Good morning, and welcome to our 2024 interim results. I'll do three things this morning: I'll take you through the business highlights and update you on our strategic priorities, I'll cover our improved flow momentum, and I'll provide an update of our key transformation programs. Mark will walk through the financials, and then I'll summarize, and we'll take questions. We've had a strong first half, and we're in really good shape, having delivered excellent profit growth and higher operating margins. Let me start with the key highlights. Net flows were sharply higher, up around 160% year-on-year. Adjusted profit increased 28% to GBP 97 million. That reflects robust cost performance as well as higher revenues. Our operating margin at 29% remains above our 2025 target.
Earnings per share increased by 21% to GBP 0.052, and the board is proposing an interim dividend of GBP 0.017, which represents a third of last year's total dividend. As you know, we have three clear priorities to improve our business: building distribution, enhancing propositions, and driving efficiency. As you can see, our work is delivering tangible results. Let me draw out a few things that I'm particularly pleased with. First, distribution. We're generating much higher flows from both of our channels, and I'll get into more detail shortly. We remain the largest advice platform by flows, and we've continued to build out Quilter Partners' geographic hubs. Second, propositions. We've continued to enhance our propositions with the introduction of our Cash Hub, as well as launching WealthSelect on third-party platforms. We're also investing to extend our digital capabilities.
Third, we've maintained our focus on efficiency. We've delivered GBP 26 million of our GBP 50 million cost-saving target, and in High Net Worth, we'll be able to offer advice and investment management from the same legal entity later this year. That will improve our client proposition and support our efficiency plans, so good momentum across our business. You'll be keen to hear about the regulatory uncertainty that has been a feature of the first half, so let me give you an update on the ongoing Advice Evidence Review. Advice is central to the Quilter business model, and we've got policies in place that underline the need for advisors to meet their obligations in respect of ongoing advice. This slide sets out the timeline so far this year.
In March, we said that we would undertake a review of historical data, practice, and practices across our network to determine what, if any, action or remediation may be required. Naturally, we discussed our approach with the FCA. We agreed the work would be undertaken by a skilled person. That skilled person was only appointed in June. The initial work is focused on reviewing a statistically significant sample of records across our network for the years under review. The conclusions from that will provide a basis to determine what, if any, further work and/or remediation is required. Based on current timelines, we expect to be able to provide an update to the market by early 2025. The reason we haven't taken a provision for remediation with these results is because it's still too early in the process to determine any potential liability here.
Rest assured, we'll update the market on this as soon as we can. We are all keen for clarity on this. That's all I can say on this process for now, so let me turn back to the business. I'll start with flows. This slide gives you a snapshot of the first half. Group flows by quarter on the left and the longer-term trend on the right. The key points are the second quarter was better than the first, and net inflows were 3% of opening assets. A year ago, that was zero, so good progress towards our goal of 4%-5% per annum, which we expect to deliver in a normalized environment. Taking a slightly longer-term perspective, you can see the material step-up in flows this half compared to the last couple of years. That's the green line on the right. Turning now to the segments.
First, High Net Worth. We've seen a strong increase in gross inflows this year. New business levels have been consistently running above GBP 200 million a month, which is higher than the trend rate over the last couple of years. Net flows also doubled, albeit off a low base. But like our peers, we've experienced elevated outflows in the IFA and direct channel. There are three main reasons for this. First, IFA consolidation. Second, in line with the industry, the number of higher value withdrawals by clients remains high. The total level of withdrawals greater than GBP 5 million was at a similarly elevated level to last year. And third, on top of this, in the second quarter, we saw one particularly large withdrawal of around GBP 130 million related to a low-margin fund mandate.
Excluding this, our net flows would have annualized at 2% of opening assets. Looking forward, we expect an improving trend reflecting our business development activities and new propositions, such as our Big Four offering to leading accountancy firms. We're also continuing to reposition our business to drive a clearer demarcation Discretionary Portfolio Service, or dps, for our wealthier clients and our Managed Portfolio Service. In time, that might lead to some gradual easing of the revenue margin, reflecting the change in mix. But overall, the strategy should deliver better revenue growth and improved operating margins. Let me turn to Affluent, where I'm really pleased with the progress. Both our distribution channels are showing strong year-on-year momentum, and that's leading to a meaningful step up in our platform flows. Importantly, the fastest growth is coming through in higher revenue margin, longer duration assets.
You can see strong year-on-year growth with a percentage increase highlighted in the ovals. Across the board, we delivered a better second quarter performance than in the first. Our platform is currently delivering net flows of 6% of opening balances, which is very positive, and we believe there is more to come. Let me drill down into what is driving the improved performance by looking at each channel. I will start with the Quilter channel. As you know, for the past couple of years, we've focused on ensuring advisor alignment across our network firms.
That has delivered a better advice business, demonstrated by sustainably higher total net flows from our advisors onto our platform and increased productivity, measured by gross flows per advisor, which, as you can see in the top left, is now running at GBP 3.2 million on an annualized basis, up from GBP 2.4 million in early 2021. Those metrics have been supported by the continued progress in back book transfers, which you can see on the right. So we've got a more productive, better-aligned advisor force delivering increased flows, which is clearly a good result. Now, delivering increased productivity has led to some shrinkage of our advisor base. Some, but not all of this, has been intended. So let's turn to advisor numbers and the initiatives we've put in place to drive growth.
