We are ready. We start work on this product. The first inflows are pretty impressive. We are accelerating, and I'm confident that also the LUX Protection Life will provide the support to the numbers of our insurance wrappers. Moving on other initiatives, so new revenue engine, that will start providing support to the P&L and value to clients. Page 31. First of all, lending. Last year, we worked a lot. We worked a lot to build a new team. We worked a lot to create a new platform and to optimize processes and procedures. We delivered, and we can start seeing the numbers, because in the last quarter, since we completed the journey, the lending activity accelerated.
Almost 50% of the all activity over the last year was about the last quarter, the fourth quarter. There are several initiatives ready to be launched. Page 32. A new initiative is about private markets. As you know, we started providing this kind of solution a few years ago. We are considered best practice for professional investors with EUR 1.5 billion. We decided to extend this kind of offer also to clients, not professional, but only among upper affluent and private clients, and with strict control on the maximum exposure on these products. We have thresholds at 10% or 20%, depending on the kind of the clients. We are going to launch two new initiatives, two new solutions. The first one is [FIA] so an investment fund.
The second one is an ELTIF, coherent with the new regulation, European new regulation. Common characteristic. First of all, very well diversified. Multi-asset and multi-asset manager, with an overall exposure to private debt at 70%, so in line with the risk profile of our client. Here, the target is on a three-year time horizon of EUR 1 billion, so in line with the targets we already reached with professional clients. It's another way to provide quality and services to our clients, starting from managing reputational risk. You know we are different. We think that, first of all, diversification, second, the solution we propose must be in line with the risk profile of our client, and we start very slowly to see also the appetite for this solution. Page 33, there is the internationalization. The internationalization project has two legs.
The first one is about Italian clients with an Italian private banker in Italy and investment solutions in Italy, willing to diversify the booking center. I manage money in Italy, and I deposit this money in Switzerland. We launched this service with advisory service. It's called BG International Advisory. At the end of the last year, we already closed EUR 60 million of contracts. There is a great appetite, but we want to proceed very slowly. I'm confident that we will gain momentum with initiatives, because you have to think of all the Italian clients that once in their life apply for capital shield, voluntary disclosure, and so forth. You have EUR 150 billion of Italian assets abroad. Second leg is about a dedicated distribution channel in Switzerland. We acquired Valeur. You know we completed this acquisition in October last year, so with some delay.
Now we started with the commercial activity. To conclude, the first year of our three-year business plan closed in line or above the several targets we set in terms of asset growth, sustainable profitability, shareholders remuneration. We are really confident to deliver also this year. Now I open the floor to questions. Thank you.
Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Gianluca Ferrari with Mediobanca. Please go ahead.
Yes. Hi, good afternoon. I have four questions, if I may. The first one is on the level of deposits you are keeping to the ECB. If I recall correctly, after the Q3 2019, you still had EUR 750-ish million. I was wondering if at year-end, this amount declined, and if so, what was the level at the end of the year? The second question is on margins and the outlook on margins, given that the runoff of the retail class of selection is slowing down. By the way, the margins on the selection of retail were pretty high in the past. I was wondering if this is giving a bit of support to the 140 basis points you reported. Also linked to that, if you can share with us the margins on the two closed-end alternative funds you just mentioned during the speech.
The third question is on the pretty relevant 11% weighted average performance to clients. It is much better than the one reported by some of your peers. I guess this is also due to the fact that your pricing is much more sustainable than others, by the way, with less equity exposure. I was wondering if clients do have the perception that you are returning better results with lower costs, if this is giving an opportunity or still the sensitivity is pretty low on this point. Last is a clarification on the DV. Should we think about the ordinary DPS going forward? I guess you said in the past you want to give a story of Banca Generali paying gradually increasing DPS. Is the EUR 1.55 or the EUR 1.8 the new base for the 2020 DPS? Thank you.
