Good morning, everyone, and thank you for joining us today. First off, let me introduce myself to those who don't know me. I'm Steven Levin, and I took over as CEO of Quilter in November last year. I've run a number of businesses within the Quilter Group, including the platform, Quilter Investors, and several of the businesses we've sold. Since taking the helm, I've been reviewing our whole business to assess what we do well and what we can do better. We've done a number of things well as a business. Capital discipline, the platform migration, and cost management stand out here in this regard. We've got a great platform, and we've got a great asset management business, and both of these are usually scalable businesses. We've got an excellent proposition for our high-net-worth clients in Quilter Cheviot. We've got the second-largest advice business in the U.K.
Quilter's got a great market position and a huge amount of potential, and that's what really excites me about this business. Our business is more complex and less efficient than it could be, and I know that there are areas that we haven't delivered well enough. We've fallen short of our own targets, and we've not delivered the growth that we're capable of. Frankly, the report card says, "Can do better." For example, we've Our historic acquisitions on the advice side, they weren't integrated well enough, leaving us with unnecessary cost and complexity. Some of our propositions could be better positioned in the market to compete more effectively. We've got great people in this business, but far too often, they've been too inwardly focused. We need to fix all of these things.
Of course, there have been some material changes to, in the world since our Capital Markets Day in 2021. The war in Ukraine has led to rising inflation, much tougher markets with lower asset levels and consumers under significant cost of living pressure. Many consumers are less able to save, and even our wealthiest clients are wary of putting money to work in this volatile market environment. Our U.K. advice-led strategy is the right one. It needs some tweaking as the market has changed, and that's to be expected. However, tighter execution is what really matters in our business. Today I'm gonna take you through the steps that we're taking to drive performance. This will be a journey, and while I'm really impatient to deliver a significant improvement, today I'm setting out realistic targets as we build towards delivering faster growth and higher returns.
Before I get into the business, let me summarize some of the financial results, and obviously Mark is gonna go into this in a lot more detail later. I'm pleased with the profit upturn of GBP 134 million last year. It's down just 3% on 2021. You all know it was a very challenging operating environment, so in this context, this is a very good result. We held our operating margin steady, reducing costs in line with the pressures that we saw on revenues despite the inflationary environment. Our business transformation continues apace. We reduced costs by GBP 65 million through optimization, and we've delivered GBP 23 million of our GBP 45 million simplification target. Adjusted diluted earnings per share was up 7% to 7.9p, supported by the reduction in our share count from the capital distributions.
Our confidence and strength in the, in the outlook and the strength of our balance sheet supports a higher dividend of 4.5 pence, an increase of 13%. As you know, since we've listed in 2018, we've done a lot to reshape our business. We're now a focused U.K. wealth management business, and we're strategically well positioned across the entire wealth value chain. We've built the business to service high-net worth and affluent clients across two scale distribution channels, our own advisers and independent financial advisers. We've got a market-leading platform operating on a robust technology infrastructure, and we've demonstrated very strong cost discipline and capital management credentials by returning GBP 1 billion to shareholders since our listing. The U.K. wealth markets is a fundamentally attractive sector.
It offers strong growth supported by favorable demographics, long-term customer relationships, high-quality recurring revenue, and high retention rates. Notwithstanding this, we've seen some short-term cyclical challenges from the economic environment and from markets. We've also seen an increase in advisor consolidation, which has changed the competitive landscape. All of this you already know. This does mean that despite all the work we've done to reshape our business, we can't stand still. I'll come to what actions we intend to take in a moment, but first, I wanna share how I look at our business. As you know, we run our business across two segments. In those two segments, we've got three engines which drive our business, high net worth, and then in affluent, we've got the Quilter channel and the IFA channel.
Each of these generate about GBP 200 million of revenue, and each can actually do better. Going clockwise around the chart, first, the Quilter channel. Here we provide a platform and investment solutions to clients through our own restricted advisor network. While there's understandably a focus on advisor numbers, which is a proxy for growth, what's equally important to me is productivity, advisor alignment with our own propositions, good customer outcomes, and generating a good return for our shareholders. We've got a good business here, which we've scaled through acquisition, but we haven't done as much integration as we should have. I see significant opportunities to eliminate IT duplication and simplify our processes in the back office. Next is our platform business, which serves the IFA channel. With our new platform, we can target a much wider range of IFAs.
We continue to add new IFA firms, but we need to push harder. Generating stronger flows here is a key priority for me. Third, our high net worth channel, where net flows have stood up well against peers, but I believe that we can grow this business faster by improving productivity and adding more investment managers and financial advisors. What actions are we gonna take? My three areas of focus are building distribution, enhancing proposition, and driving efficiency. By delivering on each of these, we will increase our profitability. Let me take each one of these in turn. Distribution. One of our core strengths is our two large distribution channels, but we're seeing increasing sponsor-backed consolidation disrupting this market. What does that mean?
First, when IFAs are acquired, that may be a catalyst for them to consolidate their assets onto someone else's platform and similarly for their investment solutions, and this can impact on our net flows. That's relevant to both our high net worth and our affluent segments. To counter this, we're progressing clear plans to build relationships with the large IFA firms who aren't actively using our platform and adding relationship-focused investment managers and advisors in our high net worth business. Secondly, we've lost some of our own network advisors to these consolidators, so we're adapting our advisor offering to improve retention and to build alignment. We're tweaking our exit proposition for retiring advisors to protect our base. Turning to our proposition. We need to be more agile, more responsive, and more market-focused.