The waterfall provides a breakdown of the key changes in our advisor numbers this year. Let me call out the important movements. First, the increases. As we said back in March, we've refreshed our recruitment teams, and this is producing a strong pipeline of new joiners with well over 130 applications in progress from both recruitment and the academy. That's more than double where we were at the start of the year. We've had 13 new firms join our network in the period to June, which is a meaningful increase on the last couple of years, and you may also have seen our announcement on Monday that another 4 firms joined in July. We expect the number of new joiners in the second half to be higher than in the first half. Around 20 academy RFP graduates joined the business in the first half.
As you know, we've put more investment into this initiative, so we expect at least that number again in the second half, and we're targeting an uplift to near 80 in 2025. Next, leavers. Exits have been running at a bit over 10% per annum as a result of two main factors: natural attrition and consolidator activity. For those who are looking to leave the industry, we've been running a National Retirement Plan where we acquire their books and pass them on to an advisor in our national business to manage. Under that program, we've retained about GBP 160 million of assets from leavers. Of the remainder, some have decided to switch to becoming Directly Authorized or have gone to consolidators.
In summary, we expect our growth initiatives, direct recruitment, and the academy to show a more meaningful contribution in the second half of the year and to grow off that base in 2025. Next, let's look at the IFA channel. Our ambition here is twofold: first, to improve our share of gross new business flows, and secondly, to become the platform of choice for a greater number of advisors. We're doing this by leveraging the strength of our proposition and the quality of our advisor offering and enhancing the effectiveness of our sales teams, and it's working well. On the left, you can see our platform market share. The black line represents our platform share of stock, and the green, our share of new business. As you can see, our share of new business continues to improve.
Since we completed our platform transformation program in 2021, the main driver of improved market share has come from the IFA channel. Next, on the right, I have summarized net IFA flows between our platform and peers. Clearly, we gain more assets from competitor platforms than we lose, and the level of business being transferred to us has increased materially year-on-year. Last year, the main drag was from consolidators, and pleasingly, outflows to them have reduced. So we continued to gain share in 2024, and you can see the benefit of that through the positive inflection in the black line, which shows the market share of stock on the left-hand side. Now, let me think, bring things together. This slide shows why we emphasize the importance of having two strong distribution channels.
In the first half, our two channels combined to deliver gross inflows of GBP 5.6 billion onto our platform. That's an impressive 40% increase on the prior year. Now, because our platform is highly scalable, incremental assets generate a very attractive operating margin. So we're happy adding assets from IFAs that just want to use our platform. But obviously, we prefer it where assets are both on our platform and in our solutions. In the first half, GBP 2.2 billion, or around 40% of the GBP 5.6 billion of new flows, went into our solutions. And by channel, about 80% of the flows from our advisors go into our solutions versus about 20% for IFA flows, but obviously, 20% of a very big number.
That's not just good news for us, but it's good for advisors and their clients as well, because our solutions are carefully structured to meet the needs of the advice processes. So while growing our advisor base is very important to me, maintaining and then growing our relationships with IFA firms is equally important. Now let me turn to net flows. On the right, this slide shows the cumulative weekly net flows onto the platform this year, and on the left, you can see the 2023 comparative. Last year, we generated good net flows onto the platform in the Quilter channel, but IFA net flows weren't at the level we wanted them to be. But the actions we've taken, coupled with a modest market improvement, have driven dramatic and consistent improvement in net IFA flows onto the platform.
Net flows onto the platform of GBP 2.2 billion in the first half were more than double what we achieved last year, and that means the net platform flows this year have already surpassed the 2023 full year total. Clearly, lifting platform net flows to GBP 2.2 billion is a great result. But let me give you a further perspective on that figure. What's important to me is the assets that were growing the fastest as a percentage of opening assets are the assets that we both administer and manage. Growth in those assets was 11% of opening assets last year, versus 4% for assets which we just administer. And equally important is the type of assets we're attracting, which you can see on the right-hand side.
The core of what we do is to support our clients save for retirement, and our success at that is clearly demonstrated through the growth in our pension and our differentiated investment bond propositions, both of which are longer duration, stickier assets. So in summary, we're delivering sharply increased flows from two strong distribution channels, and the fastest growth is from assets where we enjoy integrated margins. It's the breadth of our distribution that makes us the leading advice platform in terms of new business flow and underpins our strong strategic position relative to peers. These are all good trends, which we intend to keep this momentum going. Now let me talk about our broader transformation plans. The three programs that will drive a step change in productivity are our advice transformation, the evolution of our high-net-worth operating model, and organizational simplification. We're well into the implementation on each.
The most significant remaining work is for our advice transformation program, which will deliver results over the next 2-3 years. The project is progressing well, and we're already seeing some incremental operational benefit and cost savings here. As I said earlier, we're in the process of obtaining regulatory approval to simplify our high-net-worth operating structure. We're also increasing our focus on higher value customers. In simplification, we continue to make really good progress. Right. Before I hand over to Mark, let me conclude by repeating a slide you've seen before, which sets out the targets that we're driving towards. First, flows. We've seen a significant improvement on where we were last year, but we can and will do better as we feel client sentiment is yet to fully turn.
