Right, I think it stopped taking up. I'll start off, I'm afraid, by reading a disclaimer. Members of the media and the press are not authorized to be on this call. If you're from the media or the press, please disconnect from the call now. The content presented on this conference call is proprietary to and/or subject to the copyrights of Jefferies or third parties. Further, as a matter of legal compliance, we remind you that you mustn't attempt to elicit from any speaker at this event any material, non-public information, or other confidential information, and accordingly, the speaker may decline to respond to any question in his sole discretion. You may not publish or otherwise publicly disclose the name of or otherwise identify the speakers unless Jefferies permits it in writing. Please note this call's being recorded.
By attending this event, you agree to all of these restrictions. Great. With that done, the format that we plan to use is that having taken questions by email from those listening to the call, what I will do is put them to the senior management of AJ Bell. Without further ado, I think we'll get underway. I've grouped them into categories, and we'll start with things to do with results and operations. One of the first ones to come in was, does the increase in PBT margin depend mainly on higher FX revenues? Is there a trend in the percentage of ex-U.K. assets owned by D2C customers, or is it pretty stable?
Yeah, so I'm happy to pick that one up, Julian. The answer to the first part of that question is yes. In terms of why is the margin higher than we originally guided to, it is exactly that. You know, overall revenue is also higher, due to that factor, plus higher AUA and higher cash balances than we'd originally expected. In terms of the actual margin overshoot, it is the level of dealing activity and the weighting towards overseas stocks. In terms of the percentage of assets that are held in overseas stocks, it is actually pretty stable. Actually, there was a 4% shift back towards U.K. stocks by the end of the year, interestingly. I think overseas was about 57% at year-end.
It's about 53% at the half-year. There's definitely no major change in direction of travel there.
Gotcha. Thank you very much. When cost growth moderates, as you guide, after the end of the current financial year, is there any particular or general level that you expect to hover around, or is it unpredictable due to, you know, changing needs of the business?
Yeah, so the reason, well, one of the reasons we've provided some additional cost analysis this time and broken the costs out into three different categories of business-as-usual costs, and then we've got investment activity and, essentially, and then some costs are impacted by performance of the business, so things like, you know, variable pay and the level of transactional activity that customers are taking part in. The reason we've done that is so that we can then start to help answer this question. In terms of the business-as-usual type costs, you know, we would absolutely expect those to be, you know, on a longer-term basis, growing at single-digit percentages, and so, you know, generating operational gearing on an underlying basis there.
However, you know, we have seen significant benefits arising from investing in the likes of brand and direct digital marketing. We, you know, we do believe there's been a significant benefit from remaining a low-cost provider and reinvesting in pricing over time. Clearly, that's not on the cost line, but, you know, tech investment is another cost item where we would, you know, we see benefits from investing. We want to retain the ability to go harder on the distribution costs and on the tech costs, particularly in the areas that fall under business investment costs. Yeah, on an underlying basis, we would expect cost growth to moderate.
If the strategy's working and we've got confidence in what value we'll generate from spending more money on growth-related activities, we will go hard on those and retain flexibility around those. We've talked before about 40% profit margin being a bit of a guide, in terms of, you know, where we're above that, we will be looking to how can we invest that additional money. Not saying we wouldn't drop below 40% if we really thought there was an opportunity to invest, but, you know, that indication we've put out there just to help people a bit in getting to the answer.
Just one bit I'd add to that, Julian. On the cost analysis that Pete's referred to in the half-year presentation, the one figure, and we don't provide guidance at this level, but one figure I would point to and just share a little bit of a sentiment around is under the operational support costs, the BAU category that Pete referred to, you know, that's just the cost that we've had to increase the operational support functions by to serve the growing business. It's up 12% in the first half of the year. Salary costs are still a big part of the cost base there, and we're coming out, hopefully, of this period of high inflation and higher salary increases on an annual basis. That figure is not one that I'm happy with.
That figure is one that we are highly confident we can drive down over time. The level of growth that we're expecting to see in the business in the coming years, that should be a single-digit % increase. That is one. We do not provide guidance at that level, but as we look forward, that is one that people should be keeping an eye on, and we certainly will be trying to drive that down.
Got it. That's very clear. As a slight aside there, thinking of reacting quickly to, or, or that's the question I was getting to, actually, is can, how quickly can one react with additional marketing spend if you see a sort of target-rich environment? Do you have kind of, you know, direct marketing ads ready to go? Is that how it works, or does it take a week or two to spin up and start putting money to work?
You know, we do have, you know, all of the creatives available. You know, that's not something we would change necessarily in response to a specific set of circumstances. You know, there are a lot of thoughts gone into those in terms of aligning them with, you know, with the brand, objectives and strategy, etc. We will have ad hoc communications around, you know, more email-type communications to customers around periods of volatility. You know, our customers are longer-term investors. They are, you know, investing in tax-wrapped accounts. The periods where we want to push harder on marketing activity are pretty well known around tax year end and one or two other peaks in the year.
It's not an area where we need to be particularly nimble and inventive in the moment. It's more of a plan for the year and knowing what's happening through the course of the year. It's quite a predictable trend. Where we've got to, from a marketing capability perspective, is we've got a lot more science that enables us to know at a certain time of year, if we spend a certain amount of extra money in a certain channel at a certain time, what we will get for that in terms of additional customers and the lifetime value of those customers. Our modeling of all that's much more sophisticated than it used to be.
