Good morning, everyone, and a very warm welcome to abrdn's 2023 full-year results presentation. I'm delighted to have Jason Windsor with me for his first results presentation as CFO, so welcome, Jason. I'll be taking you through our strategy and our progress, and Jason will walk you through the financials, and then we will open up for your questions. Here with us, I'm pleased to welcome Rene Buehlmann , our CEO of Investments, Noel Butwell , CEO of Adviser, and Richard Wilson, CEO of ii. They will be here to help take the hard questions. Over the last three years, we have reshaped abrdn into a modern investment company that can thrive in the evolving investment landscape. As you can see today, ii and Adviser continue to diversify our revenues and deliver improved profitability.
We are scaling up these market-leading distribution platforms to capitalize on the long-term structural growth opportunities in the U.K. savings and wealth market. At the same time, we are refocusing the investments business. We've hired top talent to lead that business. We've taken out costs every single year for the last three years. We have slimmed down the number of funds in our offering, and we have streamlined our geographic footprint. We have divested from areas where we were subscale, and we've enhanced our investment capabilities in more attractive areas. We have formed a group which has more ways to win, with the investment content and the distribution that is aligned to the products and services that our clients need.
Leveraging our data and our technology across the three businesses, we're now better able to move away from products that clients wanted yesterday to products that clients want and need today. That's what we call client-led growth. Today's results reflect the action that we've already taken to restore profitability in the group. We're pleased that we've achieved GBP 102 million of cost reduction last year in the investments business, exceeding the GBP 75 million target that we committed to you. When we set that target, we committed to continue the effort beyond this year. Last month, we announced the GBP 150 million cost transformation that does exactly that. Our goal is for all three businesses to deliver their appropriate share of earnings for abrdn. Over the last three years, the reshaping of the company has been from top to bottom. We've improved capital discipline and our operating execution.
We've completed 11 M&A transactions that have simplified the business, added scale and efficiency, and improved our growth prospects. Overall, we've disposed of non-core businesses with around 3% growth, and we've acquired businesses with nearly 20% growth. We've strengthened our position in the closed-end funds business. We've become third-largest globally, adding thematics like health, biotech, and logistics through the acquisitions of Tekla and Tritax, both of which represent significant long-term growth potential. The acquisition of ii has transformed our position in the U.K. investments market, and it has established a competitor that will continue to grow by offering compelling value to U.K. customers. We've strengthened our relationship with Phoenix, our largest single client, firmly establishing abrd n as a strategic investor in Phoenix and as their partner of choice for new business growth. This relationship with Phoenix is the foundation relationship for the investments business.
We've streamlined the investments business in terms of the funds that we focus on. We sold the listed stakes in India, GBP 535 million in 2023, GBP 2 billion since the fourth quarter of 2020. Now that noise that previously ran through our stock is much diminished. This money that we realized from HDFC has supported the reinvestment in this business. Also, over the last three years, we've returned significant value to shareholders, totaling GBP 1.5 billion through share buybacks and dividends. While maintaining a strong dividend payout and buying back our own stock, we have effectively halved the cost of the dividend to abrdn plc. These actions together have delivered a substantially stronger abrdn with more diversified earnings. We're well on the way to having established what we call a modern investing company, a company that can sustainably and efficiently grow.
As I said, our goal has been to position all three businesses for growth and to operate them in a way that creates strong client focus and that has management teams that are laser-focused on their segment. They can move quickly, and it's a very different company to three years ago. In another challenging year for the investment market, ii and Adviser have offset the reduced revenue within the investments business. In its first full year that we're reporting here today, ii has already surpassed the original investment case that we set out at the time of the deal for you in 2022, and ii has much more growth potential ahead of it. Together, ii and Adviser accounted for 93% of abrdn`s ad justed profits of GBP 249 million in 2023. That highlights the necessity and the opportunity to restore competitive margin in the investments business.
Diversification into these sticky revenue, higher-margin businesses, such as platforms and wealth that we have here, has improved the operating mix and created a balance in the group that any monoline asset manager cannot enjoy. We're working to restore a more acceptable margin in the investments business to improve its investments performance and growth flows. Our goal is for all three businesses to make an appropriate contribution to group earnings and, in so doing, create a sustainable and profitable abrdn. With that, I'd like to hand over to Jason.
Thank you, Stephen. Good morning, everyone. As I said at the Q4 trading update, I'm very pleased to have joined abrdn and to be here today to present these results to you. Let me begin with a summary of 2023 and a little context for our trading. 2023 saw a continuation of the challenging macro environment for the investment industry. Many of the headwinds facing traditional active asset managers were fairly strong. The year saw the continuation across the market of some asset allocation activity by clients that didn't play to our strengths. Away from equities, particularly in Asia-Pacific and emerging markets, and also cash was retained in money market funds, cash which would normally be allocated to fixed income funds. So, as we said in January, this led to lower revenues and investments, and I will come on to that in more detail.
Putting this backdrop together with the group performance overall, we had a 5% reduction in adjusted operating profit to GBP 249 million. Higher interest rates in the UK were also significant for revenue and interactive investor and the adviser businesses, and also group treasury income. The group didn't take the fall in revenue lying down. Costs were 4% lower in the year. As we announced on January the 24th, we have initiated a new transformation program. Together, with improving the group's net flows and investment performance, we are committed to taking the necessary cost actions to rebuild the group's profitability. The work over 2024 and 2025 will simplify our business model and remove at least GBP 150 million of costs. Onto the balance sheet, which is strong. We have GBP 1.5 billion of Tier 1 capital, which continues to support the strategy.
In 2023, GBP 600 million of cash was returned to shareholders from the dividend and the share buyback program. Adjusted capital generation was up 15% to GBP 299 million, which covered the 2023 dividend of GBP 0.14 per share by 1.1 times. Let me start my review of the business with a look at assets under management and flows. Assets ended the year at GBP 495 billion. This is just 1% lower, although in fact, assets were slightly up prior to corporate actions of GBP 6.9 billion. We saw net outflows of GBP 13.9 billion, excluding liquidity, albeit with positive net flows in interactive investor. Within investments, net outflows were primarily in higher-margin areas of institutional and retail wealth, reflecting the client asset allocation decisions that I just mentioned. The partnership with our largest client, Phoenix, delivered well, including GBP 5 billion from their bulk purchase annuities business and inflows from their workplace pension business.
Net outflows of GBP 2.1 billion in Adviser reflect muted client activity across the industry as customers adjust to inflation and higher interest rate environment, with increased drawdown to fund the cost of living. interactive investor had strong net inflows of GBP 2.9 billion, or 4% of AUA, showing the value of the interactive investor customer proposition. Looking forward, we expect the sale of our European headquartered private equity business, which has GBP 7.2 billion of assets, and the acquisition of four closed-end funds from First Trust with GBP 0.6 billion of assets, both to complete in the first half. I'll now walk through the revenue development. Group revenue was 4% lower. This includes GBP 230 million from the full 12 months of interactive investor versus seven months last year. There were some other smaller corporate actions that we haven't called out separately.