Thank you, Gianluca. Let's start from the first one, then I will hand over to Tommaso. I think that the deposit in ECB are almost in line with the last year. I have in mind between EUR 600 million and EUR 700 million, Tommaso will be more precise on this topic. On margins, you are right. I said that in one of the last conference call that 2020 will be a turning point, for two main reasons. The first one is a slowdown in the outflows of Selection, I think that we still see, at least for the first half, some outflows and then a reduction. I'm sure that next year will be much better. Second, for the reduction of the weight of the traditional insurance products on our offering, because you know the traditional life insurance policies have a lower margin for the bank.
For these two factors, I'm confident, and I think that these two initiatives support the overall margin in the management fees. You know that all the new revenue engines have been launched also to eventually compensate any reduction and to be sure to maintain the guidance we announced during our Investor Day. Let's say the worst is over, so I'm confident. Further, the perception of the clients on the total cost and performance. I would say that my impression is something is changing, and as usual, these changes occur thanks to media, so the press and regulators. My impression that the focus on total expense ratio is increasing. Probably is not something about the next quarter, but for sure in the next one or two years, something will definitely change also on the client side, driven by external factors, as I said.
I think that in the medium term, our total expense ratio will provide an extra support for our financial advisors. Also on the new alternative funds, we decided to have the margins in line with our, say, asset management products. Tommaso will be more precise, but let's say that it's almost in line with our LUX IM, probably a little bit lower. It's in line with the discretionary accounts, basically. Last but not least, to be very concrete, the floor, let's say, for next year will be EUR 1.55. Of course, we have in mind different numbers, but we have to be sure to give a steady growth in absolute terms. To me, EUR 1.55 is the new floor. Of course, we are working to overachieve the results as usual. Thank you.
Thank you.
You want to add anything more on.
Yes. On liquidity, I confirm that we have the dealing with the ECB, which is around EUR 700 million. Also at the end of the year, we had more or less the same exposure, probably a little bit more because we had some more liquidity, but that was the range at year-end.
Yeah, just another thing. On the private market, there is a real risk on total expense ratio, and we worked a lot to stay around 2.5% as overall ongoing charge. We position the bank much lower, compared with the main core competitors.
Okay, thank you.
The next question is from Elena Perini with Banca IMI. Please go ahead, madam.
Yes, good afternoon. My congratulations for your results, which were very good indeed. I've got two questions. The first one is on your outlook costs for the current year. If you can elaborate a bit more, considering that you will have Valeur and Nextam consolidated on a full year basis. The second question, which is also related to this and to the previous ones of my colleague on your margins. What kind of progressions would you expect in your net results, considering the EUR 150 million recurrent as a basis? I know that is difficult, but I don't know if you have any expectations on performance fees, considering also the level of January. Thank you very much.
Thank you, Elena. On cost side, for like basis, we confirm our guidance 3%, 5%. The overall impact of Nextam and Valeur should be around EUR 90 million full year impact. On the recurring revenues, let's say that I'm very impressed by the acceleration of the new initiatives as well as the numbers of our LUX IM. I'm very confident. If the markets hold on these levels, you will see very impressive numbers in general on asset management products and in all the initiatives. Performance fees for the first month were very strong, around EUR 30 million. Pretty impressive. We have all the LUX IM at or very close to the highest level. Depends on the market. We are very focused on the core revenues. I think that in particular in the second half, all the initiatives will be up and running.
This is very supportive and sustainable because we are not focused on a single initiative. Let's say that we discussed about nine, but there are also others that for the sake of time, I didn't present. I'm confident because I see that the commercial activity is really sound, and I see the capacity of the bank to deliver these new initiatives.
Okay. Thank you very much.
The next question is from Domenico Santoro with HSBC. Please go ahead, sir.
Hi. Good afternoon. Thanks very much for the presentation. I do have a couple of follow-ups. I beg your pardon, actually, if you already answered part of this question, but I missed the initial part of the presentation. On the cost, including the acquisition, the new perimeter, does it make sense a number of EUR 235 million, more or less, for the next year? I was just wondering whether I'm correct, working out all the math. I remember that you gave a top of the range guidance of EUR 260 million for 2021, including, of course, acquisition and others. I'm just wondering whether that number still makes sense or at this point, is too high. On the sales for this year, I wonder whether you can give us a sort of a guidance in terms of sales.