Quilter Investors' performance was strong in 2022, with all strategies outperforming their comparators, except for Cirilium Active. Over the last quarter, I've reviewed our investment capabilities, and to improve performance, we've unified all Cirilium funds onto a single desk. This action led to the departures of two Cirilium active fund managers. We've also reinvigorated and repriced our Cirilium multi-asset portfolios, which we've announced this morning. From the end of March, this will make them more attractive to clients and to advisors. We've already got strong ESG offering in our managed portfolio service, and we're now working to extend this across our multi-asset range as well. We've got a market-leading platform with outstanding functionality, but we need to be more competitive, and so we're making some pricing changes to drive growth and offer better value for our customers.
I expect that this will reduce our margin by around a basis point over the next 18 months, and that's on top of the single basis point per annum that we've historically guided to. We expect this will be more than offset by greater flows over time. Next, efficiency. We've made very good progress with our existing plans, but there's more cost and complexity to tackle in this business. We'll do this by investing in technology and rationalizing operational support and the back office across our advisor base, and I'll update you more on this at our interims in August. All these actions will lead to a meaningful step-up in profitability over time. Yes, some of these actions will impact revenues in the short- term, but we're confident that they'll lead to higher growth in the medium- term.
My focus is on delivering the growth and returns that our shareholders expect. Let me turn to the flow dynamics across our business and our expectations for the future. The left half of this slide summarizes our assets under management and under administration. We administer GBP 93 billion of assets, of which GBP 26 billion is in high net worth and GBP 67 billion is on our Platform, with GBP 17 billion of that managed by us as well. We've got another GBP 8 billion of assets which are managed by Quilter Investors but sit on third-party platforms. The right-hand side of this slide summarizes the gross and net flows across each business. As you can see, they've got different levels of growth. Now I'm gonna tell you how we're going to work to improve each one of them. I'm gonna start with high net worth.
The flow performance in this business has been good relative to peers. In the top left, you can see the gross flows from the IFA and from the Quilter channels, and on the top right, you can see the net outcome. Given that the Quilter channel, which is in green on this graph at the top there, it's relatively new. You can see that there's a very good net to gross ratio. That's because the book is relatively young, so it has a low natural drawdown rate. By contrast, the IFA channel in gray is more mature, so it has a higher natural drawdown rate. Overall, net flows were around 3% of opening balances in a challenging year. A more normal level of growth would be mid-single digits.
Our plans to improve productivity and grow IMs and advisors will allow us to deliver this on a consistent basis. The chart on the bottom, here, gives you the breakdown of what we regard as regular business outflows. There would be drawdowns and client drawdowns and assets leaving through inheritance, and then the outflows that we regret leaving. As you can see, this is a book with high retention rates. Before we look at our affluent channel, I wanna take a step back and look at the market as a whole. There are two messages here. The first is, since the introduction of our new platform, we've steadily increased our market share of new business from third place in 2019 and 2020 to first place in 2022. Second, the overall market was sharply down last year by around 20%.
With that context, how has the Quilter channel performed? The same format as before. Top left, the level of gross flows in 2022, they were stable versus 2021 despite the market decline. The Quilter channel increased its market share of new business from 3.2% in 2021 to 3.8% in 2022. Basically, our advisors are putting more business on our platform, and that's exactly what we set out to achieve by reshaping the business after our new platform launch. In the top right, the net flows of 15% of opening AUMA is a good result and has been pretty stable in the mid to high teens.
As you can see in the bottom left chart, gross new business runs at about 22% of AUMA, offset by regular and regretted outflows running in line with long-term averages at around 4% and 3% respectively. Let me turn to the IFA flows, and this is a key priority for me. In the top left, you can see the gross flows from IFAs. These have improved since we launched our new platform, giving some modest gains in market share. As you can see, the net performance has been a lot more volatile. That's because this business is much more mature. If you look at the chart on the bottom left, you'll see that the gross flows are currently broadly offset by the combination of regular and regretted outflows. Regular outflows continue to run at fairly consistent levels.
Regretted outflows are part of the natural industry churn, and I wanna manage these down further, but the current industry consolidation is clearly a factor that's relevant here. The most important lever that we can pull in the short- term is to drive up our gross flows. How are we gonna do that? To increase the GBP 4.9 billion gross flows, we need two things. We need to grow our share of IFA flows. We're targeting new IFA firms and getting more business from existing firms, but I'm not happy with the pace. We can and we need to move faster here. Secondly, we need the market to recover. Industry expectations for this year is that we'll only see a gradual recovery in market flows, and this could constrain how quickly we can improve IFA gross flows.
To give the full picture for flows, let me touch now on some of the natural headwinds in our business. First, we've got around GBP 1 billion of assets on the platform related to the international business that we sold to Utmost. The only new business here is gonna be top-ups. This will remain in net outflows. I wouldn't actually be surprised if this increased over time. There's about GBP 8 billion of assets managed by Quilter Investors that sit on third-party platforms. Around GBP 4 billion of this was originated by Quilter advisors, and we're actively encouraging this to move over to our new platform because it meets the vast majority of customer needs exceeding UL. There's around GBP 2 billion from IFAs, which are predominantly in legacy investment propositions. These are likely to remain in structural outflow.
Finally, there's GBP 2 billion of assets which we're managing on behalf of the Heritage Life Assurance business, which we sold back in 2019, and that's obviously also in structural outflow. Let me bring it all together now at the group level. I expect high net worth to deliver growth in flows at around a mid-single digit growth rate. They represent around a quarter of AUMA, and that gives us around a 1%-1.5% contribution to group flows. I continue to expect the Quilter channel to deliver a mid-teens growth rate, and that should give around a 2% contribution to the group target.