The combined impact of asset allocation changes, net outflows, and adverse market movements for the majority of the year resulted in a revenue margin decline in investments from 25.4 to 23.5 basis points. Performance fees were also lower. In the second half, that margin was 22.4 basis points, and we foresee slight further contraction in multi-asset and Phoenix in the first half of 2024 as client-driven moves from active to passive continue. Group revenue was supported by higher interest income from interactive investor and Adviser, contributing GBP 165 million in total in 2023. So you can see the value of the strategy in action: a business with diversified revenue which can deliver in different market conditions. So let me now change gears and go over operating expenses. Adjusted operating expenses in 2023 reduced by GBP 44 million.
This included GBP 102 million of cost reduction in investments, partly offset by a full 12 months of ii. Excluding interactive investor, expenses were 9% lower. Non-staff costs were also 9% lower, and staff costs were 7% down with 13% lower FTEs. Variable compensation was lower by GBP 13 million. The group cost-income ratio was stable at 82%, reflecting the efficiency of Adviser and ii. We recognize there is much more needed on costs, which takes me onto the new transformation program. Our new cost transformation program, to remove at least GBP 150 million of annualized costs, has required us to look more deeply at the group's operating model, particularly in support services. As previously mentioned, we would expect that around 80% of these cost-saving benefits will accrue to investments, and that's primarily in the middle and the back office.
As we said before, we expect the program overall to lead to a reduction of around 500 roles across the group. The bulk of the savings will be in non-staff costs. So we're looking at further efficiencies from our outsourcing and technology. We are delayering management structures and increasing spans of control. So not only is this lower headcount, but everybody in the company will be closer to the customer. We'll improve productivity and pursue more opportunities to automate our processes, for example, in client reporting and client billing. There'll only be modest cuts to the front office and investments. In fact, the program has been designed to avoid disruption to client service and to ensure we retain absolute focus on delivering investment performance for all of our clients, which after all is the most important thing.
Key to success is to take these actions soon and to ensure they're sustainable. Just to step back first on the context of the savings and investments: the cost reduction achieved in 2023, plus the new transformation, will reduce investment expenses by around 24% compared to a baseline in 2022. Our whole program is designed to do this as safely and as quickly as possible. We do expect the bulk of the implementation actions to be taken in 2024 and the work to be completed by the end of 2025. We expect around GBP 60 million of the benefit to be in the group P&L this year, and that we'll achieve the annualized run rate of GBP 150 million by the end of 2025.
In the other direction, we expect approximately 3%-5% cost growth per annum within Adviser and interactive, which in 2024 is pretty much offset by corporate actions. Total implementation costs will be around GBP 150 million, which we can fund from our strong balance sheet. Moving now onto the three segments, and starting with investments. Net operating revenue is 17% lower than last year, largely due to lower market levels and net outflows, which impacted average AUM and also changed the asset mix. Operating expenses were GBP 102 million lower, exceeding the GBP 75 million cost target. Adjusted operating profit was GBP 80 million lower at GBP 50 million. Though proactive measures have been taken to reduce costs and to focus on improvement in efficiencies and profitability, we remain focused on reducing the cost-income ratio toward industry benchmarks. This will take time, but everyone is fully committed to rebuilding profitability and growing the business.
Now onto interactive investor, which has had an excellent first full year in the group. Adjusted operating profit was GBP 114 million, and of course this reflects the full 12 months' consolidation. Net flows were GBP 2.9 billion, with personal wealth being an outflow of GBP 0.4 billion, while the D2C business had strong inflows of GBP 3.3 billion. This is the highest flows of D2C platforms in the UK. Total AUA of GBP 66 billion is after the sale of the discretionary fund management business. ii Treasury income contributed GBP 134 million in 2023, and the margin was 236 basis points. We expect 2024 to be at a broadly similar level. Trading revenue was GBP 48 million, which was slightly subdued, and subscription revenue was GBP 54 million.
Personal wealth revenue reduced by GBP 30 million, reflecting the restructure of this business, including the disposal of discretionary fund management and the transfer of our Threesixty and managed portfolio service to Adviser. Let me now turn to Adviser, which is going through a transition to new market-leading platform technology. This was a strong performance, with adjusted operating profit up 37% to GBP 118 million. Revenue was up 21% at GBP 224 million, comprising of GBP 167 million of platform charges, GBP 31 million of treasury income, and GBP 26 million of other, which is mainly GBP 15 million benefit from a revised and new distribution agreement with Phoenix relating to the SIPP product that will be taking direct ownership of in 2024 and will continue from there. The margin earned on cash balances was 228 basis points, and this again is expected to be similar in 2024.
Average cash balances were around GBP 1.3 billion, which is about 2% of assets, and that's slightly down year-over-year. Operating expenses were 7% higher, and this mainly reflects higher average assets on the platform. In terms of flows, we've seen a slight drop-off in new customer volumes in the last three quarters. In fact, the overall market has been softer after several years of strong growth. The market, we think, was around GBP 9 billion of net flows in 2023, compared to GBP 30 billion average over the last or the three years before that. Outflows have increased across the market as customers take more income to help manage their retirement and other cost of living needs. As rates peak, we are optimistic that the advised market will return to good levels of growth.
Let me now touch on some of the other elements of IFRS profit and on capital generation. Adjusted profit before tax of GBP 330 million was 30% higher than last year. The largest moving part here was net financing costs and investment returns, which generated an income of GBP 81 million in 2023, compared to a loss of GBP 10 million last year. Helped by the reduction in the share count from the buyback, adjusted diluted EPS was 33% higher. 15% higher adjusted capital generation reflects the rise in adjusted profit before tax. And as you know, this included GBP 54 million of dividend income from Phoenix and GBP 10 million of other that won't repeat in 2024. The tax rate on our adjusted profit was 15%, compared with 9% last year.
Restructuring and corporate transaction expenses were GBP 121 million after tax, which mainly consisted of property-related impairments, severance, platform transformation, and costs to affect the savings in investments. In 2024, we expect restructuring costs to be a little lower than in 2023, mainly reflecting the implementation of the new transformation program. My objective is to remove the vast majority of these so-called below-the-line costs by 2026. It will take a little time to transition to that, but in 2025, I do expect they'll be materially below 2024. Of course, lower restructuring will improve net capital generation, which takes me onto the next slide. As Stephen just mentioned, the group's gone through some very significant changes in terms of capital allocation over recent years.