On the new initiatives, there is a big chunk of revenues that is emerging in your P&L. In part, as you mentioned during the call, you already basically reached some of the targets. I'm just wondering whether you can give us more visibility on this revenue stream for this year. On the dividend, sorry to be long. Well done, actually, for smoothing over the payment of the dividend. That will be helpful for the shares. How shall we look at this additional part? As a one-off? As an extraordinary dividend? Given the performance fees, you're probably going to have another very good year. I'm just wondering whether for the benefit of our model, we can use the 70%-80% as a number for the payout. Thank you.
Thank you, Domenico. Starting on cost side, you are almost right on the numbers you mentioned. On the sales, I would say that the beginning of the year was very strong. February is going very well. The target of our business plan is EUR 3.8 billion-EUR 4.2 billion from the Italian business, the traditional Italian business. Let's say that we are well on track. It's probably too early to review the target, but let's say that I'm confident. When you see that 80% of the financial advisors provide positive inflows, let's say that is not my priority. See very strong results and the priority is on, let's say, margins and on diversification. In terms of new revenue streams, new targets, we are thinking of organizing a roadshow in June, dedicated to these new initiatives. In that occasion, we will communicate new targets for all the initiatives.
On the dividend side, let's say that the dividend policy won't change. The payout ratio will be between 70% and 80% of total earnings. We want to keep some flexibility in splitting the dividend just to be sure to stabilize, and to have a solid, let's say, stable growth in absolute terms. We change the mechanism in terms of the opportunity to have different steps just to smooth the absolute level. Let's say that the range 70%-80% won't change over time.
Tommaso, do you want to add something on cost?
On cost, let's say that I confirm that your expectation is in line with our internal forecast for next year. That also we can confirm the evolution that we did on total cost and on core cost in our investor presentation. Let's say that this year has been one year where we had some exceptional costs, which were more linked to the new acquisition and also to the integration of those new entities in the group. We have been also accelerating all the initiatives because we had a very strong P&L in the year. We decided to start to invest in the initiative. That's also the explanation of the evolution of our costs in the last year.
Sorry, can I just ask a follow-up on the dividend? It's important. The decision to pay this EUR 0.30 was related to the level of performance fees or there are other parameters that we should take into consideration, please?
The level of performance fee, you are right. We consider the variable profit as a sort of stabilizer of the absolute dividend. When the performance fee exceeds the expectation, we try to move the dividend in this way.
Okay. Many thanks.
The next question is from Alberto Villa with Intermonte. Please go ahead, sir.
Good afternoon. Three questions left from me. The first one is on the inflow mix. You mentioned the improvements you are seeing. They were evident in the second half of last year and even in January. I was wondering if you believe this is mostly due to the market performance, the low yields, or it's more structural. We can expect it to continue, even in tougher, eventually, market conditions going forward. I remember in the past, obviously, with the risk-off attitudes, a lot of clients may be changing their asset allocation towards traditional life products. I was wondering if you believe this inflow mix will continue even in the future. If you can give us an idea what's your target in terms of inflows into managed assets for this year.
The second that is connected is the contribution you're expecting coming from recruitment, which was very low in 2019 due to the reason you mentioned. You now are looking at addition of 100 new financial advisors. I was wondering if you expect the mix to go back to the historical average in terms of contribution of recruitment, or if you still believe the organic growth will be sound and strong even in 2020. The second one is on Switzerland. You mentioned in the past that you wanted to have a banking license in Switzerland. I was wondering if there are news on that side. The final one is on the LUX Protection Life product you mentioned in slide 30.
I was wondering if you can elaborate a little bit more on that product, if you think it's a significant add-on in terms of future net inflows and how it compares in terms of margins to the other products. Thank you.