When you see us investing a little bit extra than we originally planned around tax year end, that's because we were seeing great returns, and the modeling was telling us that if we spent more, we'd get, you know, a certain number of customers at a very attractive lifetime value and cost of acquisition. Hence we did that.
Got it. And presumably in the sort of long-term, customer acquisition costs come down as the brand gets better known and, you know, it's less of a, the analogy's often hunting versus beekeeping. You can draw people, you can attract them rather than have to go and fetch them.
Yeah, and that's part of the strategy. You know, the brand awareness should, yeah, mean that you have more inbound rather than having to go and mine for the customers. That should happen on a sort of like-for-like basis or, if no other circumstances change. Actually, if at the levels we're acquiring customers now, we could afford to pay more and still generate, put more per customer and generate a very attractive lifetime value. You know, it might be that we just decide to push harder and drive the cost up, but the underlying cost has gone down, so we can afford then to go a bit harder.
Gotcha. Then there are a couple of questions on, on sort of revenue margins. Is the main driver of revenue margins coming down, you guys reducing pricing as you're, as you benefit from operational gearing and scale, or is it to do more with the size of the average portfolio increasing and therefore the tiering effect, bringing down the average revenue margin?
Yeah, there are a number of factors at play in terms of future revenue margin and why it might reduce a bit. You know, we've had FX, in FX revenue, in the current period or foreign instruments trading, that generates quite high margins. You know, there were periods of particularly heightened levels of trading through the half-year and then also in early April. You know, we would expect that to normalize. That is one impact. We do expect, over time, cash balances to trickle down, not in a significant way, but our internal assumption is that will happen.
You know, if you get things like targeted support that are encouraging people to go into the market, you know, inevitably that will happen. And we've said before that, you know, if in terms of the margin that we retain on cash, you know, we will not pass every single rate reduction on in full to customers. There will be times where we choose not to do that for commercial reasons and that margin will reduce a little bit, but not, you know, not significantly. And then yes, you're right, we have a philosophy around pricing reductions, and, you know, passive benefit back to the customer that way. We consider those as a package.
You know, if one of those impacts is not as significant as we thought it might be, we might choose to do more around reinvesting in pricing for a period of time. You know, we need to balance it out. I cannot give you exact impacts of each of those, but in the round, we would expect that to result in a slight moderation in margin.
Gotcha. There's a question here on the role that MPS, Managed Portfolio Service, plays in your business. Can you maybe explain exactly what that means and, you know, how it's used in the advice platform or by advisors?
Yeah, okay. The MPS is one of the investment products that we make available to the advised market, so not something that exists in the DTC side of the market, because of the regulation permissions on which we're operating there. It's been very difficult to provide that service to a DTC customer without an advisor in play. It's become very popular with advisors as they've generally moved towards operating a centralized investment proposition. MPS, I suppose, is relevant to us in two ways. We provide our own MPS product, so of the small but growing investment business that we have, MPS is about half of the assets under management that we have. Then we have a panel of third-party MPS providers that are available on the platform for advisors to use.
They can use our platform, but they do not have to commit to using our investment solution. They can use a third-party investment solution. We have probably got about GBP 5 billion of assets under administration that are being managed in that way. If you were to look at the same figures for new business, it all skews far more heavily towards MPS. It is a very popular way of managing money in the advised market and of managing a centralized investment proposition. There were concerns over the last sort of 12 or 18 months whether there was a headwind there to MPS as the capital gains tax allowance, the annual allowance, came down and the rate has gone up.
You know, if you are using an MPS for unwrapped money in a, in a dealing account, general investment account, as they're commonly termed in the advised market, you can, you can obviously be causing the, the client to have capital gains tax to pay. Whereas if you were within an OEIC, you know, using a multi-asset fund, you'd be able to avoid that. For that reason and other reasons beside, we mirror our MPS range in the fund range. You can get the exact same exposure to the markets through the, the fund or through the MPS, but generally, for operational and reporting reasons, the advisors prefer to use, to use MPS. That headwind doesn't really seem to be there. For us, the vast majority of money's within a tax wrapper anyway.
It's a trend I would expect to continue as the financial planning industry moves towards exactly that, financial planners, which is more how people refer to themselves in that world now and effectively outsourcing the administration of the investment solution to a platform or another MPS provider.
Gotcha. There's a question on how, what are the differences in how DTC and advice platforms react to different market conditions? Do, do, is there markedly different behavior? I, I suppose the answer must be that, I, I assume anyway, that, that advised money is, is invested in, in a less volatile way than, or, or, or there are, there are fewer sort of rushes. Is that, that fair to say?
Yeah. On the advised side, the principal revenue streams for us there is custody. We do not make nearly as much revenue from trading as we do on the DTC side, and, you know, obviously cash margin as well is important on advised. Again, there is much greater cash margin on the DTC side due to the level of cash held. It is a much more, it is a less volatile revenue margin. At this point, it is lower on the advised side. That is because it is a buy-and-hold strategy that advisors have for their clients. They will risk assess them, they will put them into a portfolio, often an MPS solution, and then it is held.
Whereas you have more customers on DTC who are being a bit more opportunistic in the market. Yeah, your assertion's correct. It is more stable on the advised side, but a lower overall margin.
I think we put some data in the deck, didn't we, this time around the trading activity. You know, we often don't provide any information for the period after the period end. The number of times we've said, we'll give you the Q3 trading update. We'll give you the Q3 trading update. Just given the nature of markets in April, for the reason that Pete's just described, thought actually it'd be useful to show people that customer behavior in April. It is all on the DTC side. You saw a massive spike in trading activity as there was a lot going on in markets and we've got a number of enthusiastic investors.