In 2023, that continued, with the sale of the remaining stakes in HDFC Life and HDFC Asset Management, the divestment of discretionary fund management in U.S. private equity, which both increases the strategic focus and simplifies the group. In total, these disposals generated GBP 713 million of capital. And as I said, GBP 600 million of that was returned to shareholders through a share buyback and dividends. We've also continued to invest in the business through strategic bolt-ons acquisitions, for example, like Tekla. We have fewer non-core assets, but we'll continue to act to streamline and simplify the group, for example, with the recent exit from the Virgin Money joint venture. The most important element, however, is to improve organic capital generation. And by that, I mean the addition to equity capital each year - simply higher profits and lower restructuring costs.
The board's dividend policy remains unchanged: the medium-term dividend coverage target of 1.5x capital generation. Which takes me onto our balance sheet and the capital position. This slide is a simple way to set out our balance sheet. For me, the fundamental strength comes from the GBP 1.5 billion of Common Equity Tier 1 capital. This alone is 139% of our total capital requirements. Of course, we have qualifying debt too, which makes the overall solvency ratio 184%. It's my objective that over time, debt should also be lower and closer to the regulatory capacity, which is around GBP 450 million. We have no redemptions or calls for several years. The balance sheet of 31st of December includes total group cash and liquid resources of GBP 1.8 billion. Of this amount, just over GBP 400 million was in the PLC, or group treasury.
On top of the group's cash, we have around GBP 400 million in seed capital and in co-investments, for example, in property and infrastructure funds. This is capital used to support product development in the investment segment. Of course, we also have our stake in Phoenix, which had a market value of GBP 557 million at the end of December. This is a significant asset that isn't included in our capital and is part of a multifaceted and very important relationship. I'm really pleased to see the growth that Andy Briggs, Andy Curran, and their team have achieved at Phoenix, as they establish a leading bulk annuity and workplace pension business, which both have significant structural growth opportunities in the UK market.
Importantly for me, abrdn is very well placed to support them as they develop their strategy with excellent investment solutions for annuities and for pensions, and also as a supportive shareholder. Finally, a note on the defined benefit staff pension scheme, which has a significant IAS surplus of GBP 0.7 billion. I'm going to explore options that could realise some of this value. You all have seen the DWP consultation that came out only on Friday, which may offer some new opportunities. Just to conclude on Outlook: As you can see in our 2023 results, the group's been reshaped. The resulting diversification in sources of revenue and the cost efficiency within Adviser and interactive investor partly offset the impact of net flows and markets that has made profitability in investments very challenging.
In 2024, we expect higher interest rates to continue and maybe start to fall slowly later in the year. Interest income is expected to be broadly similar for the group. The outlook for global markets remains uncertain. Headwinds we faced in 2023 and changing client demand and preferences will continue into 2024. Within investments, we expect the global theme of asset rotation from active to passive strategies to continue. This is expected to lead to some further pressure on revenue margin. With this backdrop, we will take proactive steps to improve profitability and to transform the way we operate through simplification and leveraging technology across the group. As we have said, the work to achieve at least GBP 150 million of annualised cost savings is well underway. In 2024, we expect group operating expenses, all in, to be around GBP 60 million lower.
The strength of our balance sheet underpins our strategic action. Our focus remains to be disciplined in our allocation of capital to drive sustainable growth and to support continued returns to our shareholders. Now hand back to Stephen. Thank you, Jason. Let's turn to the next slide, please. This is the shape of the modern investing company that we're building. We have two leading businesses in the U.K., which is an attractive growth area: U.K. savings and wealth. Many of you have written about it. The media and the public really recognize that this is an area that needs further growth in order to help people take ownership of their investing future. Both of the businesses that we have have recently upgraded their technology to help support their growth and to stay ahead of their competitors.
They sit alongside a specialist global investments business that's moved away from a broad front to a much more focused set of particular skills. So think specialist equities, fixed income, and alternatives. I'm pleased to say that within our investments business, so we conduct regular client feedback, and it shows consistent positive client satisfaction with our investments business. I'm very proud of our team there, and particularly in the area of client service. Now, each of these three businesses has got strengths and opportunities. But across the three businesses, we have the investment content that can feed into these distribution channels and service the segments that these businesses are focused on. I want to set out for you how we see the opportunities and the competitive advantages of these businesses, and how we are measuring them as they journey towards growth. Within investments, we've adapted to the evolving landscape.
We've focused on areas with the greatest growth potential and where we can drive margin. We're focusing on improving investment performance where it's necessary and also operating the business more efficiently. ii operates in the growing GBP 326 billion D2C market. It benefits from our unique subscription model. This provides greater financial resilience with additional income from trading, FX, and cash margin. We're delivering customer growth and, importantly, growth in SIPPs, which brings higher cash balances and the highest retention rates. Our adviser business has a long-established presence. It has significant market share, and it has very strong relationships. Last year, our technology upgrade within that business was designed to differentiate it and to increase adviser capacity. They wanted more capacity to grow their business. We are focused on three things: increasing the number of tax wrappers per customer, winning more primary relationships, and increasing our overall market share.
Let's talk about investments. We all know that it's been an incredibly challenging year for the investment management industry. Cross-border flows last year were down 23% on the three-year average, and the active management industry saw almost GBP 600 billion of net outflows. In this context, our AUM was relatively resilient. It was down 2.4%, and that was in line with the industry trends. This was largely thanks to the resilience of our large alternatives franchise, as you can see here on the slide, and the strength of our Phoenix partnership. Our biggest challenge related to our asset mix: 22% of our overall assets are in Asia and emerging markets versus an industry average of about 11%. This is particularly the case in equities. We have 57% that is exposed to these markets, APAC and emerging markets.
In that space, we've experienced client de-risking, particularly at the end of the year, and outflows from equities. Yet, we continue to win business in these strategies during this same period of time. So we remain optimistic that when the cycle turns - which it will - our book is well-attracted, well-positioned to attract the flows into it. Looking at 2024, we expect sales growth to marginally turn positive, as our gross sales are already tracking the industry, and we expect marginally net positive gross sales in the industry. Our unfunded pipeline is very healthy. We're currently sitting on GBP 5 billion - this unfunded - including GBP 3.5 billion in the Border to Coast mandate that we won last year - the heavily contested mandate that we won last year. Our team are focused on leveraging our scale relationship with Phoenix and our thought leadership in pensions to grow in the 1.5 trillion DB market.
Fixed income remains a key strength of this group. We have 81% outperformance versus benchmark in that business. We have a great fixed income team. When interest rates begin to fall, it benefits that business, but we also expect equity income and multi-asset income products to perform well as well. Our emerging market income fund is six out of 330 funds since we launched it, and it's top quartile across all three time periods. Our newly repositioned multi-asset offering has got competitive active and passive offerings, and we aim to leverage those in the adviser business, Noel's business, and in ii. Whilst recognising the cyclical and stylistic challenges of managing a large equity book in emerging markets, we are working very, very hard to improve our investment performance.