Thank you, Alberto. Inflows and mix. On one end, you're right, there is a correlation between market performance and the quality of the inflows. On the other one, I think that we did a great job with LUX IM and with the insurance wrappers to reduce this correlation. I expect significant contribution from these two kind of products, even with some more volatility in the markets. Of course, in case of a crash, it's another story. Let's say that normal volatility, I can confirm a positive mix, with a contribution of the LUX IM and of the insurance wrapper, at least in line with the last year. Recruitment. I have in mind a contribution of existing sales force at 60%, a little bit higher than what we communicated during our Investor Day. Between 60% and 65%.
Because I think that the health of the network is pretty impressive this moment. There is great interest on the bank, brand awareness, and so forth. I would say 60%, 65% would be a great target, with an increasing contribution also from recruitment, as we said. Banking license, you are right. We set as a deadline, let's say the end of March, to inform of our strategic choices. I confirm that we are really interested in having a banking license in Switzerland. We have two options, greenfield, so changing, let's say, the license of BG Valeur.
Let's say that to set up a new banking license in Switzerland, it takes from six to nine months or an acquisition. You know the first rule of acquisition, the first two rules is first, no reputational risk, and second, must be accretive for the shareholder. We are keeping the two options, and we will decide, I think, in the next two, three months. The last, sorry, the LUX Protection Life. Let's say that the product is a private insurance. The main differences with the existing offering, for example, Lombard, is that it has a greater flexibility. You can mix traditional life insurance, for example, French products, with, let's say, the financial markets, financial investments. You can mix liquid as well illiquid assets, and you have also some insurance riders. It's a very well-organized product. It is a real wrapper.
We can provide both deposit and portfolio management from Italy as well as from Switzerland. Margins are almost in line with our BG Stile Libero. Consider that the clients of these kind of products are normally private or ultra-net worth. If you offer insurance wrappers to clients with EUR 20 million, of course, the margins are a little bit lower than the average of our clients. It's almost in line with the condition we apply in Italy. Let's say that in my opinion, there is a great momentum with initiatives, and you have no alternative to Lombard. Could be a success.
Thank you.
The next question is from Federico Braga with UBS. Please go ahead, sir.
Yes. Hello, good afternoon, everyone. A few questions from my side, please. The first one is on the fee margins. On a blended basis, on a pro forma basis, including also the acquisition, am I right to say that the gross management fee margin is around 137 basis points-138 basis points? If you can confirm this, and what you would be your guidance on a pro forma basis for 2020? What would be the impact also from flows coming from Switzerland on the pro forma fee margins, in your opinion? More in the longer term, given where rates, bond deals are now, what's the impact that you would expect on fee margins, and especially for insurance wrappers and insurance products? The second question is on the recruitment activity for 2020.
If you can please give us some guidance on what we would expect to be the cost of growth for 2020, given that you expect some pickup in the recruitment. If you expect it a little bit up from 11% of 2019, and if yes, to what extent? The last question is on the real asset initiatives, just to have an idea of what are the incentives for your financial advisors on these products, if you plan to pay the same percentage in terms of distribution fees, a percentage of the recurring fees, of the management fees, or you expect to pay higher payout on these products.
More in the longer term, what do you think is the incentive of your financial advisors to push on these products, given the fact that they cannot move these assets away in a scenario where they should decide to leave Banca Generali in the future? Thank you very much.
Thank you, Federico. I start answering the question, then I hand over to Tommaso. First of all, on pro forma basis, I would say that the dilutive effect of Nextam and Valeur should be around 1 basis point. I would say 1 basis point, maximum 2 basis points. If we say 140 basis points- 141 basis points for the ordinary business, it could be slightly lower, 140 basis points. Switzerland shouldn't be so dilutive. It depends on the target of the client. Let's say that at least for the first leg, the profitability should be almost in line with the Italian one. Cost of growth, probably a little bit higher than 11%, but lower than the average of the last three years. Fourth, real asset activity. As I said, first of all, the margins of this product for us is in line with the existing offering.