They see those opportunities, but also just because of the timing of it, the vast majority of customers are putting money into their various tax wrappers at that point in the tax year anyway. You know, you're getting towards the end of the tax year. Let's get the money in before I lose the annual allowance or you're rolling into a new tax year that people are really on top of their personal finances. Let's get my allowance in for the new tax year. They were quite cash rich, the portfolios at that point in time. People then put that money to work, quite quickly. Yeah, lots of activity on the DTC side in April. We have come back now in May to the averages that we saw through the first half of the year.
You know, Donald's never far away from his next, his next post. So, you know.
Or his last post.
Yeah, indeed.
You know, we've done one today, haven't we? You know.
Yeah, truth. Social is always, yeah.
Indeed.
The next question kind of segues from your tools competition from the financials. It's a question on where competition puts most pressure on costs, i.e., do you get more competition for people to upgrade tech or is there greater cost of marketing at certain times of year because everyone else is trying to market heavily around the tax year end? Or does it not really work like that?
I would not say there are any particular areas where we feel under pressure on costs. You know, there has been an impact from things like the national insurance changes that happened. You know, that is GBP 1.5 million on an annualized basis for us. The FSCS levy is a bit punchier this year as well and things like that. Probably in our customer services team where we have some more junior people, the impact of things like national living wage, where I think that went up about 9% last year, you know, that does create a cost pressure because we have quite a high volume of people in those teams and they are not all necessarily on that national living wage level.
If you give 9% to the lowest paid, it does have a sort of knock-on effect on people at the next one or two levels in the chain and creates above normal levels of inflation there. You know, Manchester is an increasingly popular location for some of our peers to locate themselves. We get some pressure around that. I'd say that's the main one. You know, we've not, all of the other upward impacts on costs are of material, of choices really, the decisions to invest.
Gotcha. Good to hear. And then on competition in a sort of broader sense, we had lots of questions about Robinhood launching an ISA, a Stocks and shares ISA here 'cause there was an article I think in the week or two ago about that. And then inevitably, partly 'cause Hargreaves obviously isn't speaking publicly so much anymore, there were lots of questions about their, they've obviously got a six-month holiday on fees on SIPPs, I think it is, or 40% off for six months. Is there any change in the competitive landscape that people should think about?
Is there anything that worries you, or is there anything that means that you have to change your approach in any particular way that's caused by changes in competition?
Okay. Probably quite a lot to pick off there.
Sorry.
Apologies if I give quite a long answer. No, no, it's fine. It's a, Julian, I love this stuff. I'll have to sit here and talk about this all day, but keep me in check if I'm just going on about this for too long. I suppose first and foremost with competition, look, it's an attractive market. We, you know, there are a number of strong competitors in the market. There are a number of the firms on the periphery of the market who you think, okay, they're gonna make a, you know, a real move into this market. Robinhood would be a good example of that, I think. You know, it's an attractive market. You'd expect that competition.
Whilst it's a fascinating part of the competitive dynamic, and of course we keep a close eye on it, at present, there's nothing that I'm seeing that causes me to think, okay, there is a completely new approach here, a completely different dynamic that would cause us to, have to, you know, reassess our approach to things like pricing. Talk through a few examples of what I mean there. Using your Robinhood example, whilst you would look at that and say, okay, you know, a very relevant brand operating at scale in a, in a different geographical jurisdiction, clearly a relevant competitor. What they have been speaking about recently, you're right, there was FTE coverage on it. That already exists in the market. Trading 212, you know, another trading brand, are offering that exact same product at present.
I think they are doing, and then what they're doing different is they're doing a cash ISA and a Stocks and shares ISA, going heavy on the rate on the cash ISA and then very quickly cross-selling the Stocks and shares ISA to that group of generally younger customers. I think they're doing a good job of that. In that part of the market, you know, there's already that kind of activity there we're seeing, which customers it appeals to, the extent to which it reduces our opportunity, how we might have to adapt our Dodl product, for instance, and position that in a slightly different way. Definitely relevant, but nothing fundamentally new or different coming to the market there.
If I then sort of, if I then switch focus to some of the more established players at Hargreaves, you've given us an example there. You know, there's an expectation in the market and it's one that I would support as a view that Hargreaves will look to be more price competitive and bring down the price over time. The specific offer that you've referred to, it seems very much from the Nordic Capital Nordnet playbook. You know, that was how they approached repricing when they took Nordnet private and replatformed it. It was very sort of targeted tests looking for the, to build the evidence, you know, where is the price elasticity here, what works, what doesn't?
Are we getting the new business impacts that we believe that we need to see to justify this repricing on an ongoing basis? The kind of test that I would expect to see. I think one of the things that gives us confidence about our ability to go toe to toe with anybody on pricing is the cost to serve a pound of asset on our platform. You know, it has gone up in recent years after that period of inflation. It is something that we have got a great track record of having at a low level and managing down over time. We are sort of re-engaging on that challenge in a really meaningful way at present. I referenced the point earlier about the 12% increase in operational costs.
That is something that we're very focused on getting down to a far lower level, to make sure the business scales as effectively as it has done in the past. When it comes to price competition, that gives us quite a strong starting position, we believe, in the market against any of the competitors. Having said all of that about price, and it is a fascinating dynamic, it's only part of the competitive dynamic in the market. You know, the trust, people understanding the brand, the service that goes with that, you know, maintaining that trust, the ease of use, which is something that we need to get better at. You know, we're doing okay there.