Under the leadership of Peter Branner, who's been here almost a year, we're leveraging targeted performance improvements where we need to in our fund management business. I can give you an insight into that. Over the last three months of 2023, we have close to 50% of the equity franchise outperforming again. Hopefully, Peter is doing what we hired him to do. We believe that our large alternatives franchise provides strong growth potential as well and helps clients to achieve diversification. I want to highlight a few things that I'm particularly excited about. Our real estate franchise has been very resilient during the downturn. Although valuations have not yet fully recovered, we expect in March, when these year-end performance numbers are published, that that franchise is going to be above 60% outperformance. We've got some great products in this space.
For example, the Pan-European Residential Fund, which is the second largest fund in this space, which is nearly EUR 2 billion, and it has a five-star GRESB rating, we think that that is one of the best funds in the market. We're also expanding my student living franchise. We talked a lot about that last year, and you'll see us do more in 2024. Private credit is a key area of strength for us at abrdn and is in high demand. Many of you have written about that. And we expect to raise further assets in private credit this year with our upcoming new infrastructure offerings. In short, we've taken decisive actions over the last three years to re-engineer the investments business and position that business as a global specialist investor. It's not a broad front. It's not all things to all people. It's a specialist investing business.
Our disciplined approach has allowed us to refocus what we offer clients, reduce the cost base. As we promised '75, we delivered GBP 102 million cost takeout in that business, and it needed it. In 2023, we exited Australia. We sold the U.S. PE business, and we announced the sale of the European PE business, raising over GBP 105 million. We completed our fund rationalization process that we had been talking about for the last two years, and we closed or merged subscale funds in order to do that. This involved some tough decisions. It's very hard to do, including the closure of the much-reported GARS in December. The overall program that we executed has resulted in significant cost savings and means now that 74% of our funds are over GBP 100 million assets each.
Moving forward, we will continue to capitalize on growth opportunities with a specific focus on bolt-on acquisitions. You've heard me talk about the Tekla acquisition. Incidentally, we acquired Tekla last year. Spent a lot of time in Boston chasing that down. We acquired Tekla last year. Those fund managers who came with it—all doctors investing in health and life sciences—biotech is having its most sustained increase in value in the last five years. And so we're particularly proud that we chose that well. Just lost my teleprompter. Gents, we've gone to a green screen. Just pausing to let you absorb the Tekla acquisition. Now, let's switch. That was investments. Now, let's talk about ii. They always want a big billing for ii. We had a green screen. We had colors and everything. Richard, that must have been you that did that.
ii has transformed the shape of abrdn in the UK, positioning us as one of the UK's leading personal wealth businesses with strong long-term structural growth. Despite the cost of living crisis that has affected all of us in the UK, ii's subscription-based model offers financial resilience. In 2023, ii increased its market share of trades and delivered the highest net AUA among the UK's direct platforms. Customer growth was 4% in 2023, and we aim to achieve over 5% in 2024. We've got a series of further improvements in products, increased SIPP penetration, and further strengthening of the ii brand. You'll notice ii is now advertising on TV. Average assets per customer rose from GBP 134,000 to GBP 152,000. That's average balances. That's two-three times the market average. SIPP customer growth was 21% in 2023, and we believe this rate of growth will continue.
You'll recall I was very excited about ii as a self-invested personal pension platform, the vision of the future where everybody has their pension on their phone. The integration of financial planning and the transferring of insights from ii to the investments business will further enhance the group. Let's talk about adviser. The adviser business faced market headwinds in 2023, but the long-term opportunity is clear, and everything we're doing here is about the long term, with the UK adviser market expected to grow at 11% through 2028. Our focus is on attracting new clients, as I said, and new assets from existing clients. As you know, in 2023, we made a significant tech upgrade. That was the biggest tech upgrade in 17 years to that platform, and it was designed to make the platform better for IFAs and their clients.
This has laid the foundation for growth of the adviser business at abrd n, including the next stage of our adviser experience program with the launch of abrdn SIPP and Junior SIPP, which happens this year. The launch of these products forms a core element of our strategy to increase the number of tax wrappers per customer and grow the existing customer base, as well as attracting new advisers into our platform. Adviser OS will be launched to clients later this year. You've seen us headline that, and it provides a broader range of services to advisers that improves their business efficiency. We believe that Adviser OS will be a market differentiator. The other important change we have made is the integration of Aberdeen's model portfolio service into the adviser business.
In December, we repriced abrdn MPS and Sustainable MPS ranges to make them even more competitive, though, through leveraging existing relationships with 50% of the advice firms, which is what we have. We expect that that will drive significant growth for us in the current year. This example, the MPS example, is an example where having abrdn content within the group benefits the adviser business and benefits the II business. As I said at the beginning, the macro environment is very challenging. We have been transforming this business against headwinds, but we've taken decisive action. We've controlled the things that we can control, and we're very determined to do it. We delivered a strong profit performance in the adviser business and in ii this year, and that continues to help us as we transform the investments business.
Our cost transformation program that Jason talked about will support improved profitability in investments. We have an extensive list of actions that are already underway in this building to address investment performance, and we have a strong presence in the areas which are relevant to our clients. We think that that will drive future growth as the market turns. We've been clear that there is much more work to do, and we are confident in the trajectory that we're building. We've created a business that is much more modern and has the ability to grow. As a team here at abrdn - and it is all about the breadth of our team - we're building a stronger company. It's a diversified business model that positions us for success through the cycle. Now, Jason and I are happy to take your questions.
It's Enrico Bolzoni, JP Morgan. Thank you for taking my questions. One starting question on the cash margin guidance you gave. Clearly, there's a lot of discussion about the role of the regulator. The FCA is particularly concerned about the proportion of cash margin which is retained. There's the expectation of rates falling a bit this year. What gives you confidence that you'll be able to maintain that same level of profitability on cash balances? And can you just expand a bit on how do you think the regulator looks at this? Is it generally about the entire proposition as a whole? Clearly, you have a very compelling pricing because you have a flat fee structure. But do you think that, in light of that, they just consider it holistically, or there could be concern just for the cash more specifically?
My second question maybe relates to the fund and the performance. Can you just tell us a bit more in terms of the equity strategies? We know that the performance has not been great versus benchmark, but how do they rank on average versus peers? And can you give us some color in terms of what do you typically see in terms of correlation between the performance and the subsequent flows? And the final question, also related to that, you now reduced the number of strategies to, I think, 580 is the number. Can you give us an idea of how many of these strategies are actually underperforming? So getting a sense of underperformance, not just based on AUM, but also based on the number of strategies that actually are doing better or worse than benchmark. Thank you.
Terrific. Thank you. A comprehensive set of questions there. So let's start. And then I'm going to hand to Richard. Let's talk about Consumer Duty. The reason we acquired ii was because ii was the consumer champion in that space. Not just we, but which magazine and everybody else has talked about the fact that it's a compelling value, that you can save GBP 30,000 in fees over your investing life by investing with ii. We are supporters of Consumer Duty. Consumer Duty is about value, and it's about transparency. We do both of those things. And we think that when you are the most compelling value provider, that helps you when the market focuses on value and transparency. But to talk a little bit about Consumer Duty and to talk about the way that the regulators think about that, perhaps, Richard?