Our non-core and other platforms will provide a drag of around 1%. That leaves our IFA channel, which is around 50% of our AUMA. I'm pushing here for stronger market share growth to deliver a meaningful improvement in our reported group net flows. Winning business from IFAs does take time. Given our modest expectations for market improvements in 2023, we're targeting IFA channel flows of 1%-2% this year, building to 4%-5% as investment sentiment recovers. For the group, this means net flows a bit over 2%, assuming some recovery in market sentiment in line with our expectations. The Quilter channel will continue to perform considerably better than this. We expect the group to quickly get to 4%-5% in normalized markets. I wanna be clear.
We've got aspirations for this business to outperform these targets in the longer- term, but the first step has got to be to get our growth rate up to at least these levels. Let me turn to some of the actions we've taken to reshape our Quilter Advice business. As you know, we've repositioned our advisor force over the last few years, and the results are clear. The advisor productivity is up. New sales generated by advisors onto our platform have increased since 2020. That's reflected in the better market share stats you see on the right. The proportion that ends up on our platform or into Quilter Cheviot has increased from just under 70% in 2020 to just over 80% in 2022. Flows are better, but we're not done transforming this business yet.
We are still too operationally complex and, frankly, inefficient. We're working on plans to simplify our propositions to give us more productive advisors, delivering better outcomes for our clients and for our shareholders. We're going to do that by investing in technology to improve the advisor CRM proposition and to realize the potential of hybrid. We're gonna align our advisors and our propositions more closely, and we're gonna streamline and support the support processes in Quilter Financial Planning. We'll continue to add advisors, but fundamentally, it's quality, not quantity, that's most important to me. We'll update you more on our progress here at the interims. Right. Before I hand over to Mark to let me just conclude by covering the targets that we're driving towards. First, operating margin.
As we know, the environment today is very different to the environment that we set out, our targets at in our Capital Markets Day in November 2021. As Mark said at the interims in August, this would lead to a delay in reaching our margin targets. A number of the actions we're taking to grow our business means that margin may actually fall temporarily this year, but it should recover in 2024, and we anticipate reaching 25% in 2025. I still believe that an operating margin of more than 30% is the right goal for our business, and I want our business to deliver that as soon as possible. Next, in terms of flows, we only expect a modest improvement in net flows across the industry this year as investor confidence recovers. That will likely constrain our net flows in the near- term.
As markets normalize, we expect to deliver a 4%-5% growth rate. Importantly, as we build momentum, we aspire to outstrip that target in the longer term. Right. Let me hand over to Mark to take you through the financials.
Thank you, Steven. Good morning, everyone. There were three things that had a significant impact on our results in 2022. The decline in equity markets, the rise in bond yields, which reduced the value of bond portfolios, and higher interest rates globally. The first two had a negative impact on our results and assets under management and administration, and the latter provided some revenue benefit to offset that. Now, the four messages that I hope you take away from my presentation are, one, that the business is delivering robust flows in a tough market and showing improved persistency. Two, the trend in revenue margin has been absolutely in line with our expectations. Three, we've got costs under tight control despite inflationary pressures. Lastly, we've got a strong balance sheet following the completion of our capital return program.
In terms of the numbers, adjusted profits and operating margins stack up well against market expectations. Clearly, net flows are below where we want them to be. As you've heard from Steven, we have clear plans to improve that. This next chart is a similar one that I used at our Capital Markets Day to remind you of the key contributors to our results by segment. As you can see, both our core segments delivered a smaller profit contribution in 2022 than in 2021, and that was largely due to markets. At the same time, the head office net expense drag was less, and that was a function of both cost management and the benefit from interest income on our cash and capital balances held for liquidity and regulatory purposes.
Interest receipts contributed around GBP 7 million to income at the center. Let me walk you through the details. Starting top left, net flows of GBP 1.8 billion were about half of the level a year ago. Our average AUMA was only modestly behind that of last year. Top right, you can see the decline in revenues were broadly in line with that reduction in average AUMA. Lower management fee revenue was partially offset by higher other revenue, principally interest income. Costs, bottom left, were down 2% to GBP 472 million versus the GBP 480 million we guided. By completing our optimization plans, accelerating some of the simplification initiatives, and maintaining cost discipline, we largely offset expense increases. As a result, adjusted profit declined by 3% to GBP 134 million.
That gave an operating margin of 22%, flat on where we were a year ago. All that translated into adjusted diluted earnings per share of GBP 0.079, an increase of 7%. That increase was mainly due to the benefit of a lower share count from the share buyback and share consolidation schemes, partially offset by a more normal tax rate. Our high net worth business delivered a resilient income performance in 2022. Here, for the first time in years, we saw a modest margin benefit of around 50 basis points earned on clients' cash funds. That contributed around GBP 7 million to income, and as a result, overall income was broadly unchanged. However, inflation and planned investment increased costs by GBP 11 million, which led to the decline in profits.
That investment to drive future growth was mainly into new investment manager hires and building capability in Quilter Private Client Advisers. As you know, the cost drag of new hires always lags the revenue build. We expect to see the benefit from this investment in time. Turning now to the affluent side of our business. We're pleased with the stable operating margin outturn here. Yes, lower markets reduced revenue. We delivered strong cost management to help offset that. The profit decline was in line with our expectations given the market influence, which was a good result for the year. This next slide will be familiar to you. The picture here is in line with our expectations. In high net worth, the black line, we're holding relatively stable margins around the 70 basis point level.