We're already above the 4%-5% target flow rate for the platform, and I believe we will get the whole group to that figure as the environment normalizes. Second, operating margin. We are now operating just below our 30% goal, and our aim is to sustainably operate above that level in the medium term. We are really pleased with the momentum in our business and with our profit trajectory running ahead of where we thought we would be back in March. On that note, let me hand over to Mark.
Thank you, Steven, and good morning, everyone. I'm pleased to report that our business is in great shape. Let me set out my key messages. One, we've delivered revenue growth of 5%. Two, the decline in revenue margin to 45 basis points was planned and reflects last year's pricing adjustments. Three, we've maintained cost discipline, which has led to a 28% profit increase and a 5 percentage point improvement in the operating margin. And four, our balance sheet remains in good shape, supporting our dividend capacity. Let me walk you through the details. Starting top left, net flows of GBP 1.7 billion in the core business were more than double the level we achieved for the whole of 2023. Our average AuMA was up about 8% on last year due to stronger net inflows and supportive market conditions.
Top right, you can see all revenue categories grew, giving GBP 329 million in total. Costs, bottom left, were down 2% to GBP 232 million. As a result, we increased adjusted profit by 28% to GBP 97 million. That gave an operating margin of 29%, so we remain above our 25% by 2025 target. All of that led to adjusted diluted earnings per share of 5.2 pence, an increase of 21%. Now, getting into the detail. Let's turn to revenue margins. This slide looks at the exit run rate at the end of 2023 and the changes in the first half of this year. In High Net Worth, on the left, the overall margin increased modestly, reflecting the loss of some larger accounts, which tend to be lower margin.
In Affluent, there were two main contributors to the lower funds management margin. First, outflows from Cirilium Active were just over GBP 1 billion in the first half, with the majority of these funds going into other Quilter solutions like WealthSelect, Cirilium Passive, and Cirilium Blend. The mix effect from this resulted in a revenue margin reduction of around 2 basis points. Secondly, AUM scale discounts and other changes resulted in another basis point reduction. Looking ahead, I expect the overall margin to fluctuate around the mid-30s basis points level, with fund mix being the main driver of movements. Next, our platform or administered margin was more resilient than expected last year, and as part of a normalized trend, we have seen a slightly larger decline in the first half of this year. There were two main contributors to that.
First, removing the platform charge on cash balances, in line with FCA guidelines in February, had a modest negative drag beyond what we would normally expect. And secondly, there was a tiering impact. Higher market levels have pushed more clients into lower basis point tiers on our charging bands, and that means lower margin but higher revenues, so obviously a sensible trade-off. Going forward, some of the interest rate benefit we generate on client cash will diminish as rates begin to decline. As a result, my expectation continues to be for a decline of around 1 basis point a year. Let's now turn to revenues, looking at it by segment. Our High Net Worth business delivered a good performance. The increase in management fees reflected the benefit of higher assets on a broadly unchanged revenue margin. The contribution from advice revenues and other income was broadly stable.
As a result, total revenue increased by 4%. In the Affluent segment, revenues grew 6%, supported by higher platform administration fees, coupled with higher advice revenue and investment income. This more than offset lower investment management fees, mainly due to the Cirilium Active reprice last year. Let's now turn to the detail on costs at both the group and segment level. I'm pleased to report another year-on-year decline in the cost base to GBP 232 million, despite inflationary headwinds and our investment in growth. The cost of revenue-generating staff as a percentage of revenues was broadly stable, primarily reflecting investment in the business. Variable compensation is being accrued at a similar rate to last year. The waterfall on the right summarizes the main cost changes year-on-year. Increases came from inflation and business investment.
Cost reductions came from lower regulatory costs and management actions, including the benefits of our simplification program. In the bar far right, you can see how the overall cost base breaks down by segment. High Net Worth segment costs were up 2% year-on-year, reflecting front office investment. Affluent segment delivered a 5% reduction in costs, primarily reflecting the impact of our simplification savings and the lower regulatory costs. Putting the segment revenues and group costs together, this slide summarizes the segment contribution to group profitability. Both segments increased profits and operating margins. High Net Worth delivered profits of GBP 25 million, up 9%, and affluent profits rose 33% to GBP 72 million.
Both segments increased their operating margin, with a 1 percentage point increase in High Net Worth to 22%, but an increase of 3 percentage points on the full year 2023 outcome, and a 7 percentage point increase in affluent to 35%. This next slide takes a step back to look at longer-term progress since we established the current business structure. Since 2021, like-for-like first half costs have reduced by GBP 16 million, delivering an 11 percentage point increase in our operating margin, which has led to an increase in adjusted profit of 73%, despite challenging markets over the majority of that period. What is particularly noteworthy is how the nature of our cost base has shifted during that time.