Sure. Thank you. So first, to take the question head-on around interest margin. First of all, ii pays competitive rates on cash. Number two, we see the higher-for-longer environment supporting a reasonably stable rates environment through a large part of 2024. So we don't see a significant fall-off in margin in 2024. Number three, in terms of the Consumer Duty, we've welcomed the Consumer Duty regime from the FCA. We've always advocated transparency, choice, and a level playing field. Clearly, the challenge of supporting the consumer is never over. In fact, the FCA, when they approached us, they've highlighted things we can do better on disclosures. So we've updated those, and we'll continue to work through that world as the environment changes. Having said that, just to be clear, treasury income belongs to the firm.
This notion of agency where it's a retention versus a pass-through is not how we operate. We make a gross margin on treasury, and we pay competitive rates to our customers. We expect that to remain. Obviously, it's a competitive landscape. We monitor rates in the marketplace on an ongoing basis, and we're comfortable with our position.
Thank you very much, Richard. One more. I'm going to turn to Jason just to talk about guidance. But we receive the CEO letters from a regulator. We take these things incredibly seriously. We have responded to them, and we think that's entirely appropriate. Jason, guidance?
I think, as I said in my script, the margins, we don't see changing materially. Probably not going up. And in terms of the cash balances, again, not dissimilar. ii is just under 10%, 9-ish%. Advisers around 2%. So the baseline of figures is going to just get roughly in line with the development of the assets under management.
Thank you. So let's talk a little bit about your other two questions. I'll turn to René. Performance versus peers, who are also, if you like, a quality equity with EM exposure and then also with reference to our overall number of strategies. Would René like to talk to that?
Yeah. Morning, everyone. On performance, maybe a bit of context. As you know, we are running a quality bias equity franchise. So if you look at what happened, particularly across Asia emerging markets, you have seen that value has outperformed over the last two years significantly. So that was certainly a drag on our clients. I think you asked also whether we see impact of clients moving because of that. As a matter of fact, clients know our investment style, though they typically stick to us through these periods. However, to your point, peer performance is super critical in this context. I would say we have been challenged the last two years on the equity side, certainly, particularly last year. Our China stock calls were off.
So it was not the allocation to China, but actually the stock picking in China and that stuff that we're looking at as we improve performance. I would say, though, across your second question around fund rationalization, are we focusing particularly on funds with poor performance? Absolutely. So we are obviously merging or closing funds where we think we have not a credible value proposition to our clients and really focus the volumes where we think we have a very credible performance. I would like to just wrap this up for you. When you look at our overall performance, you have seen fixed income very strong, real estate very competitive. We have revamped our multi-asset offering, and you have seen 67% of our MyFolio range versus peers now outperforming. Equity is the area where we need to do more work.
As Stephen highlighted, we do a lot of work with Peter around performance improvement plans, perk up the capabilities, zooming in where we think client demand will be going forward.
Thank you. Thank you, Ren`e. `B ruce, did we answer your question? Oh, sorry.
Enrico.
Enrico?
Yes, hi. It's Nicholas Herman from Citi. So just also three questions, please. On the first one on cash, we've discussed the margin. Can we just turn to volume? So I know we've talked in the past how you expect cash balances to rise over time as you grow in SIPP. And obviously, 2023, you grew SIPP by 23%, which is very respectable. Nonetheless, cash balances fell. So is it also fair to say that the opportunity to grow cash balances may be somewhat more limited given growing adoption of alternatives like gilts and money market? And so just interested to see how you see the cash balances evolving over both the short term, but also over, let's say, the medium to longer term in light of this kind of mixed shift and potentially structural change in demand. Second question, also on cash for Richard, please. And senior management.
I mean, you outsource your cash savings operations. I guess, what is the strategic rationale for outsourcing this? And I guess, could it make strategic sense to acquire a provider, your provider, of that business? And then finally, just on cost. So you've guided to 3.5% per annum in adviser and interactive investor, ii. I guess, conceptually, that makes sense to me for adviser. I mean, you are the market leader. You've done a large IT migration. But I guess for ii, you are not the market leader. The market leader has some challenges. And I guess that kind of also results in some kind of introspection on their part. Surely, now is not the time to limit cost growth and more to try to take market share. So yeah. Thank you.
Did Richard ask you to ask that? He passed that to you. Okay, Richard, please.
Thank you. So firstly, on the question of cash balances. Today, ii's cash balance is around GBP 5.5 billion. What we saw in the latter part of 2022 and 2023 were two things. Number one, there was an adjustment to cash levels given there was significant risk-off earlier in 2022. And then subsequently, there was a rotation into fixed income and money market, as you pointed out. An example of that, I think, in 2023, we had an increase in gilt holdings of around GBP 1 billion in 2023. Most of that rotation had completed by the end of the third quarter in 2023. And we're now seeing a more steady level. In fact, compared to some other platforms that you may have heard of, the change in cash balances is much more muted compared to theirs.
To be exact in terms of our cash levels, to give away far too much, on the general trading account, the cash level is 7%. On ISA, it's 8%. And on SIPP, it's 12%. We have, year-on-year, in terms of assets, SIPP asset growth of around 30% based upon 20+% compound growth. And in the GIA and ISA wrappers, about 8% growth. So that will fill a few spreadsheets. Net-net, we expect the overall growth to continue in cash balances, albeit you're entirely right that as choices improve and there's greater efficiency in the marketplace, there will be more discerning choice. The gilt trade, clearly, which is driven by the capital gains-free treatment of the discount, is heavily dependent upon the very low coupon gilts out there. And of course, only really works in a trading account. There's no real tax benefit in the wrappers.
So that trade, we're not seeing a great deal of movement increasing into gilts since the 2022/2023 rotation. In fact, compared to December, we had a GBP 1.5 billion of gilt value. We've now got GBP 1.55 billion. And that was largely people rolling the January 2024 gilt into January 2025. So we monitor all things very closely. We're now seeing, generally, a move back to a more orderly, stable marketplace through what was a very dramatic period of interest rates. To the excellent question around investments, thank you for that. What we said back in June last year was that we were going to be more assertive in terms of product, tech, marketing, and brand. We've always known that we've had a deficit in brand awareness, which clearly, as you move to a broader audience, is very inefficient in terms of acquisition.
So as some of you may have been badgered by, we launched a series of programs, including advertising. The good news from that is that in January, we've seen an unmistakable increase in brand awareness. I won't give the number, but it's a fairly dramatic increase in awareness. And we're now seeing SEO cannibalizing PPC. For all those geeks out there, that's a good thing. And we've invested very hard in rotation to organic capabilities. So we've built what I think now is the best commercial team in Europe, who specialize in all of these fields. We moved on price in the third quarter. And we've got a very full product pipeline in 2024, which is delivering throughout the year. We're still super cost-conscious. It's very easy to spend money. And part of the culture in our organization is always to regard this as your own business.