New business is coming onto the book at a broadly similar margin to our existing stock. Next, our investment platform in dark green at the bottom. Here we normally expect to see a gentle decline of around a basis point a year, and in fact, margins held steady last year. Finally, the affluent managed assets, the lighter green, has also been resilient this year. As Steven has said, there are two things you need to bear in mind for your 2023 forecasts: the Cirilium Active repositioning from the end of this month and the platform repricing. The former is likely to reduce our affluent managed assets revenue margin by around five basis points on a full year basis, and the latter will be felt more gradually over time. We expect this to improve our competitive positioning with benefit in the future.
Let's now turn to the cost side of the equation, where I'm very pleased with the outcome. We've reduced our total 2022 cost base to GBP 472 million, down GBP 8 million on 2021, despite inflationary headwinds and investments in growth initiatives. Here you can see that we've continued to manage down base costs as a percentage of revenues. That's the hard work bit. That's what will drive our planned operating margin expansion in the future. The cost of revenue-generating staff as a percentage of revenues have moved up modestly, principally reflecting the investments we've made in high net worth that I mentioned earlier. We've also accrued a variable compensation at broadly similar level as a proportion of revenues to 2021.
The uplift in other variable costs reflect more normal levels of operational expenditure post-pandemic, an uptick in development spend, and a full period of FNZ platform costs. Finally, we benefited from a reduction in FSCS levies this year, resulting from the industry-wide levy surplus that was carried forward from 2021. The waterfall on the right-hand side summarizes the main changes year-on-year that delivered the reduced costs. Cost increases came from inflation and more normalized levels of investment. Cost reductions came from lower FSCS levies and our management actions. When it comes to thinking about 2023, we remain very focused on continuing our simplification program and driving additional cost efficiencies.
You should also bear in mind that while we've achieved GBP 23 million of run rate business simplification savings already, a good proportion of those still to be achieved will be realized when the TSA relating to the sale of Quilter International expires towards the end of this year. While there's talk of inflation peaking, it's still going to push up costs. We've also still got plans to increase business investment. It's been a tough market, but we want to be well-positioned when the environment improves. Now let me turn to the strength of our balance sheet, starting with the major movements in the solvency ratio, which are all straightforward. We began the year with a ratio of 275% and finished at a 230%. The capital return program reduced the ratio by 56 percentage points.
Below the line transformation costs were a five percentage point drag, while profits added 12 percentage points. The full year dividend reduces the ratio by ten percentage points, bringing us to the 230% you see here. You should also note that the end position includes the benefit of the cash we retained from the sale of Quilter International in order to fund the cost of simplification and business revenue initiatives. As that money gets spent, it will reduce the solvency ratio by around another eight percentage points. Let me touch on the recent refinance of our subordinated debt issue, as we had a few questions on this. We decided the best outcome was to go ahead and refinance, albeit at a slightly higher cost.
A coupon of 8.5% versus a 7.5% coupon for the old instrument, as it would have repriced had we not called it. The old bonds were issued five years ago with a ten-y ear maturity and a one-time call at the five-year point. This structure is typically employed in bank and insurer subordinated debt, and market convention is that the bonds are called on their first call date. When the bonds were originally marketed, the investor expectation was that they would be called after five years. We ran the risk of damaging Quilter's standing in the credit markets if we had not called, I hope that explains our thinking. Next, let me touch on the cash position at the bottom. You'll recall that we ended 2021 with GBP 756 million in cash.
Completion of the Quilter Life Assurance buyback cost GBP 28 million. The B Share issue and redemption cost GBP 328 million, and the final dividend cost GBP 62 million, of which around GBP 25 million was part of the Quilter International capital return. Remittances from subsidiaries totaled GBP 163 million. We are left with just under GBP 400 million of cash in the bank at the end of December. We've earmarked around GBP 120 million for the final dividend and our business simplification and investment plans, which leaves the remaining cash balance of around GBP 250 million, broadly in line with our risk appetite.
The board has decided to increase the final dividend by 0.5 pence to bring the total dividend to 4.5 pence per share, up 13% on last year. This represents a payout ratio of around 57%. We expect to move up our targeted payout range in 2023, as higher tax and interest costs will have a pro forma impact of lifting the payout ratio by around 12 percentage points on a like-for-like basis. Having stepped up the dividend this year, you should expect more muted progression for the 2023 financial year. Before I get to detailed targets, I wanted to return to two of the high level targets we set out at our Capital Markets Day. Operating margin, which I'll get into on the next slide, and EPS progression.
On EPS progression, we have continued to outperform our compound growth mid-teens target. I expect the actions we are taking in the short- term to reinvigorate growth and a higher tax rate will lead to lower EPS this year before growth resumes. That's likely to dampen the compound rate of growth in the near- term. You'll be familiar with our usual target slide. This time we've made a few changes to reflect what we've talked about today. We show our old targets on the left and how we've refreshed them on the right. On flows. You've heard the guidance from Steven. I'm not gonna repeat that here. We are projecting a slightly faster decline in revenue margins as we look to reposition some of our investor propositions. We expect that to be more than compensated by higher volumes as we take increased market share.