We do not incentivize the financial advisors on these initiatives, because mis-selling would be a nightmare. I'm really worried about same initiatives of some competitors. You have to manage it with care, this kind of solution. It's value if you sell properly. Let's say that it's true that could be a way to retain clients, but as I said, the max exposure would be around 10%. Consider that we have traditional life insurance policies that are, in some cases, 25%, 30%. Probably in terms of retention, it's much stronger the effect of the traditional life insurance than real assets. Real assets work if clients understand very well the liquidity risk that, in our case, in our minds, has a positive payoff, in particular now.
It's a place to invest, first of all for professional, second for private clients. This explain why we extend this service on the upper half and private clients. I don't know if Tommaso wants to add something.
Let's say that, coming back on the acquisition of Valeur and Nextam, the impact on the full year is 1 basis point in terms of dilution of the margin, so it should be around [159 basis points]. Let's say that to evaluate this, we have to compare the profitability of those assets to the price of the acquisition, which has been in line with the profitability of those assets. Looking forward, we have to integrate, of course, the clients and the offer that today we provide to those clients with the one of Banca Generali. For example, for Nextam, today we don't have any insurance penetration. We don't have banking solution. To evaluate the evolution of Nextam, we have to think also that we will have an activity of cross-sell and up-sell of the offer.
On the ordinary payout ratio for the liquid solution is in line with the ratio of the managed solution.
Thank you.
Thank you, Federico.
The next question is from Filippo Prini with Kepler. Please go ahead.
Yes, good afternoon. Two questions, if I may. The first one is on your guidance of NII, your single-digit growth. Could you tell us how much that should come from an increase of the lending to clients? Second is on your capital ratio. Now you are at 14.6% in terms of CET1 ratio. Should we expect this ratio to go closer to the 16.5%, 17% of the past years? Thank you.
Thank you, Filippo. In terms of net interest income, I do not expect a significant contribution from lending for this year. I expect, we start with the commercial activity. The full effect will be next year. Great part of the increase will be driven by the banking book, still driven by banking book. Let's say that you will see some contribution of the lending activity in the second half, and most important, next year. The second question was about capital ratio. Let's say that we are confident to see a higher capital ratio during the year, not necessarily at the historical level. For optimizing the banking book and to diversifying, some capital will be absorbed in the banking book.
Okay. Thank you.
Thank you.
The next question is from Angeliki Bairaktari with Autonomous Research. Please go ahead.
Hello. Thanks for taking my questions. Three questions on my side, please. First of all, what is the minimum CET1 threshold level for management, and how low can the CET1 ratio be from the current level, considering your future distribution plans as well as M&A? Related to that, does the higher distribution this year indicate a lower appetite for bolt-on M&A deals going forward, also considering the two acquisitions that you completed in 2019? Last question, could you please update us on your relationship with Generali and whether you consider your parent would have any interest in reducing its stake in case of a more transformational M&A deal? Thank you very much.
Thank you for the question. First of all, we set at managerial level a sort of floor at around 13% for CET1. That is well above the Bank of Italy requirement. Let's say that the appetite for acquisition is always the same. What I'm seeing is that, in my opinion, the prices, especially in Italy, are still too high, and we don't need any acquisition to confirm our targets. If we see any opportunities, we'll take an advantage for our shareholders. We are not in a hurry. Usually, it's more an opportunity than a threat, the acquisition. I'm confident to deliver results, with or without acquisition. Now in this moment, I don't see the targets in Italy. Let's say that when you see a recovery in the market, all the players seem to be much better than a few months before.
We need to see some certainty in the market to see again some opportunities. Generali, I'm sorry, but I think you should ask this question to them. I can say that I'm very happy with Generali. We can offer best solution, and I think that is a great value today in this market, having Generali as a first shareholder. We help them on some initiatives. There is a great satisfaction from both sides. I don't know anything about any reduction of the stake at this moment. Thank you.
Thank you.
Mr. Mossa, there are no more questions registered at this time.
Thank you very much for attending our conference call. If you have any other questions, please let us know. Till the next time, bye. Thank you.