So we watch that like a hawk. The long-term stat that I worry about is our overall cost on AUA. We're running currently about 18 points. That's a high watermark for us. We expect to drag that down over the cycle towards 15 points, which is, I think, the efficient frontier for our business. But we're investing as hard as we can. In fact, we can't really achieve a great deal more in terms of our marketing spend currently because the channel fills before we get to an incremental increase in customer, i.e., the channels are constrained. So you can only achieve so much. In fact, we've outperformed in January and February to the extent that we've had to dial back on our marketing. In terms of customer acquisition, that's running at roughly 2X what it was period for period last year.
SIPP acquisition is running at 2.something x. In January, our net SIPP inbound transfers were 40% higher than our all-time record in the frothy first quarter of 2021. We're seeing it, on the one hand, an inescapable view that the rotation to organic has been delivered. We're not interested in spending large CapEx to deliver incremental growth. This is about leverage and technology capability and data capability. To your point around the deposit service, we partner with Flagstone to provide a cash deposit service. A number of platforms partner on that solution. One in particular has spent a good 10 years building their own in-house. Our overall strategy in terms of capability is to focus on what we're very good at.
If we can find high-quality partners to work with, irrespective of the field, we'll look at that very carefully so that we don't try to pretend that we'll master all parts of our sphere. That's an ongoing process. We're comfortable with our current position.
Thank you. It was great. Thank you. Bruce?
It's Hubert Lam from Bank of America.
Oh, hi, Hugh. Sorry.
Yeah, sorry. No worries. It's Hubert Lam from Bank of America. Got a few questions. Firstly, on capital. I think you mentioned you have GBP 1.5 billion of CET1 capital. Can you talk about how much surplus you have, including a management buffer? That's the first question. The second one is also on capital. I think there's been discussion or hopes that you could reduce your capital requirements with the regulator. Has that process been over? Is that process over? Just wondering, is that potential to go down further from where we're at today? Just wondering any progress around that. And final question around capital. With the answer you're going to give me about your surplus, I guess it was mentioned that you're looking at doing bolt-on M&A. Is that something that you are actively pursuing? And is that going to be pursued over buybacks?
One last question on the investment yield. I know that's come down. The exit rate is 22 basis points. Correct me if I'm wrong. That's the number. You're saying you expect that to come down further this year given the passive shift. Wondering where you think it would stabilize for this year? Thank you.
OK, I'll take.
That's all right. I think the balance sheet is well set up. I don't see a huge amount of excess capital. I mean, the regular surplus is just over GBP 800 million. But we are not going to be pursuing one-off capital returns. We are going to invest in the business, as I said, in transformation costs in particular. There's GBP 150 million going in there. And the key objective is to improve organic capital generation and get value out of that investment. So don't be expecting significant one-off capital returns. That's not the sort of foreseeable plan. Of course, if we did take the judgment we had excess in the future, we would do that. But the primary objective right now, invest in the core business and maintain the dividend. I don't foresee regulatory or any other form of change.
I think, let's put that one to bed in the capital base. In terms of M&A appetite, I mean, we might have some. It would be selective. We've done a few divestments. We bought a few small things. Stephen talked about Tekla, which was last year, the last significant thing that we acquired. We might look at something that is smallish. But the appetite is modest. There's nothing that we need to sort of forewarn or foreshadow here on that topic. The core part is doing exactly this sort of thing. Richard was just talking about investing in the core business. The guys in the front row were absolutely focused on the organic growth of the core business. On the revenue margin on the investments business, you're right. It was 22.4% in the first half. I think you surmised it was 22% as an exit rate.
That is probably not far off the guidance for the first half. I don't want to get too drawn into it because I could get caught out by markets whipsawing around as long-dated fixed income outperforms high-yielding equities. That changed more than I think we thought, actually, last year. So you can see that. But I think for the sort of foreseeable future, something around that just under 22% maybe level is a pretty reasonable sort of line in the sand.
Please. Mike.
Thank you. Mike Werner here. Two questions, please. First, you mentioned there was quite a lot of risk aversion in the fixed income space this year with money going into money markets. Some of your competitors have indicated that flows and fixed income flows in particular, excuse me, year to date have picked up quite substantially. I was wondering if you've seen that or when you might expect to see a reversal of what we saw in 2023. And then the second question on the adviser business. This is the first time, I think, we've seen the SIPP, the redistribution or distribution agreement with Phoenix in the P&L in the second half of this year. And I think it was about 15 million. Can you let me know how we should think about that going forward? Is that a full half run rate?
Was there periods in there where you didn't benefit from that? Just trying to think about that line item going forward. Thanks.
To Hugh. No. Thank you. We'll go to Randy. Then we'll go to.
I'll deal with it.
You want to deal with the.
It's kind of a financial question. Noel can add in.
Should Randy want to talk about the fixed income business?
Sure. Just to give you a quick call. If you look at industry cross-flows, cross-border flows, January was actually still net negative out. However, there are green shoots. Fixed income investment rate for the first time was positive. And what's maybe worthwhile to highlight, the outflows overall were at the 11-month low. So it's starting to trend. If you look at our pipelines, RFPs within the organization are up significantly. So absolutely, there is interest coming back. And our pipeline around fixed income is very solid. So yes, the trend will turn, hopefully. I think the volatility in the market is obviously what will trigger these decisions. But I think, as we highlighted earlier, I think our fixed income business is very well positioned in that space. So we definitely anticipate to participate when this will turn.
So on the way that we presented the SIPP, it's not completely new. It's been part of an extraction from Phoenix Standard Life, which has taken far too long. But it's now in anticipation of the SIPP product becoming our own product on our own platform, which will be a 2024 event. The way that that agreement has been set up has moved effectively from a netting of restructuring costs of GBP 15 million revenue into the Adviser segment in 2023. And that will continue. It's not a one-off thing. It will continue into 2024 and beyond. We're obviously quite optimistic about the growth of SIPPs, both within Interactive and within Adviser. Andrew?
Hi. It's Andrew Crean, Autonomous. Three questions. Firstly, the staff pension scheme. If you've got clearance from the Court of Session, the trustees want to do it, you want to do it. How much is the surplus on a buyout basis versus the GBP 0.7 billion after 35% tax? And when will the trustees press the button on that? Is that in the next 12 months? Second question. In terms of your cash margin, the bit you didn't answer, if base rates go down to 3%, what happens to your margin? And then thirdly, the company has always laid out a capital buffer of GBP 0.5 billion. You're now telling us that's GBP 0.9 billion or above. Why have you moved the buffer up and therefore cancelled the opportunity for buybacks?