Some of our products like the Ready-Made Pension are really starting to focus more on the journey and the outcomes for customers, but more to do there to improve that. It is the collection of all of those things that will cause us to be successful or not in this market. It is not just a price game, that is for sure.
Yep. Understood. As an aside, funny enough, I did a couple of weeks ago, I'm a customer of yours as well as somebody who covers the stock. I put some money into my Stocks and shares ISA because it was the start of the tax year. It was extremely easy. I only had to touch, I had to make one click, I think, on your app, and then I had to make three clicks on my banking app and it was done. It is definitely dead easy to use.
I mean, that's fabulous to hear, Julian. I worry that you've lost some credibility with the audience now with that plug, but hey, I'm sure a happy customer.
No, I am. I'm genuine. The factors affecting the growth in the market share versus the other major players. I think you've covered quite a lot of that already, but is there anything else other than trust? And it's perhaps, what's the most important one? It's probably an interesting thing for people to hear. Do you think it's brand or service or price, or are they inextricably linked?
I know it sounds like a cop-out, but I do think that it's getting the balance right between all of those things. If you are just the low-cost provider, but you're failing visibly, not at the races on those other things. I've seen it before in the market and you're talking about looking after people's life savings. There will be a cohort in the market that will, you know, will stick with it and will continue to be attracted by it. I don't believe that it's the right way to try and succeed in the market. The trust piece, as I said, the brand, we feel that there's a lot more for us to go there in the grand scheme of things. It's still not a well-recognized brand.
There's a lot more return that we can get from that. The service is good. You know, it's not perfect. You know, we're not a perfect business, but the service is good compared to the competition, compared to our historical standards, compared to our expectations of where it should be. We are placed there. I would put brand and service together as trust. You know, people have got to know who you are to trust you, and then you've got to maintain that trust when they actually use you on an ongoing basis. The ease of use, but as I said before, that's the bit that is important.
You know, people will, if something's expensive and the service is, you know, not, not fabulous, if it's easy to use and they trust that the organization will be there on an ongoing basis. I mean, that's why so many of the fintechs have had the growth that they've had. People will stick with ease of use. So that's something that we need to carry on investing in and carry on improving. But it is the culmination of all of those things and getting the balance right. You know, you can't be rock bottom on price and give a good service. I think you've got to be competitive on price and you've got to be very good on service and you've got to be very operationally efficient.
That's the balance that we've done a good job of striking and making sure that we keep that going into the future.
Gotcha. Those things probably apply most in the DTC world, but they will also apply in advice. Some of your competitors have had quite a, in the advised, advice sector have had a pretty good last few months in terms of flows. Are they doing anything slightly better than AJ Bell? Is there anything that they're doing differently or is there something specific in AJ Bell's advice business that's different and therefore has a slightly different dynamic?
Yeah. That's why I'm, I won't surprise you that I'm not gonna sit here and plug our competitors, but for sure there are a couple of our listed peers on that side of the business who are doing a good job. Good businesses are doing a good job and they are, you know, they're a good competition for us and, you know, we relish that challenge. If I focus on our business, you know, what, where are we at? What's our assessment of the advice business? First of all, we've gotta get the balance right. We hold ourselves to a very high standard. We have a high bar for what we expect our two businesses to achieve.
The reality is, although there's a couple of people in the market who are performing better than us right now, the vast majority of the advice platforms are not, and would kill to have the business and the results that we currently have. It's that kind of, okay, we're doing okay, but clearly we could do better here. There is a bigger opportunity in the market than our figures are reflecting. Why is that? There are a few factors specific to us in this period. We're a very pension-rich business. You know, pensions are one of the, you know, pretty well the best tax wrapper in the market in terms of the quality of the business, the profitability of the business.
As a business that started as a SIPP operator and a pension specialist, you know, we've always been strong in that space. We have a far higher percentage of AUA that's within a pension wrapper as a result. We're about 70-80% on the advice side. I forget the exact figure, but we can confirm it if people need to have that figure. Some of our listed peers in that space are more around 50%. I think we are the canary in the pension mine, if you like. There have been some changes there in the period and there's been some speculation as a result of the budgets. The speculation was around tax-free cash predominantly. Is it going to be withdrawn?
We saw a meaningful amount of money being pulled out of the larger pensions, which are generally on the advice side of the business. That was a headwind that would have impacted us more than others. Advisor consolidation is the other issue as well. Now, clearly that impacts any business that is not trying to control its own distribution and is just trying to provide the technology and the custody service and the investment solutions to an independent advisor or wealth manager, whatever their business model might be. That is certainly a description of our business model. Advisor consolidation, the trend of people buying independent firms, clearly has an impact on us where larger firms are bought and then the assets do move if they are moving to a business with an in-house solution that is vertically integrated.
It will impact, it will impact in lots of forms. We had a period where there was a significant step up, a significant migration that occurred in the period. That was one of the things that hit us. You know, some of the outflows that were abating following the cost of living issues of 18 months or so ago have been replaced in this period by some of that advisor consolidation outflow. That will come and go. There are still some more firms that are using us who have been bought by consolidators where we expect those assets to flow off the platform, but the activity has slowed a bit as well. You know, there is a mixed bag of tailwinds and headwinds to the consolidation trend in the industry.