Third, the combination of these, coupled with market levels being below where we expected them to be by this stage, means that there will be a delay to reaching our operating margin targets. We now expect to hit a 25% operating margin in 2025. I still very much believe that achieving an operating margin in excess of 30% is the right place for a business like ours, and that remains our goal. Finally, in terms of consensus, we expect when you have reworked models, you'll end up with both higher revenues and higher costs than what the market is currently forecasting. The overall adjusted profit will therefore land somewhere between what we have achieved this year and the current 2023 consensus. The main revenue driver will be a higher contribution from interest income.
We've told you that we benefited by around GBP 23 million in 2022, and I'd expect roughly double that in 2023, assuming interest rates remain stable. We've then guided you to a revenue reduction of around GBP 12 million from the Cirilium reprice and about GBP 7 million from the platform reprice, and you can then factor in your own assumptions for markets and flows. On costs, as I've mentioned, we don't expect a significant increment from simplification this year, as that will be more back-end loaded. The benefit we get will probably be offset by business investment. That means inflation will be the main driver of the cost uplift in 2023, and somewhere around a 5%-6% level seems like a reasonable estimation, which was broadly the outcome last year.
You'll also need to factor in the higher interest rates on the new subordinated debt bond and make sure your forecast reflects the current U.K. tax rates. In summary, I am pleased with our financial performance in 2022. The business is in good shape financially, and we are pleased with the profit upturn, delivering solid results in a challenging market. We are strategically well-positioned and are on top of managing everything that is in our control. The trend in revenue margins is broadly as anticipated, and costs are very well controlled. Our balance sheet remains strong and supports the increased dividend return we are making to shareholders. Finally, we are repositioning the business to deliver on the opportunities ahead, and we are doing that from a position of strength. With that, let me hand back to Steven.
Thank you, Mark. Before we go to Q&A, let me summarize my key priorities. One, I want to build distribution, growing our market share of IFA flows, doing more with the firms on our platform, ensuring that Quilter is an attractive proposition for all of our advisors, and adding new investment managers and advisors in high net worth. Two, I want to enhance our proposition. We're refreshing our Cirilium Active fund range, and pricing, and our platform pricing will be more competitive where we need to to attract flows. Three, I want to drive efficiency. We will reduce the complexity and rightsize the cost base for the size and shape of the business that we are today, and we'll update you on that at the interims.
All of this will drive stronger profitability and deliver a 25% operating margin by 2025 and 30% in the longer term. Today, we've reset expectations, and we'll be building from this base. Let me leave you the words that I started with. I know that there's a lot that we can do better. This is a business with a huge amount of potential, and I want to see that delivered. Right. Let's open up for questions. Who's first? Alan.
Cool. Thanks. Alan Devlin from Goldman Sachs. A couple of questions. First of all, on the investment you're making on both the investment side and on the platform side. I know you've given the, you know, the financial investment you're making, but, you know, how competitive does that make you versus peers? What, you know, how much do you think it'll drive flows? If you didn't make that investment, would you be uncompetitive and it would drive, you know, potentially drive outflows or be a tailwind to your business? Then, particularly on the platform business, which you said was your, one of your kind of key focuses, you know, what do you think is your kind of natural market share in that business?
I think it's probably declined slightly more in the market this year, but still in the 7%. What do you think the, you know, the right market share is for that business? Finally, on the, on the pre-tax margins, first of all, on the 25%, you know, what do you need to do to get there? Is that gonna be revenue driven? Is it gonna be expense driven? If it's expense driven, you know, is the simplification enough to get you there, or do you need to do more? How much is the TSA on that? Then on the 30%, the follow-on, you know, why is that the right number for your, for your business? Why are you confident that you should get there?
At some point over time.
Okay. Thanks. That's three questions squeezed into five or something. Anyway, thanks. Thanks, Alan. I'll take the first two, and I'll probably ask Mark to pick up the operating margin question in a bit more detail. In terms of value, and pricing, I think all of our propositions actually deliver great value. Our business has been focused on quality of our proposition and the strength of that, and we've really seen that. We have made, as I said, you know, some tweaks to where we think that we want to respond to some of the things we're seeing competitively. It is a competitive market. I think that we will continue to deliver great value.
I think at these levels, I think the changes that we've made, we think will deliver exactly that. So, you know, specifically, I think we'll be very well positioned with these changes. In terms of platform market share, our platform market share in the IFA market share is around 7%. It has historically, it has been as high as 10%, and that is the sort of number that we would want to get back to because we fundamentally believe that our platform can and should do that. It will take time, as I've said, but that is the journey that we're on.
Just on the,
Yes, on the operating margin.
Yeah, on the op margins, you know, there are quite a few different points, and I shall pick them all up, and if I don't pick some up, we can maybe pick some of them up afterwards. I think, on the 25%, I think your first question is, what do we need to do, and is it revenue or expenses? Frankly, it's both. It's very similar to the guidance that I previously set out at the Capital Markets Day. On the back of it, we expect a revenue improvement, but we also expect further cost containment around that also. We're about halfway through delivering the simplification benefits that we set out. We had GBP 23 million on a run rate basis for this last year.
We'll get a little bit of flow of that into this year because not all of that was achieved from the start of last year, so there'll be some benefit coming in. That's about half. GBP 45 million is the total objective over there. We are gonna need to do more also. It's not, it's not just that. You've just seen some of the things that we've been doing this year and just achieving our expense base of this year has been something, some of which are enduring, some of which are more temporary, but it's really going through all of those items. In terms of the 30% being right, look, I think these are all sort of staging posts. I mean, I could say in 20 years' time, I think we should be at 40% or something.