Bottom right, you can see that we have actively reduced the core base costs of running the business by around GBP 20 million and reinvested that into business growth, which have come through in the variable cost category. Now, let me turn to the balance sheet. I've set out the usual graphical walk, showing the major movements in the solvency ratio and cash positions. The half year solvency ratio was 268%, broadly unchanged on the full year ratio, with all the movements pretty much self-evident. In terms of cash, as you can see, we have around GBP 400 million of cash available in the center. The interim dividend and the remaining simplification restructuring costs will absorb around GBP 100 million of that, leaving us with a good buffer to cover capital requirements, contingencies, liquidity management, and business investment.
The board has declared an interim dividend of GBP 0.017 per share, which has been set at a third of last year's total dividend. As our results release indicates, when it comes to the full year dividend, the board will make a decision based on business performance, the operating outlook, the strength of our balance sheet, and the outcome of the ongoing Advice Evidence Review. You'll be familiar with our usual target slide, and we're not changing anything materially here. You'll have noted our comments that the strong outturn in first half costs means that our current guidance for full-year costs is modestly lower than we originally anticipated back in March. I'm expecting an increase in business investment in the second half of this year, particularly driven by our financial advisor academy activities.
So the cost outcome for the full year is anticipated to be more than double the first half outturn, and that reflects both timing factors and our progress with simplification initiatives. In summary, I'm very pleased about our 2024 profit progress and current trajectory of the business. And with that, let me hand back to Steven.
Thanks, Mark. Right, let me summarize. We're really pleased with the first half. Flows, revenues, costs, and profit are all moving in the right direction, and strategically, we're in great shape. Clearly, we're very mindful of ongoing Advice Evidence Review, and we'll update you on that as soon as we can. Notwithstanding that, the three messages I'd like to leave you with are: we offer structural growth as a scale player in an attractive, fragmented UK wealth management market. We've got a great differentiated dual-channel distribution model, and it's really starting to deliver. And finally, our strategic transformation is delivering clear benefits, and there is more to come. Right, let's open up the questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to remove your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. The first question goes to Enrico Bolzoni of JP Morgan. Enrico, please go ahead.
Yeah, thank you. Good morning, all. Thanks for taking my question. So the first one, I was noticing that the productivity of your advisors increased very nicely to GBP 3.2 million. That looks pretty high. I guess it is among the highest in the industry. So my first question is, looking forward, do you expect the growth will come mainly from a further increase in productivity or rather from a growth in the partnerships in the number of advisors? Related to my first question is the second one. Of the advisors that left, not because of consolidation, but for other reasons, can you give us some color in terms of what was the reason behind their departures?
And then finally, can you please remind us, what sort of excess capital you currently have? I appreciate you have the slide that shows versus Solvency II, but I was more curious to understand what sort of cash balances you feel comfortable having at any point in time to run the business, and how easily accessible this liquidity would be in the event of a provision down further during the year or early next year, as you guided. Thank you.
Thanks, Enrico. I'll take the first two questions, and I'll ask Mark to pick up the question on capital. So on the question about productivity, yeah, we are really pleased with the growth in advisor productivity. We do think there is still more opportunity to improve that. We are investing in the technology. We've talked about the advice transformation program that will give us benefits over the next few years. And we think that will also help with productivity because it's about making the processes more efficient and taking time out of the processes that the advisors have got to follow. So that will allow them to have more time to spend serving clients and bringing on new clients.
But specifically to your question, I would say that we would expect to see the growth coming from both avenues, from advisor numbers and from continued work and focus on productivity. Your second question on where advisors go who are leaving, which is not consolidation, that is just the two main sources would be retirement, which is obviously a big one. You know, advisors are allowed to retire. The other thing is, there's just a natural movement of sort of advisors becoming DA, directly authorized. So we get advisors who are directly authorized to join networks, and then sometimes advisors want to go and be a bit more independent. It's sort of a natural cycle.
When you've got a large advisor force, there's some people who have different, different preferences at different stages of their lives. So those, those are the, those are the factors that drive it.
So Enrico, just on your question around capital, I'm not going to give you a specific number, which I know is probably what you're after. But what I would say, on it is that we have got. As you can see from the results, we remain very well capitalized. We've got a very healthy balance sheet. We've got a very strong liquidity within our capital ratios too, and you can see that on the balance sheet too, in terms of the cash balances that we have. Our balance sheet is in a very strong, stable position. So, you know, that's probably as much as I'm going to say on it. But, I mean, we are a well-capitalized business with a strong balance sheet.
All right, next question.
Thank you.
Thank you. The next question goes to Ben Bathurst of RBC. Ben, please go ahead.
Good morning. I've got questions in two areas, if I may. Starting on the Quilter Investors margins. I wonder if you could just comment on the revenue margins in MPS. You've obviously given guidance on the affluent managed trending down to mid-30 revenue margins. To what extent does that price in anticipated reductions to charges on your MPS solutions, or is the underlying assumption that your MPS solutions will remain attractive at around the 30 to 25 basis point price point? And then second area, just on the advice evidence process. In the notes to your accounts, you referenced that the skilled person assessment is spanning the period from the start of 2017 to the end of December. I think that's a year earlier than your peer, who's also implicated in this situation.
I wonder if you could just share your thinking as to why that's the right start date for your review, you think? And, also on the advice evidence process, could you just comment on your complaints experience following the announcement of the Section 166? Have you seen any uptick in complaints at all? Thank you.