OK. Let me see, so the pension scheme is obviously in significant excess, IAS 19, as I said on the slide. I think it's GBP 0.75 billion, which is after tax. It's not an economic figure. I'm not going to give you a buyout figure. It's not something that we have. But typically, they are lower, as you know. I've got a bit of track record in this game with Andrew. The opportunities there are not lost on me. Let's put it like that. The consultation that came out the other day could be interesting as a different way of extracting surplus. Depends on the way that that gets moved, the way that trustees adopt, and the various protections that are provided to trustees. It is likely an external de-risking could produce extra value.
And that's something that we've got, as you say, the authority from the court to attribute the surplus. We've got an arrangement to do so. We need to think through other things and jointly partner, obviously, with the trustees to take that step. But we've not made that decision. But as I said, that's something that is on the cards for 2024. So 2024?
I think that's reasonable. Yeah. I think we need to have a good look at it during the course of this year, subject to markets. I mean, cash margin, you asked us this in January. I think down to 3-ish%, we can continue roughly with our current level of return. I think once you get below that, obviously, when we're making 2.3%, it starts to bite a little bit. But all the way back down to that sort of level, we would feel the current guidance that we've given you and we certainly wouldn't expect that this year, maybe not even next. And who knows? We would continue to be reasonably comfortable with the sort of level that we're at today. In terms of management buffers and things like that, I didn't say I'm comfortable with $800 million surplus. That's just the figures that we have.
We're not going to run it, obviously, down to that level. We've got quite a lot of debt covering that, which is why I've tried to turn from talking about regulatory surplus to talking about tier one. I'll probably find more words next time I stand up to articulate where we are and where we think about risk appetite across the balance sheet. But we feel comfortable with the balance sheet as it sits today. We're going to make investments from it, which will take up capital. We're going to maintain a pretty healthy dividend. So we've got pretty clear on uses of capital, sources of capital pretty good. And the stock is in a good place. But we're not in the place where we want to say we have excess capital that we're going to return.
Thanks. Charles Sheridan from Redburn Atlantic. First question on the cost savings. You mentioned you're expecting a GBP 60 million net reduction or absolute reduction in the group cost base in 2024. What's the same figure for the $150 million gross cost savings program as a whole? Put another way, how much do you expect the cost base to be lower by in absolute terms over the implementation period? That's the first question. Second question is on Phoenix. Wondering if you could just go over the agreement there again. It sounds like there's been a rotation out of active strategies into passive. And this is revenue margin dilutive. And you're expecting that to continue. Is there a floor below which Phoenix can't go in terms of active allocation? Or could they go to 100% passive?
And if they do, what's the endpoint revenue margin for that slug of business? And then third question. This is on personnel. So as part of the cost reduction efforts, I noticed the variable comp ratio is lower this year than last year. And I'm wondering whether there has been or whether you anticipate any impact on employee retention and how you're thinking about this risk. Thanks.
So let me take the last part first. We've actually had an improvement in retention in 2023 versus 2022, quite marked, from about 11% attrition to about 8.1% attrition in 2023. We have supported our colleagues very strongly over the last three years in various different mechanisms, whether it be incentive comp or whether it be in restricted stock units. In fact, this year, we've actually announced the restricted stock plan, which also obviously supports the long-term retention, a significant restricted stock plan. So we are very aware of the need to support our top talent. We've attracted a lot of top talent. As you know, we attracted Rennie, Xavier, Peter Branner, a CIO. And when we acquired key businesses with talent in it, such as Tekla, we retained that talent and mixed it into our equities team.
For example, the Tekla team sitting in Boston, very happy to be here, and are now collaborating with the rest of our fund managers because although we didn't have a health and life specialty, we actually already own quite a lot of health firms. So now we're sharpening our understanding of what we own. So we're very aware of it. And obviously, improving profitability means that we can pay more. But this is a reality across the whole space. We're not alone in this. I'm not going to call out my competitors. But you've seen the headlines. There are reductions right across the street.
So on the costs, I think being pretty clear about 2024, so $60 million benefit from the program. And coincidentally, it's $60 million for group costs, which is a little bit of growth in ii and Adviser offset by some of the divestments that we talked about, discretionary and private equity. So approximate guidance for the year, group OpEx 60 million lower, of which that's coming from the reduction from the program. We expect to hit the run rate of that program, the $150 million, by the end of 2025, so going into 2026, $150 million lower. And the callout of cost growth is what we just talked about with Richard, is around 3%-5% growth in Interactive and Adviser. If we do better, we'll do a bit more. If we don't do as well, we'll save a bit more. We'll see how it plays out.
But I'm not going to get into any more I think I've given you enough, hopefully, helpful guidance as to the way that I see that developing. There'll be a lot of events between now and then, which are likely to knock us off. But that's sort of the way we're thinking about taking that out. And again, 80% of that 150 is aimed at the investments business, but mainly in the support services. But in terms of the segmental P&L, it's 80% of that, so 120 or so coming through the investment side.
So let me talk a little bit about Phoenix. So let me characterize it first and then hand it to René. So when I got here, my very first priority was our largest client. So I spent time with Andy because at that point, we were actually in legal dispute with Phoenix. We wanted to have a strong relationship, a growing relationship, where we were supporting them as investors. You'll recall that the output of that was that we renewed Phoenix, the investment management, until 2031. My concern was this business had lost Lloyds, Widows. I wanted to make sure that the largest client was locked in for the long haul. We've done that. We've actually surveyed Phoenix at multiple levels. And they've told us that the relationship has never been better.
So that's really important because that's a reflection of the fact that myself, René, Xavier, Tom Frost, Bob Cast, every level, we are focused on, can we help them grow? How are we helping them grow? Workplace pensions, Phoenix were struggling initially with workplace pensions. And we had already sold. My predecessors sold Standard Life Assurance to them but kept using the name Standard Life. We repatriated Standard Life to make it a competitive workplace proposition. And now you just saw this year the growth of workplace pensions. Phoenix are doing a great job growing workplace, combination of the whole value proposition, so tax-efficient, passive funds, engineered by us, plus a strong brand. They win. We win. So that's our focus, is making sure we do that. BPA, we are the recipient of the bulk of the BPA that they win.
So we're clearly doing the right things, engineering both parts of this partnership to really be focused on growth. You're right. Phoenix, along with everybody else, has rotated out of large-cap equities into more efficient investing. We took most of that pain last year. And so that's the frame of relationship with me and Andy. René, you want to talk a little bit about it?
Yeah. I'd just highlight, I think, performance in their respective areas is critical, where they go active and passive. As long as we deliver performance, obviously, they will stay active. You have seen also what we report. Our AUM is actually 11 billion higher at the end of the year than last year. So we start the year at least with a higher AUM basis. I think on the margin basis, you have seen 10.5% last year, this year 10%. And we have sat roughly in that park, maybe slightly lower. So we don't see a significant change of margins there. And key is what Stephen highlighted. The collaboration is really very constructive. Where we have issues on performance, we have a discussion around it. So this is a strong collaboration, I think.