You know, really sort of looking in the more sort of medium- term rather than getting too carried away with the longer- term, as we look at our own business and what we think we're capable of doing, we look at the scale and the efficiency that should come through from that with further time, and also look at what competitors do. We believe that being in excess of 30% is absolutely what the business aspiration should be over the next few years. When you think about our business, we've kind of got the sort of what I sort of often describe as sort of four components to it, two of which are highly scalable, and that's Quilter Investors and the platform.
Those are businesses that as you put more assets on over there, really the revenue benefit that falls through to the bottom line will be touched a little bit along the way by expenses, but the actual sort of. It's got positive fiscal drag, if we can put it that way, that you should get a lot more benefit from it. That's what should drive that.
Thanks, Mark. Andy.
Thank you. Andy Sinclair from Bank of America. Three from me, please. Mostly on advisors. Firstly is, like, you've given some new targets today, but one that you haven't given is for restricted financial planner headcount growth. Just when do you think you can get that back to net headcount growth, and what growth rate do you think is sustainable? Secondly was on the financial advisor school, which wasn't mentioned today, I don't think. Just how many are in the financial advisor school today, and what level of growth do you expect? How much of your gross recruitment is coming from your own financial advisor school versus external recruits? That's my second question.
Thirdly, it's clear your focus has been to work more in the IFA space and bring more of them onto the platform. What catalysts do you see over the next couple of years to really bring those financial advisors who aren't using the platform today onto the platform? It's clearly a very competitive space, why are they gonna say now is the time to move to Quilter? Thanks.
Thanks, Andy. First up on on advisor numbers. As I said, our focus is on ensuring that we get the right balance, of productivity, advisor numbers, quality, all of those metrics. I think what I would say is that advisor numbers is a good proxy to look at in a steady state. Right now, as I've said, I think there's work that needs to be done in our advice business to improve productivity, and to reduce some of the complexity in that business to get greater alignment. That is actually the sort of the first and foremost focus. We obviously have aspirations to grow the number of advisors. That is a target that we look at.
I'm not gonna stand up here today and give you sort of any targets. I'm still myself getting into, looking at all of those things in more detail. It's not a part of the business I've historically run. I think that one of the things that we called out, and I would sort of draw your attention to, is the net flow as a percentage of opening assets for that business. I think that is a good metric that we look at, and we're very pleased seeing 15%, and that sort of number, that mid-teens number that we've guided towards. I think that level of growth coming out of our own advisor business is really important. It is not just about adding advisors if they're not gonna be at the level of productivity that we want.
That's one of the things that we look at. Hopefully that gives you some color on how we think about that. In terms of the financial advisor school, it varies, but it's between 60 and 100 people in the school at any given time. That sort of number tends to come out every year. Let's call it 60+ coming out every year, joining our network. In terms of IFAs and catalysts, I think IFAs do, they do look at their platforms, and I think our platform is incredibly strong and very capable. We've talked about before about how we've been trying to win over new supporting advisors, and we've made progress in that regard. Last year was an...
We actually had very strong numbers in 2021. Last year was a more challenging year because what we had from advisors is a lot of advisors have said they actually, you know, really want to start using our proposition and move over. During the course of last year, particularly the second half, what we saw is, with all the turmoil, advisors were focused actually on just maintaining and reassuring their existing clients. There was a lot less activity, there was a lot less volume, there was a lot less new clients taken on. Advisors, when they start supporting a new platform, generally first start putting newer clients there, and then, over time, they move existing assets and things like that.
Given the nature of what happened in the markets last year, I think that caused sort of a slowdown, or we saw less momentum in that. The level of support we've got from advisors, the commitments, and our continuing focus in that regard, I think is very important. In terms of other things about catalysts, you know, we've got now a very stable platform, and we've gone through a platform migration, which we did very well. You know, if other platforms have service issues, migration issues, et cetera, that is always a catalyst. I think there's a lot of sort of continuous change in this market.
But fundamentally for us, we position our proposition as great value, great service, great support, fantastic features, and I think those will all serve us well to grow support from IFAs over the years ahead. All right. Yes, Andrew.
Hi, it's Andy, Andrew Lowe from Citigroup. Just a quick question on the Cirilium fund range. You've cut the prices of the Active. Could you just elaborate a bit more on the economics between Active and passive, and your expectations in terms of sort of client migrations? How much more do you expect to migrate towards passives? The second question is just around any disclosure that you can give on the share of your own advisors using your platform. How has that developed, and how much more is there to go? Thanks.
Okay. I'll cover the Cirilium stuff, and Mark, you may want to chip in. We give the details of the weighted average margin in Quilter Investors, and we've given some guidance as to where that's going to go. They obviously, we'd have different revenues and to some extent different margins within those ranges. That mix has been pretty stable over time. You know, we obviously, we have active blend and passive solutions. We've got fund to funds and we've got managed portfolio services. We're not seeing a sort of a significant change in the mix of business there. That is something that, you know, we guide to on the average margin.
In terms of the share, the share of business from platform that is from our own advisors that's going to Quilter Platform and Quilter Invest and Quilter Cheviot is around 80%, which we've given in the. That has gone up from about 70%. We'd obviously like that to go up further, but just to note obviously that, you know, our advisors give appropriate advice and the best advice to their clients, and there are gonna be clients who will have an existing product from another provider, and it may make financial sense for them to do a top-up there and stuff. We don't think that that number is going to sit at 100%. You know, we're pleased to see it rising, and it's currently at 80%.
Mark, do you want to add anything on the margins?