Thanks. Thanks, Ben. So on the margin in MPS, and just more broadly, the margin in QI, the biggest driver of the margin in QI is mix. And that is the mix from our fund-of-funds range, our managed portfolio ranges, and then the choices within them, 'cause we've got active, blend, and passive varieties of all of those. So, and as you can imagine, obviously, the passive ranges have lower margins than the active and the blended ranges. So, so mix is actually the biggest driver. There's no material plans for changes in the margins or the pricing of our MPS offering specifically, though, if that's what you're asking. That's not what's affecting the margin. It's not pricing decisions within our MPS range.
It is just where the flows are going. In terms of the ongoing Advice Evidence Review, 2017 is the date that the FCA asked for, when they asked for data from 20 large firms. Obviously, can't comment on anyone else's process and review, but that is the date, that's the period that is sort of being analyzed. That doesn't mean necessarily anything more than that at this point, but that's where our review is based on. And then the question on complaints. We've seen a small increase in complaints. We sort of expected that would happen. Complaints still remain at relatively low levels in absolute terms.
But just, you know, more broadly, the review is not a complaints-driven review or the only thing about that. We've got to look at whether there is evidence of the ongoing advice being given, and that's obviously the primary focus.
Thank you. The next question goes to James Allen of Liberum. James, please go ahead.
Hi. Morning, guys. Three questions for me, please. First one, of the GBP 7.4 billion reported gross flows in H1, how much of that was from peers that may be seeing disruption in pound billion terms? Secondly, linked to that, of that, disruption of peers benefiting flows, do you think it's due to platform migration issues versus kind of business as usual leakage? i.e., what are sustainable flows from peers in your own flow number? Third question, on slide 17, you mentioned that improving the advisor/client experience is a key part of the transformation across advice and High Net Worth. Could you just walk us through some of the improvements you've made in terms of what has visibly changed for advisors in their experience?
Thanks. Thanks, Ben. Sorry, James. Sorry, James. Thanks. So the first question in terms of gross flows, look, we're not going to give any more detail of where we're getting the flows from and sort of which competitors and things. We've given some detail on one of the slides, which shows you at aggregate level the flows from peer platforms. And you can see that's a big improvement on the previous period, but there's quite a few platforms included in that. I think that in terms of your points, I would look to it. I don't think, you know, you're obviously trying to understand, is there, are there any one-offs or sort of temporary sort of effects in that? I don't think that is the case.
You know, we've got, we're getting the benefit of a very strong platform with very good service, very good proposition and features, and the changes and enhancements we've made in our distribution channels. And, and, you know, we've made some changes, as I talked about, in how we run, particularly our IFA channel, our segmentation approach. We're targeting and focusing, becoming the primary platform for more and more advisors. So that can be supported when other platforms are going through challenging times in terms of service or any of those other factors. But I think once you've, once you've got advisors start supporting your platform, it's very difficult for someone else to turn their head again, even if, they now have, you know, dealt with whatever issues they may have had.
And we've had that experience over time. It takes a long time to win market share. We've been at it for many years since our platform migration, and we've got the results now to show, and we're pretty confident that the, the gains that we've made are, are sustainable. You can make your own calls about, you know, what's going on in the, in the market and the sector and, and other things. I think the only other point I would make on that is it remains a very fragmented platform market with a lot of players out there, and, you know, a lot of players that are smaller and, I think, weak and subscale.
I think advisors are increasingly looking to that, to look to a quality provider who's clearly committed to the market, for the very long term, and has got the service and proposition capability to back it. So, I think we feature very well on those measures. In terms of your second question, I think I've answered your first two. I think you had those as two. Sort of the question then about the High Net Worth client experience. So what we're talking about there is, it is about getting our High Net Worth business to be directly authorized to give advice. And we've talked about that before, and we're in the process of that.
Today, the advisors that set these, the Quilter Financial, Quilter Cheviot Financial Planning advisors that sit within our High Net Worth segment, they're actually authorized through Quilter Financial Planning, which is our, sort of, sits in our Affluent segment. So what that means is that clients who are using one of those advisors in a discretionary solution are actually technically contracting today with two different legal entities. And that complicates things like know your clients, contracting, all sorts of things, Chinese walls that we have to have, and all of those things. Now, as we get our business directly authorized, that will all change, and so that improves the client experience.
You can imagine, just makes everything a whole lot simpler, slightly cleaner experience for clients and more efficient for us behind the scenes, because then we don't have to duplicate certain processes. That's what it is. A lot of that is still to come, James, you know, because as we said, that is going to be coming as we get authorized and start using those permissions towards the end of the year. I think I've answered all your questions. Let me know if I've left any out.
You have. Thank you very much.
Thanks, James.
Thank you. The next question goes to Gregory Simpson of BNP Paribas. Gregory, please go ahead.
Hi, good morning. Thanks for taking my question. J ust three, on my end. First one is, can I check on the back book transfers that the Quilter channel has been delivering well on with GBP 450 million this half. What's the kind of quantum of assets remaining that you can kind of go for? Second question is on costs. In H2, normally, you have much lower regulatory costs, and then you still got the benefit from the simplification plans to come through. So I just wanted to kind of square the kind of guidance and, you know, what is the gross investment there? Yeah, normally there should be some decent tailwinds in H2 versus H1 on the cost side.