René, thank you. I'm a little bit remiss. Sorry. We're supposed to go to the phone. We have a large virtual audience joining. Do we have any questions?
If you'd like to ask a question on the phone lines, please press star 1 on your telephone keypad. The first question comes from the line of David McCann from Numis. Please go ahead.
Yeah. Good morning. A few questions from me. Just to come back on this treasury income interest spread point. I hear Richard's well-made point there about how you're viewing it. Just wanted to clarify. Is this a view that it's your treasury income? Is that a view that the FCA has concurred with and you've confirmed that they're happy with that approach? Or is it still something you expect to have to defend over time with them? So that's the first question. Secondly, just on this Phoenix SIPP distribution fee, which you questioned kind of earlier, I just wanted a bit of clarification. Can you just give us, I guess, some color or guidance on what you see as the run rate revenue margin for the adviser business as a whole and indeed what you would see it after the SIPP business comes on completely?
That would be the second question. Then finally, can you give us some guidance on what the adjusted effective tax rate for the business should be as we stand now? Because again, it's coming kind of well below the U.K. statutory rate. Thank you.
Terrific. I mean, first of all, regarding the FCA, obviously, the FCA's process was to send out CEO letters, receive them back with the entire industry. That is an ongoing, an active thing. We have played our part in it. We've got a very constructive and open, as you would expect, nothing less of us with the regulator. But I really can't comment further than that. Is that fair, Richard? And then the other parts of your question, SIPP distribution adviser and then tax rate?
Well, I wouldn't say much more on the SIPP distribution. I think we've called that out. We got $15 million this year. That is not a one-off. That is a reset of a baseline, slightly to drift up slightly during the course of 2024 and into 2025, depending on how successful we are, frankly. The tax rate this year was up but still below corporate tax rates. I think it was 15% effective level. There was a whole heap of deferred tax assets and the like going on. I think I would just guide that it's likely to trend back toward more normalized levels across the whole group, depending on where we make profits.
So it could be just below 25% is probably a decent place to draw a line in the sand for guidance, albeit there is a bit of volatility in that, depending on the way that tax rates move across the piece.
Thank you. Anything else in the lines?
There are no further questions on the phone lines.
Terrific. Anything further in the room, please, sitting in the back row?
So Greg Simpson from BNP Paribas. Two or three questions, maybe. Firstly, on.
These are all for Noel, are they?
Yeah. One of the adviser platform.
Oh, OK. Good.
Yeah. I hear what you say about the market being tougher. But some of your listed peers are still having net inflows or flat flows at a slower pace. So what's it going to take to turn flows around there? What's the timeline on this kind of Adviser OS upgrade and getting advisers on board with that? And then the second question, II client growth, you mentioned 5% for 2024. Does that include the transfers from investments that you I think you mentioned you have some coming through. Is that kind of inclusive of that or on top? And thirdly, just a quick check on the investments flow messaging. Was it you're expecting gross inflows to be up year on year? But are you still budgeting for kind of net outflows in any kind of areas you're concerned about in terms of client redemptions in the pipeline? Thank you.
Terrific. Thank you. Let's take the last one first. And then we'll go to Noel on the adviser business. And then we'll go to Richard on ii net customer growth. So I'll just talk a little bit about the investments market. I go to lots of events with my peers in this space. And the whole industry is expecting tepid growth, about 2% in 2024. But it's an election year. There's very high geopolitical risk. We still have two wars underway. We've got great uncertainty about inflation. So nobody knows. What we know is that our probability-weighted balance between one not funded and lost, not yet redeemed is in favor of the positive pipeline. That's what we know. But we don't know. We know that we've improved our position relative to the market every year since the merger. Is this the year it turns?
There will be a year it turns. René, do you want to talk about it?
Is it doing my KPI right now live here? No, I think what you to be very honest, we see when you look at our pipelines, fixed income share, highest pipeline. We have a very solid pipeline on alternatives. Equity is a bit, to your point, the question clients, do they come back risk-on or not? I think our wedge between high-conviction pipeline and assets at risk is positive. Our wedge in terms of asset at risk versus one not funded is positive. So I use the word cautiously optimistic.
OK. Thank you, Rennie. So now we'll go to Noel. And he'll tell us how he's going to grow.
Yeah. So thanks very much for the question. You'll know the market was probably the, well, it was the toughest market, I think, in platform history. We had the lowest level of ISA sales in 14 years. Q3 was the worst year in record for net flows before Q4 trumped that. And then came the worst streak. So it's the worst year on record. And you'll see that play out. I think we saw a 65% reduction in net flows directly linked to, obviously, the increasing rate environment, increasing inflationary environment, et cetera, et cetera. But I think, obviously, around your question, what we also saw then was an increase in outflows. Now, the market went from, I think it was about 7.4%-10% of AUA. So that was an industry increase right across. We went from about 7%-11%, so slightly higher.
Part of that is driven by the fact that we're one of the biggest providers in the market. We've been here longer than anybody else. Our average age is a bit higher than some of our competitors. So it's more pronounced in terms of times such as these. Now, a big part of our future strategy, you mentioned Adviser OS, is obviously, how do we actually sort of attract more new clients, as Stephen referred to as part of our strategy, but also new customers? The next phase of our upgrade in terms of OS is the launch of the on-platform pension. That will come with a Junior SIPP. And like the Junior ISA, that will be zero charge. There's no charge at all for Junior SIPP or Junior ISA.
We've got other plans in place in terms of how you actually manage family wealth and family linking, et cetera, et cetera, around some of the pricing stuff that we're looking to do, all of which is linked to that. But in terms of the outlook, I think as far as the market is concerned, I think H2 will probably be very much like H1 will be very much like H2 for the short term. That said, I think the 11% realistic outlook, I think, is appropriate, in my opinion.
Thank you, Noel. Richard, customer growth.
Thank you. So the growth numbers are purely organic. And so we have an adjusted net figure. So if we acquire a book of business, as we've done in our M&A history, we don't include those numbers in our organic numbers. Nor do we include, as we assimilate the book, there's usually excessive churn, as you have customers, some who wouldn't be necessarily rational customers, or you agitate the book. So you have elevated churn. So we exclude that. And we also exclude exits or divestments. So we're trying to adjust for what's a pure organic number. So it's always comparable period for period. And the specific question, so the book migrated in December. It's around 5,000 names. So it's not a substantial book. That's excluded from our growth numbers.
Terrific, very clear, Richard. So that brings the presentation to an end. I want to thank you very much for coming in. Thank you very much for your questions about the company. It's adapting and growing and building is tough, especially against the headwinds. But I think we, as you can see, there's a lot of new faces here. It's a different company from three years ago. And this team are very capable of executing against it. Thank you.