No, I mean, I'll just say, you know, on active with the reprice for us in terms of our economics that we retain, it's about a ten basis point reduction. There's some changes also in blend, so they're gonna give a similar sort of amount. Obviously the differential in margin between active and blend is more marked with about a 30 basis point differential between one and the other in terms of what we retain. I'm not talking in terms of the overall cost to clients. I'm talking about sort of the economics that we retain as a shareholder.
Yes.
Thank you. Hi, it's Enrico Bolzoni, JPMorgan. Just a few questions from me. One, have you ever thought about maybe expanding the product suite you have for Quilter Investors, maybe new product launches like alternative asset classes or something that could accelerate the growth in that division? Just because there are simply some asset classes which are in very high demand at the moment in the market. My second question relates to the repricing you're doing in the platform. Have you already had conversation with some of your largest IFA maybe on the new pricing? Do you already expect to gain some market share there on the basis of the repricing you just announced?
I also wanted to ask you just mentioned that you're gonna do an odd lot offer to simplify and consolidate a bit the number of shares. Can we get any color in terms of what the total size of that might be? Thank you.
Thank you. Okay, I'll take the first two questions, and Mark, the odd lot offer. Sorry. You can take, sorry about that. In terms of, we do look at our investment proposition all the time, and we review if we've got what we think is the right thing. Maybe the first point to mention is that. Because of the nature of the clients and the advice that we give, most clients are looking for risk profile solutions that are multi-asset risk profile solutions, which is the core of what they're going to use in a portfolio. We certainly are not looking to build portfolios of esoteric assets and things like that. We don't think that is appropriate for the advice that we give and appropriate for our target market.
In terms of, some of the, some alternative assets, you know, we continue to review, continue to review that. I've talked, you know, about what our focus here is at the moment. In terms of platform pricing, we do talk regularly to the larger IFA firms. Yes, we have engaged with them about ensuring that we offering them deals and pricing that is appropriate for the size and for what they're looking for. We have done that. Mark, do you want to pick up on that?
Yeah, the odd lot offer. Look at the current share price would have cost about GBP 17 million, one seven. As you'd be expecting. You'll recall we did an odd lot offer a few years ago with the share consolidation and still having a very high number of South African retail shareholders that came out of the original demutualization of Old Mutual back in 1999. You know, we still got over 200,000 shareholders on our register, many of which hold a very small number of shares. This actually increases the size of that odd lot offer, offering for shareholders up to 200 shares, whereas before it was only 100 shares. This is really trying to sort of get at the next tail of very small shareholders.
GBP 17 million at current share price is more or less what it'll cost.
Thank you. Other questions? Do we have anything from the lines?
Yeah, we'll go to the lines first, I think, and we've got a call from Gregory Simpson. Yep.
Go ahead, Greg.
Have we lost him?
Think we might need to get back to Greg later.
Let's, let's go to Rahim. I think he's on the line too. We have a few questions from the web afterwards. Rahim? All right. We lost him.
Okay. That's not working on this.
Okay. Well, while we're waiting for that to hopefully reconnect, there's I think three or four questions from the web. I'll go through them one by one. The first is from Walid Bellaha, Esteem Capital Management. Are you pursuing any opportunities to reduce the regulatory capital requirements in the business? Where do you believe your Solvency II ratio needs to be over the medium- term?
Okay. Look, we manage the business in a prudent manner from a capital perspective, as we've previously spoken about. We obviously are investigating ways to minimize the amount of capital we need to hold. We haven't previously provided capital solvency targets. I'm not about to start doing that right now. We're well above, we're well ahead of those. What I probably would just remind people of is that it's the liquidity constraints that's more of a constraint for us for capital returns than what is actual solvency ratios. We have been in discussions with our regulators. I don't know if this is a roundabout way of wanting to know if we're gonna go into full ICAR group supervised consolidation and come out of Group Solvency II.
On pure fundamentals, we remain within Group Solvency II regulation. Certainly in the discussions that I've had with the regulator, I expect us to remain in Group Solvency II compliance and in that environment for the foreseeable future. Indeed, that was one of the basis that we issued the new bond being Solvency II compliant.
Two questions from Iain Power at Truffle Asset Management. Why is expected NCCF target of 2% so far below competitors? Why do you think you've lost platform market share, especially given all the investment and focus on improvement?
What I've said about our flows targets is we need to look where we currently are, and we need to grow and build up to that. Some of the reasons why we have some dynamics that are different to competitors is some of the age of our book and the maturity of our book. We have got potentially a higher drawdown rate of for clients that are in pension and things like that. All of those factors are what we are taking into account to drive and grow our business going forward. That's what I'd say there. In terms of our platform, since we've launched the new platform, we have been increasing our market share.
The market share numbers I gave earlier were several, you know, many years ago when we were sitting at 10%. There is a slide which showed how we have increased our market share in the IFA space, and we have certainly increased our market share in our own channel, in Quilter channel. We want to increase that further, and I've sort of said how I want to increase the pace at which we've increased our market share. I think some of the comments about what was happening in the market dynamic last year are relevant as well, which I gave in an earlier answer.
A question from Asanda Ntozini at Mazi Asset Management. Can you summarize the key competitive advantage of Quilter versus competitors and how you see that going forward? Can you give any update on the digital online advice opportunities that were discussed previously?