I'm not gonna go too far off on that tangent, but in this, in this period, it was an issue going forward. There are some opportunities there for us that I think we're getting better at, tapping into now. So those are the specific factors for us. You then just take it back to just raw competition. Are we, are we competing as effectively as we should be? You know, even if you adjust for those figures, you know, are we, are we then sort of performing as well as our competitors? And there's one or two areas where I don't think we are. Ease of use will be a constant challenge.
There is one or two areas that we can see, okay, maybe one or two people have got ahead on one or two aspects of just making the advisor's life easier, managing money around the platform, managing investments on an ongoing basis. We have multiple projects in flight to deliver that in an enhanced functionality at present. It will be about another 12 months or so until that is finished. We can see that there are tangible functionality points that we can address. There have been other things, some of the pricing on larger opportunities that ultimately have been quite sharp on the pricing as we could have been.
We've been a little bit complacent because we see ourselves as a, as a well-priced option for people, but the level of special deals in the market has just changed massively over the last three, four, five years. That's something that we were aware of to a point, but I think we've just underestimated a bit. We've changed our approach there in the period and we're now seeing the pipeline building a little bit better than it had been as a result of that. There's some things like that where we've, you know, have we optimized our performance? No, I think we've been a little bit, a little bit less than perfect, but, you know, I'm confident that we've either addressed the points or we're on with addressing.
Gotcha. What's caused the change in the level of special deals in the last few years? Is there one player that's kind of driven it or is it just a general trend?
I think there are, yeah, different approaches from different providers. You know, some have set out with a systematic approach to say, you know, the rate card says X, but we're just gonna go and find firms and do a special deal with them. It's just that kind of psychology of do the special deal and then be willing to accept the administrative complexity that comes with that because you will get people across the line if they think that they're getting a deal. There have been other firms then as flows have consolidated into a few providers in the market and that sort of midfield have felt some pressure.
There've been some firms that have then been, you know, trying desperately to get the scale and get the flows by pricing more aggressively and doing that with special deals. Some firms who have had service issues and disruption who are then trying to retain business in that way. I think there's a multitude of reasons why it has grown in provenance, but it has become more prevalent in the market. There's no doubt about that.
Anything to add to that is the return of cash margin into the businesses, as an income stream, you know, has enabled an additional level of flexibility around some of those opportunities as well. You know, one or two of the players that you refer into, certainly one of them did not retain cash margin initially and then does and, you know, is using that. Okay. Yeah, that's an interesting point. One other thing, a couple of other advice platforms are also trying to combine the platform service with a back office solution of some kind, partly in order to try and appeal to the larger firms, or even the consolidators. Is that something that you guys think might work and is it something that you might one day do or not?
Okay, does it work first of all and who's it relevant to? They're both services that firms will value. Do they need to be taken from the same firm? Are there advantages to that? You can debate that. You can make a strong case for, you can make a strong case against. I wouldn't see it as being specifically relevant to the larger firms. In fact, I would see it the other way around. If you are a larger firm, I think you are more likely to have enough scale in that financial planning part of the value chain that actually even, you know, you may even have your own proprietary system, or certainly going to a specialist third party, you'd be able to get something more bespoke to you.
I would see it actually more smaller firms looking to build a business in the market ultimately to sell. Build an independent practice to sell, you know, there you might be able to gain extra efficiency from having the two aspects of your operation being provided by the same provider. Our view is that whilst we can see various opportunities to provide more technology and more solutions into the advice market, I would not see us going to the extent of buying or building a full back office system. I think there is an awful lot that you have to be across to do that.
We see that the elements of our technology stack that we think can be developed in a way that would be very valuable to advisors as being in, you know, more sort of specialist and focused areas to help them with our administration rather than trying to be the whole back office system. That is something, it is something that we are testing at present, something that we need to develop as a strategy, not something we have made a sort of clear and comprehensive communication onto the market. It is very much a work in progress, that part of our strategy.
Gotcha. The next question kind of bridges towards regulation and policy, and it's on the advice guidance boundary and whether you see the advantage of maybe being able to provide guidance to your customers as something that will be done mainly by DTC platforms or whether it's something that advisors might use to reach smaller customers and kind of bring them on towards their kind of normal customer size.
Yeah. I'd say, first of all, it's been a good piece of work. I started being quite skeptical about this, just thinking there's no way that the regulatory beast that we're dealing with here is going to be able to deliver something that gives the kind of flexibility and freedom that will be required to make this a really valuable set of rules that will allow firms to create the right solutions for a broad range of customers. They've run the process well to date. I have to say they have done lots of listening. They have reflected a number of those points in the various consultations and discussions in the working groups. They're also quite a rigid and entrenched organization as well. There are still things that I think they could get very wrong here.
We're still in dialogue with them. There's an ex-consultation paper coming over the summer. I think there's lots of will to get this to market. It's just a case of whether it comes to market in form is really, really valuable. In the main, I would see targeted support as being about the DTC market, saying, okay, how can we help people who cannot afford advice? How can we use this to fill the advice gap or at least start closing the advice gap for a cohort of customers? Having said that, there are definitely advice firms that are looking at this for the reasons you've described, Julian, saying, okay, the cost of compliance for financial planners to provide full advice is going up and up and up all the time.
That part of the market is losing customers out of the bottom end all the time as a result. Actually, this could be a way to retain some of those customers. You know, it's part of the, whilst we're doing it in a different way, we think that the planners should want to keep the full advice service going to their customers. Part of the traction of the Touch proposition that we're going to be bringing to the market soon is that the efficiency it creates, it's a narrower proposition, but the efficiency that it creates in its operation allows advisors to continue to keep a full advice offering to a much lower level in the market. I think that there will be various innovations in that part of the market.