And then thirdly, sorry for the short-term question, but can you comment at all on how flows or client behavior has changed, if at all, since the U.K. election, you know, given potential, yeah, changes around kind of capital gains? You see, is this kind of backdrop helpful or, or, or kind of a headwind to client activity? Thank you.
Thanks, Greg. I'll take the first and the third question, and I'll ask Mark to pick up the cost question. So, in terms of transfers, yeah, we're really pleased with the back book transfers. We have said before that we think there's around a pool of around GBP 5 billion of assets that we can target, and we think that number is still about that level. Because as you bring in new advisors, they find they have clients that have got, you know, their own back, other back books and things like that. So we still think that number is a significant number and many more years of capacity for the back book transfer program.
Then in terms of the third question you asked, which was about short-term update on flows post the election, we have not seen any downturn. In fact, flows have continued strongly after, you know, into this quarter. We're really pleased about that. We have... You know, we remind you that obviously there is a need for advice. And, you know, even if there are tax changes that come, which we don't know exactly what changes could be coming down the line, but actually, what happens is that clients call their advisors and ask what they should be doing in those situations. So we think it's well suited to our business.
I think the bigger issue that's driving flows is an improvement in market sentiment and client sentiment. So we're really pleased, as we've said in the presentation, about our market share gains, and that's been, you know, that, that's a Quilter-specific point. But we are starting to see that there is an improvement in flows because of client sentiment. But we think we're actually towards the start of that, and there's quite a bit more to come. We've only seen the first interest rate cut right now. And our expectation, that is, as interest rates continue to fall, clients will invest some of the significant excess balances that exist in our target market, in bank accounts and other short-term saving vehicles.
We believe that they will invest those in longer-term, longer-term vehicles, as that's what we talk about as markets normalize. So we're actually pretty optimistic about flows on a go-forward basis. Mark, take the costs.
Yeah. So, Greg, just on the costs, look, when the FSCS levies were running at very high amounts, there obviously was sort of far more of a sort of a seasonal weighting to half one compared to half two in terms of our cost base. As that levy has actually reduced, you have less of that seasonality. But the other things that I'm guiding towards in the second half is we have been investing in things, in distribution, in our business consultants. We've obviously also got the Advisor Academy that I called out, in the presentation earlier. And all those things we're gonna—I'm expecting we're gonna continue. </transcript
Well, first of all, we're gonna have a full half's run rate of those costs, which we didn't have in the first half, and secondly, some of those costs are gonna be increasing in the second half. You've also got the inflationary impact from salary increases, which of course, in the first half, our salary increases go through in April, so you've got three out of the six months impact of that in the first half. You've got a full six out of six months of that in the second half. And some of our variable cost base is aligned to a AuMA, and as the average of that in the second half, I'm sort of anticipating is gonna be higher than what it was in the first half. We're gonna get some extra costs coming through there.
And of course, we will get some simplification benefits, but on a net-net basis, I am expecting that the second half of the year will run at a slightly higher clip in terms of expenses in comparison to the first. Thank you.
Thank you. The next question goes to Andrew Sinclair of Bank of America. Andrew, please go ahead.
Thanks. Morning, everyone, and well done on the good figures. Three from me, please. First was just on the first good color on the pipeline for returning to advisor growth. But just looking at the academy, just briefly, how many are in the academy today, and how many graduates per annum do you think can be actually absorbed into existing advice businesses? If you can give any color on how many go into existing practices versus go to just be standalone when they graduate, would be quite helpful. So that's my first question. The second was just on... Mark, you mentioned there just on the FSCS now being at lower levels.
Do you think that's sustainably lower, or what do you see as a normalized level for regulatory and PI costs when we think of 2025 and beyond? And then third, just if you can give us a little bit of guidance, and apologies if I missed this somewhere, but just on the impact of lower rates, what sort of impact on the P&L would you expect if we do get 100 basis points of rate cuts? I agree it'll hopefully lead to better flows, but in the short term, what does it mean for the P&L from lower interest income? Thank you very much.
Okay. Well, I'll leave the first one for Steven to answer in a bit. But if I just talk about FSCS. So I look, the FCA has got a lot better in actually putting out communications on the size of the levy pot, how they're thinking about it, what the forward sort of projections and guidance and all of those sort of things are, and all of that's out in the public domain. And if one sort of reads and analyzes that, you can see that they've actually built up a credit pot that they currently utilize in order to pay a lot of the compensation claims and run the function and everything else like that, which we're currently benefiting from.
So when we had the very high FSCS levies of a few years back, that actually allowed them to sort of build up a big credit balance, which they're now in the process of running down. So I'm expecting at some point that that is going to be fully utilized, and then we'll get more back into a normalized environment. We incurred just over GBP 4 million of FSCS levies in the first half of this year, which contrasts to about 3 or 4 years ago, when that number was over GBP 20 million. I actually think a more normalized rate is probably somewhere between 10 and 15, with probably 12 is about a guesstimate average. But, and as you know, we're a price taker on this, not a price maker.