How valuable or not targeted support is, how broad the appeal is, depends on how they create the regulatory framework, you know, that they make it a new permission, which I think will be their instinct. Let's put it in a box. Let's make it a new permission. Firms have to get that permission and can then only create products from scratch with those permissions and sell them from a standing start to new customers. I fear that's where we will end up. What we would like to see is them create it as an additional activity within an existing permission. That means we would be able to apply it to the whole of our DTC book as we felt appropriate and would obviously create the same opportunity for other firms in the market as well.
That is where I think they are gonna take the wrong turn. I have thought that they were gonna take a few other wrong turns and they seem to have avoided them. You never know. There is a bit of hope.
Yeah. All right. What I suppose from their point of view, it's probably fine if it's AJ Bell, but maybe there are other providers of, you know, what you provide for, you know, your DTC platform service who might be less rigorous in their observance of the, you know, the boundaries that they want to set out. Yeah. Okay.
Maybe that's about.
I can see your worry basically as in, and it would be easier to regulate something that they box up than not, but then.
Yeah.
Hopefully they'll listen.
Yeah. You know, that would be saying, well, we're not going to create the optimal solution for customers and for the industry, because we do not think we can do our job properly. You know, they have to be able to create this set of rules and then enforce those rules. That is my personal opinion. I am sure if somebody from the FCA were here, they would have a long list of reasons why it is not as simple as I have just described to you there. Anyway, we are having good engagement with them. Hopefully we can keep it pointing in the right direction.
Yeah. Good point. There's another one on the pensions dashboard. I don't know if this is actually particularly relevant to you guys. Do you think that, A, it'll be launched on time and, B, I think that's an almost certain no, isn't it? Then, B, will it have any impact on your business?
I think like a lot of people in the industry have a little bit given up with pension dashboards. I think where we are at present is the commercial dashboard idea has all but been mothballed. I think a MaPS dashboard is the only thing that we can hope to end up with in the market. If I was trying to kill the whole initiative, that's what I'd do because there's then no customer awareness. There's no marketing that goes behind it. You can say, we did it, we tried, didn't do anything, let's kill it and all move on with our lives. You know, we keep, we maintain a watching brief, but it's not central to any of our plans as we sit here today.
Gotcha. And then a final one in the sort of regulation paragraph. Is there anything else that we should look at on that, that's gonna look at on the horizon that's gonna change the regulatory or policy outlook apart from inheritance tax and other changes like that in 2027 potentially?
Regulatory change, I would say no. I think in having had the conversation we have had about targeted support. By the way, there are other aspects to the advice guidance boundary group. Targeted support is what we care about, that I care about, that I see the most value in and that is the most progressive as well to be fair. That is the big one. I suppose the other point with the regulator that is worth making is that there has been lots of, I suppose the tone from the top is changing or they are trying to change the perception of it at least. You know, we have had far more, you know, we get the growth mission, we want to support the growth mission, and we want to be working with businesses to be more innovative, et cetera, et cetera.
You know, we've all heard those sorts of statements from the regulator. The tone on the top as we sit here today does not match the reality out there in the field. Now, I'm not saying that that's an easy thing to get right. That will take time to get right. But that is a risk that, you know, we are saying the right things. Therefore, we think that the position has changed and the reality has changed and actually it has not. There is a sort of mismatch in reality in the field and tone from the top there that I'm concerned about looking forward over the next 12 months. It is kind of legislation in my, by the way, I segment things rather than regulation. You then look at government changes.
I think the October budget again risks being a disruption for the, for the industry and a concern for consumers. State of the public finances, you know, memos flying around talking about the next raft of tax rises. Interested in the politics behind that one and who decided to leak that and why. But anyway, let's not get into that. You know, the public finances are stretched. Everybody can see that. If that then does translate into, you know, rumor and speculation around taxes, around tax allowances, around pensions, you know, I refer you to our case study of October 2024, which, you know, we'll be in for a review there. Trying to avoid that, trying to get certain things off the table, take some certainty out of the process in the buildup to, that the budget will be again a point that we'll be trying to make. Not saying that we'll be listened to.
Understood. Thank you very much. Then we've got just a few questions on the outlook. If anyone who's on the call wants to add a couple of questions of their own in the last sort of 10 minutes or so, do please send me an email or a deed if you'd like to speak. You can raise your hand on the Zoom call. On the outlook, and this is quite a long time, I think, do you think ISA flows, Stocks and shares ISA flows will change materially as rates decline? I think that probably can apply to SIPPs and, you know, across the whole pair of platforms.
We did used to see, before, rates increased or in that period of historical low rates, we did used to see, cash ISAs were a strong source of new business for us. You know, gradually over time, people who were holding cash ISAs saw the dismal returns that they were getting and then, you know, made that move over into Stocks and shares ISAs and into the world of investing. You know, as rates started to come back, that flow of new business dried up and that's not really a dynamic in the market anymore. If you look at what people are actually achieving on those ISAs, if they're not fixed rates, you know, the variable rate ISAs, they actually compare poorly to the rates of interest we pay in our Stocks and shares ISA as a cash rate.
The pain should be starting to be felt by certain consumers. As you move down through that rate curve, you would expect that to be only good news from an AJ Bell perspective, in terms of flows from ISAs into Stocks and shares ISAs. The more powerful thing there would be ISA reform. I have made various points about that on calls before, so I'll maybe not take up a load of time going into that. Our view is if we can get to a one ISA regime, you pair that with targeted support and it becomes very powerful in trying to get far more people investing and help get the balance right between cash and stocks and shares. It would create a regime that we have not seen the likes of before.