And some of this is going to be determined a lot by the regulatory activity that they undertake, what compensation schemes they end up getting involved in, et cetera, et cetera. So there's sort of, you know, there's quite a high level of volatility or uncertainty in terms of what that number is. And I can't really—well, I'm not in a position to actually give you sort of, fundamental guidance on it because, frankly, I don't know that much more than what anyone else knows in terms of, some of the statements that, that have been made there. When it comes to lower rates in the P&L, Andy, on the...
If you look at the first half, interest income that we generated on shareholder balances, for about every 25 basis point reduction in that, I'd be expecting about GBP 3.5 million revenue impact on a full year basis. So that's kind of the degree of sensitivity that that has. So it is, there's quite a high degree of sensitivity to it. We've obviously made the points around, we'd expect that if, you know, interest rates were to come down, markets would improve. I don't expect those are going to happen in lockstep, that they happen in the same week or the same month. But sort of over a medium-term trend, you'd expect some benefit of that to come through in the markets if the interest rate environment is easing.
On the interest that we generate on clients and cash balances, that has less of a material impact. Frankly, there's not that much of a, if basis points were to come down by 100 basis points, I'm not expecting that they'll actually change significantly at all.
Sorry, just before we go on to Steven, apologies, just to clarify on that, GBP 10 million-GBP 15 million you mentioned for the FSCS, and kind of GBP 12 million normalized. Is that just for the FSCS? And then what should we add for PI and other regulatory costs on top?
There'll be about another, another GBP 4 or GBP 5 for regulatory costs and about a GBP 3-GBP 4 for PI and that sort of level. So. And if you're trying to get to a number in total, I guess it's probably around about GBP 18-GBP 20.
Yeah, we guide it generally to be, being a 4%-5% of revenues as a way of thinking about it over the long term. So that's probably-
Yeah
... as best an estimate as we can give.
Thank you.
All right. If we're done with that, I'll go on to your first question, Andy, which is about the academy. So, we've got just over 100 people in the academy at the moment. Out of that, those are including a lot of the people that will graduate only next year, 'cause the program, the course in the academy, runs for about 7 months, and there'll be more than one tranche open or going at a time, or cohort. The number of people that go into existing firms is basically all of them. So we're expecting 80 to come out, as we said, and to qualify during the course of next year. And we would expect all of those to go into either the network or the national.
None of them go and become like, you know, individual advisors and setting up themselves. Those that join the national get a whole lot of support as well through our national business and through the leads that we supply.
And about how much do you think the advice force as a whole could absorb into the advice business each year if you continue to ramp up the academy?
We're certainly comfortable that the 80 that we're expecting next year, that they can absolutely all be absorbed. We can, you know, we will look to decide if we want to stretch that further, but right now we need to deliver that number. And, you know, I think that there is more potential, but we're not gonna—I'm not gonna sit here and give you an exact number on what I, what I think the capacity is. But, you know, note that across this market, there is a huge advice gap, so I don't think that that is the limiting factor, is the number of advisors that we can absorb.
That's great. Thank you very much.
Thank you. The next question goes to Andrew Louw of Citi. Andrew, please go ahead.
Hi, guys. Thanks for taking the question. A couple of follow-ups on margin, if that's okay. I know that you've said that your revenue margins are sort of broadly unchanged, but in the first half, I sort of get to a platform margin of 24.5 basis points. You talk about the 1 basis point decline per year, so that would sort of take us down to 24 and then throw on another 1 basis point decline in 2025, as per your guidance. So should we think about it as 23 basis points next year before you factor in any reductions from falling rates?
Or are there some sort of moving parts that mean maybe the first half reduction in the platform margin was half on half, maybe a bit more aggressive, and that normalizes in the second half of the year? And then the sort of second follow-up is, I know that you've said that your revenue margins are unchanged, but I think you have reduced your affluent managed guidance from mid to high thirties to mid-thirties, mix dependent. Can I just clarify if that is solely to do with the AUM outflows in the Cirilium Active and sort of underlying that is unchanged? That's the two questions. Thanks.
Okay. Thanks, Andrew. Look, on the platform margin, with the reprice that we had, and a lot of the reprice we had last year, sort of around the June, September time, that came through on the platform and some of the changes that we made then in terms of introducing the interest charge and reducing the headline basis point rates and all the rest. I mean, that's obviously had an effect, which I'm really trying to call out as having been sort of accelerated in the first half of this year when you compare it against the half one of last year, that actually had very little of that change, actually, in the comparative. So that sort of provides sort of quite a big change within that. On a look-forward basis, I'm still expecting the overall margin to reduce by about a basis point a year.
The actual interest rate component within that is relatively small, so it's going to be far more driven just by the natural attrition of clients, clients moving to higher tiering charges, markets carry on increasing, et cetera, et cetera. New, new clients, new distribution coming on board, a higher mix of our own, advisors within the overall mix, and those clients do get better pricing than what clients maybe do for, for IFAs, et cetera, et cetera. So there's sort of a whole component factor of that. So the guidance that I've provided on about a basis point a year on a forward-looking basis is still my current expectation. The two bps now is really a bit of a catch-up on last year, when last year we had a very little margin change at all on the platform.