We really would be able to make some quite engaging, put some quite engaging journeys together for customers and really help them with that. You know, there are two initiatives that have to land in exactly the right way to make that work. I would acknowledge that that is a long shot.
Gotcha. I see there's one listener has raised a hand. Would it be, oh, two, in fact. Pete , please, could you let the listeners in to ask their questions in order, please? Just while that's going on, is there anything that you would, would you plan to change about either platform to enhance them? I know you've already said about making the user experience easier, et cetera, but is there any functionality that you would add?
On the DTC platform, we've probably covered it. You know, we do want to add more personalized content there, but I think we've, you know, targeted support, better app, easier journeys, add personalized content, and you've got a pretty good feel of how we're thinking about the DTC market. On the advice side, we talked about automation and efficiency for our advisors. Probably the one thing we've not talked about is, I mentioned the, I referred to the October journal.
Absolutely.
The proposal to bring pensions into the unused pensions on death into the IHT regime, that will, one way or another, that will happen. The government will find some way of taking some tax there. That's, you know, democratically elected governments, their decision to make. Pensions have had this position in inheritance tax planning that's been quite privileged, and so for not actually a huge number of people, but for some wealthier customers, particularly in the advice market, that has been a very valuable aspect of pensions. Some of those flows will therefore now come out of pensions and the sort of position they've had of spend the money, spend the pension money last, in the inheritance tax planning, estate planning process will change.
I can see a world where the tax-free lump sums are taken quite quickly, brought out of the pension, and then the estate planning can start, the what's currently a seven-year clock can start ticking, or people can put that money into trust arrangements and the like. We've got a few years to do this. You know, there's a few obvious examples of the kind of thing that can happen, you know, putting on short bonds into trust. We can put that on platform. This is still accumulated wealth. It can still be managed on the platform, but the pension wrapper will not be necessarily the right product to serve that customer and to look after that money going forward. You know, gifting from pensions could be another common activity. Gifted how?
You know, intergenerational wealth transfer, putting junior products and the like on the platform, something that we already have a lot of, but there could be further evolution there. There is one specific point that's more of a, okay, over the next two years before those rules come in, how does that product set need to evolve? Doesn't change the core operation of the platform, but how does the product set need to evolve to make sure that change in the use of pensions in certain circumstances doesn't become a big headwind for the business?
Got it. Okay, Scott, I think you should be able to talk now. It says ask to unmute and say unmute and please go ahead.
Hi there. Can you hear me?
Yes, we can.
Yeah. Thank you. Congrats on, congrats on the results. Just, and thanks for the call. I'm just curious, you made an interesting comment before about putting money into certain channels at certain times to, and I'm just curious, with all the data you're blessed with, how good do you feel you are at this stage versus, you know, a few years from now at taking advantage of that data to, you know, to add more value to your clients and make the company more efficient? Where are you on that journey, please?
Let's give it a beyond that comment. I'll kick off and then you dive in, Pete. Yeah, look, Scott, I think it's very, very much an area of opportunity for us. We've been quite kind, on occasion, in our description of our own marketing capability. You know, we've progressed massively over the last few years, and, you know, Pete has the confidence to invest more lower down the funnel at certain points in the year if we can see that the cost of acquiring a customer is low, is below certain metrics and the volume is there. You know, the modeling has improved, the processes to then, you know, make an assessment and deploy the money have improved.
The things like, you know, getting the right link between a lifetime value of a certain kind of customer that you know that you win from a certain kind of channel and then being able to make those decisions to say at certain points in the year with certain kinds of creative and certain messages, should I be looking to push harder? All of that is what our new Chief Marketing Officer, Steve Bell, is on with trying to put those sorts of processes in place in the business. It is an area we can see another couple of years certainly of improving processes. We are not breaking new ground here. These are things that people have done in other industries.
I'm sure some of our competitors we know certainly, some of the more actively traded products like the CFD providers, you know, have better marketing capabilities along the lines that I've just described. Yeah, we've seen lots of opportunities to capture more value there.
I have not a lot to add to that other than it is a reasonable, untapped cross-sell opportunity as well. You know, I think circa is it an industry-wide stat, but around 40% of customers operate more than one platform. We've not done as much as we could do to try and get people to transfer assets they hold elsewhere onto our platform. Obviously, clearly the acquisition cost of that can be quite efficient.
Thank you. Thanks. Now, Andrew, are you unmute yourself and you then please go ahead.
Yeah. Hi guys. Can you hear me?
Yeah.
Yeah. Yeah. Just a quick question on, things are moving so quickly, but, a question about cryptocurrency. So you, you've got a couple of competitors, Robinhood, et cetera, who are, Revolut, who make massive margins on crypto, which effectively allows them to subsidize other parts of their business. One, are the regulators aware of this in the U.K. that you, you might have some competitors making a lot of money elsewhere, enabling them to undercut you? That's just with an eye on your ability to, you know, grab your fair share of the market for the next 10 years. And number two, with potential crypto regulation in the U.K., are you guys doing advanced work to understand whether you would enter that market, if those, if that was approved at some point?
Yeah, again, I'll, obviously in regards to the DTC, clearly.
P has his own design as well.
Sorry, say again, Andrew?
I was just saying that's obviously in regards to the DTC, I would think of more relevance.