So in a way, this is kind of a timing factor that's kind of coming to that. On your question on the affluent managed margin, we said that we came into this year in that segment with, I think, about a 39 basis point margin, and we expected that to sort of carry on reducing, to get to sort of... At the start of this year, I think we did say mid to, mid to high thirties. We are seeing that trend continue. I've called out the outflows within Cirilium Active, which is a big driver of the reduction, and I think your main thrust of the question is, is most of that down to the Cirilium Active mix?
Well, it is, but it's also down to the success that we've had within WealthSelect, which is now a GBP 16 billion fund, which is actually, you know, proportionately a much higher proportion of the total assets that we have within the managed basis point revenue margin. So Cirilium Active has become a lower proportion in comparison to the success that we've had within some of the other propositions that we've got going on there.
Just as a follow-up, if that's okay, could you just provide a little bit more details on the WealthSelect margins and how much of that is...? Because as far as I understand it, there's still a mix where you get higher margins in active, lower margins in passive. So could you maybe give a bit more detail on the mix within the WealthSelect between the active and passive?
Yeah. So within WealthSelect Active, we retain about 33, 34 basis points with it. And again, here, it depends on sort of which range of active it's in, but that's more or less where we are. Within Blend, we retain in the high 20s. Within Passive, we retain in around about 15 basis points. So that's the more or less range within WealthSelect. WealthSelect overall, we're in the high 20s to low 30s. That's the sort of range that we operate within.
Great. Thanks very much. That's really helpful.
Right. I think we've got now going to the web.
Going to the, a couple of questions coming in from the website. The first is from David McCann at Deutsche Numis, asking about costs into 2025. Would it be better to think about your starting point as being the second half annualized or taking the full year overall as the basis for thinking about costs? And a second question asking to the degree that the improvement in the operating margin you've evidenced over the longer term, Mark, is a function of interest income as opposed to the reduction in costs, and how you think about that.
Okay. So look, I think, costs into 2025, I think probably total year the total year or second half annualized is probably a better route to take when when looking at that, although I'll probably answer this question better in March next year. But that's certainly what I'd be at at the moment, that's what I'd expect. In terms of the op margin, look, we our op margin has undoubtedly got some support from the interest rate environment that we've benefited from over this over this last half. We've, well, I mean, we've said a few times, and I've actually said, I think, already and answered some of the questions with some of the expectations on that. Clearly, the op margin is a function of two things, and it's, it's revenue and expenses, obviously.
Our revenues are very much dictated to by external factors. What goes on in the markets, average equity market indices are probably the biggest driver of our op margin because that's the bigger influencer over our revenues. But this year, and for the last 18 months or so, for the first time in a long while, there has been an interest income generation of client or from shareholder cash balances that have also had a positive impact on that. Which is one of the reasons why I'm not getting too carried away by sort of trying to declare any sort of victory around achieving a 30% op margin, because obviously, if interest rates do come down, it will have a negative impact on that, all other things being equal.
But as I have already said, I'd expect a lower interest rate environment should be supportive to, overall market conditions, which should help improve both flows as well as, average AuMA balances on a forward-looking basis. As I said before, I don't expect those two to work in lockstep, but over a medium-term period, you'd expect some degree of correlation in that. I hope that answers the question, or at least provides a bit more color in terms of my thinking on it.
Second question from Maheen Khawaja at Investec. The first on the High Net Worth, the second on ROE. On High Net Worth, given the changes to the structure you've talked to in the High Net Worth business, it sounds like it will be effectively be operating on a standalone business by the end of the year. Is that correct? And if so, can you talk to the synergies that come from having both businesses operating in the group? And then the second on ROE, is the ROE for the period was 9.6%, showing an encouraging trajectory. Can you talk to how you think about the evolution in this and whether you have a medium-term aspiration?
Right, I'll take the first question. So the structures that we're doing, the changes that we're making to High Net Worth are about actually getting better client experience and better synergies within the High Net Worth business, as for the reasons we've talked about. In terms of how we think of High Net Worth within our group, we think of it as we've got two really strong segments focused on allowing us to offer solutions to the whole market, the affluent and the High Net Worth market, with the breadth of solutions and offerings. We see both the affluent and the High Net Worth segment as attractive growth segments for us, and that's absolutely what we're focused on. I don't think I have anything else to add on that.
No, I think it's right. Just on, Maheen, on ROE, I want it to be bigger, and but we don't have a target. I'd just like it to be higher. I think, something sort of in the mid-teens would be good, but, we haven't got a specific target that we're trying to manage the business towards.
Okay, and I think the last question on the web at the moment is from Keenon at Anchor Stockbrokers. On the IFA net flows, are the increases onto the platform reflective of a deepening in existing IFA relationships or attracting new IFA firms?
All right. Thanks, Keenan. It's actually both. We are—those are our two strategies, called broaden and deepen. Broadening our adviser footprint, that's sort of finding new friends, so to speak. And that is going well. We track that. That's how our segmentation works and things like that as well. And then the other is, as I talked about, becoming the platform of choice for even more advisers and increasing our share of wallet at individual advice firms. And that has actually driven also very strong flows. So those are our two key levers of our growth strategy, and they're both delivering very well. So it is both.
That's it on the web. I don't think anything else on the lines. No.
All right. Well, thank you all, very much. Have a good summer for those going away on holiday.