Yeah. Yeah. Yeah. Agreed. The cross-subsidization point, I think that is well understood by the regulator, but more with CFDs as the example than perhaps crypto. Obviously, it has been a feature of the market, certainly in the U.K. for much longer. There are businesses that are generating high margins on the CFD side of the business, then looking to use that to cross-subsidize and build broader investment businesses. There are a couple of examples of firms doing that in the market. I think that is well understood by the regulator. What action or inaction there is, is taken, you know, not something that I'm privy to.
From our perspective, we see it as a competitive dynamic that we acknowledge, we accept, we have our views around where those firms are active in the market and what that does to the attractiveness or not of the kinds of customers that they're after. Certainly something we expect to continue to see as an activity in the market. It's established and it hasn't hurt us to this point. You know, we're operating at a scale now where we believe that we can price competitively and operate a sustainable and profitable business doing that. One to keep an eye on, but not something that causes undue concern. In terms of then the, you know, any change to the FCA's approach to making crypto available to retail investors, which is heavily restricted as we sit here today.
We would be skeptics, as I think lots of established financial services firms would be. Equally, we are a commercial organization, you know, let's see how that space develops. My instinct is not to dive in there and go chasing it and see it as a really exciting opportunity, but also I do not want to just be a skeptic and, oh, well, I know better because I have my views of what a sensible asset allocation looks like, et cetera, et cetera. A less controversial view, but you could, asset cluster, but you could extend the same view to private assets, to alternatives. Whilst we would be uncomfortable about putting those within our investment products, again, it is a space that is going to develop.
We need to maintain a watch and breathe, and be willing to reassess if the landscape changes material.
That makes sense.
A couple of things I'd add to that.
Can I just ask on the, do you have the organization muscle, for example, if there was, I mean, obviously these things have a long lead time, but obviously you might have competitors who are ready to go on day one. I mean, if it's something that might take you two or three years to get sorted, and suddenly it did become a big thing, especially for younger people, I'm just wondering, you know, how quickly you could respond to a much changed environment as we've seen in the U.S. and some of those firms are very well positioned, Robinhood and co now for that.
Yeah, I think the point I was just about to make is probably relevant to this one. You sort of top that up. The vast majority of our customers are using tax-wrapped products and there are quite strict eligibility criteria within those products in terms of what sorts of instruments that you can hold. There would have to be, I imagine, what would be a multi-year piece of work, not just involving one regulator. In pensions regulation, it's slightly different jurisdiction. What is eligible to hold in a pension or an ISA, there would have to be quite a significant amount of change to allow crypto assets to be held in either of those wrappers at this point in time.
That is in addition to whether they are even allowed to be instruments that can be traded in the U.K. I think there would be quite a long lead. The risk of something changing in six months' time and us being caught out is very, very low given the nature of the products that we are offering, and also the fact that, you know, Robinhood is—we do not necessarily see Robinhood as a direct competitor necessarily because their customers are trading, whereas ours are investing and transacting 10 times a year, not multiple times a day.
I suppose all I'd be saying is really backing that up with an example. It's taken two years of focus on the fact that there were a number of providers giving access to fractional shares being held within ISAs, which actually didn't comply with the ISA rules. It's taken two years of back and forth to get some relaxation of that from the treasury. As Pete said, you know, the tax wrappers are key to the, that's what customers really value in the U.K. On the DTC side, about 80% of the assets on our platform are in those tax wrappers. I think it's a great challenge and we try and put a lot of focus on competition developing and new entrants coming into the market.
It's a good question. It's a dynamic that we're aware of, but I don't think that risk of what if this changes in six months and you get caught offside, I just don't see that being an issue. It would take a number of years and I would then be confident, as I am with a number of things, that our product development and IT teams would be able to move faster than the regulator. Julian, I'm afraid I'm gonna have to drop now 'cause I've got a call that I have to take at 4:00 P.M.
Cool. There are two outstanding questions, which I'll email to you and get answers, which I'll distribute. But thanks very much. Mike and Pete.
Stay on.
I mean, I can't say if you wanna go do your call.
Gotcha.
Thanks very much, everyone. Cheers, Julian.
Thanks very much, Mike. Actually, someone who was about to ask a question has dropped. So instead, it's just the emailed-in one. How aggressive are big banks being getting back into the mass affluent market? It seems like HSBC certainly is and maybe Barclays.
Yeah. Obviously, there's, I think, a fairly sort of cyclical approach in terms of how the big banks try to address our market. You know, we see every few years the big banks having a, or one of them at least having a push in this space. Barclays has been around for a long time in our space and actually used to be twice the size as what it is now. If you, we do, we do speak to Barclays, probably a bit more than HSBC, but you know, if you do speak to them, their strategy is very much around being the provider to customers of Barclays.
We do not necessarily see them as competing for the same customers that we are competing for or wanting to, to some degree. You know, we believe we have a much more compelling product than Barclays have at this point in time. We see no significant impact in terms of our customers transferring to them and in fact more likely the other way around. Again, as Michael has alluded to, we are always looking at these competitive dynamics, but I am not sure they are necessarily targeting exactly the same potential customers. You know, we are pretty confident in our proposition.
Got it. Thanks very much. I think that all the remaining people no longer have hands up. Thank you very much for your time. Sorry we ran over and I will,
That's great.
Get an answer. I'll get the question off the person who can get to work. Thank you again, Pete. Have a good day.
Yeah. Good session. Thanks, Julian. Thanks, everyone. Bye.