Key competitive advantage, that's a broad question. Depends on who the competitors are you're thinking about. I think our business, some of the advantages that I would call to are the strength of our dual channel model. There are very few businesses in this market that are both strong in an IFA channel and in own advisors. I think then that the quality of our proposition, we've got a really strong business with we provide really strong service, support, and great value propositions to our customers and to advisors. Again, I think that stacks up really well and is one of the things that we position our business around. I'm very happy to go into more detail on that if you'd like later.
In terms, I guess you're asking a question about hybrid. We have mentioned it here. One of the things that I talked about was the work that we want to do on the technology that's in our advice business, the CRM systems and stuff. We did contemplate launching hybrid as a standalone channel and trying to get something to the market quickly. We have relooked at that, and as I said, I talked about complexity in our business and said that we've got too much of that and that's causing costs for us. What we don't want to do is go and launch a new proposition that is alongside our other technology, which just adds further complexity to our business.
We see hybrid and digital advice actually as a very important capability for the future, but we see it actually as something that all of our advisors can use and should use. They'll be able to use that for the simpler client journeys and things like that. Actually we're looking to invest in our advice technology and build hybrid as part of a core offering for our core advice channel. For some advisors may focus on clients that, you know, only need sort of hybrid advice journeys. Other advisors may have a broader mix of clients but will have that for part of their client base and use a more sophisticated sort of advice engines for other stuff.
We've chosen not to build something as a standalone because I don't think that would have been the right decision to do. As I said, it would have created more complexity in our business. We want to do the right thing, and this, we're in this for the long term, so building out the right hybrid solution is absolutely critical for us.
Thank you. There's one more from the web and then we'll try the phones again. From Ben Bathurst at RBC. Can you elaborate on some of the steps you can take to reduce the regretted departures to consolidators, as presumably this is tough to overcome if they're receiving high bids from sponsors to move across? When advisors move, what proportion of assets typically move with them, should we be expecting outflows to pick up in 2023 as a result of the increase in advisor losses in 2022?
There are different consolidator models out there. Some consolidators have got their own platforms and often structure the deals then when they acquire advice firms basically to pay for the acquisition price based on the assets that are transferred. Obviously that's a pretty strong force. The other consolidators who are more open on platforms and have a panel of platforms, our strategy there is to make sure that our platform is one of the platforms of choice for those firms, and we're working with those firms to provide them fantastic support and a fantastic proposition. Those are the things there.
In terms of the other part, you know, while the industry dynamic, and consolidation will happen in the industry, our strategy has got to, as I talked about what we do in terms of those specific points, but also obviously, we are looking to grow our business in other areas. That is through growing our own advisors and through winning more supporting advisors, more supporting IFAs, those that... We have a lot of opportunity to do that. As we do that, I think you'll see the total picture in the round, should be, we should deliver the growth targets that we've set. The second question I've forgotten. Just repeat that, J.P.
The second question was, what proportion of assets typically move across?
Ah.
Should we be expecting outflows to pick up as a result of the losses this year?
I think I've probably answered that in terms of the proportion that moves across. It depends on the model. I think we've given guidance on the net flows.
Okay. Should we. I thought he was on the phone. He's dropped off the phone. Yeah. We'll try to go back to the phones. If not, I've got the question that Greg's gonna try. Let's try for Greg on the phones.
Okay, we' re just opening Greg's line. Greg, your line is now open.
Hey, I'm not sure if you can hear me or not, my questions are: firstly would be, can you share any feedback you're seeing on client behavior, appetite, you're seeing right now? I guess in theory, a lot of things to worry about with cost of living and inflation. Yeah, anything you're kind of, you know, seeing? Because the 2% flow aspiration is a bit of an acceleration versus where you were at H2 stage. That'd be the first question.
Second question would be, are you seeing any slowdown in the advisory consolidation dynamic as maybe higher rates does maybe make that strategy for private equity firms more challenging? Or would you expect that just to remain a challenge? Thirdly, just on the interest income, I think you said there was GBP 23 million and GBP 7 million from the group, GBP 7 million from quarter.
The residual from, presumably that comes from asset flow. Can you just explain what exactly that comes from? Thank you.
Thanks. Thanks a lot, Greg. In terms of client behavior, what I would describe, and I think that you've probably seen a similar comment from other companies, is so far the year has started very similar to the way last year ended. Sort of the what we're seeing in Q1 is very similar to what we saw in Q4 last year. Last year, Actually, if you look at the quarterly flow data for ourselves and across the industry, the first quarter was very strong before the war in Ukraine, and then every quarter was weaker thereafter. What we're expecting this year is actually it's going to be the reverse, is that the market should improve and every quarter should be stronger than the previous one.
We did say, when I did talk about the 2% expectation for this year, I did say that we do need to see some improvement in market sentiment, which we believe will happen in the second half of the year as interest rates peak, inflation peaks, and customers start getting more confidence. You know, if there are more geopolitical shocks that happen, that we aren't foreseeing, then, you know, I think you need to factor that in. That is the first thing. I guess, you know, what we're seeing, maybe just another comment on customer behavior that we're seeing at the moment is we're seeing that pension products are holding up relatively well. Customers are continuing to invest in pensions, certainly regular pensions, and transferring around of pension.
That's sort of ongoing advice. That is generally holding up relatively well. The more discretionary sources of investment, so ISA and collective investments, those are under a lot more pressure, and that's not to be unexpected. You know, customers are a lot more reluctant to invest discretionary amounts in times of market uncertainty and also the cost of living crisis that we see at the moment. That, I think is the first question or the first two questions. In terms of advisor consolidation, you know, it's difficult to comment on, you know, whether that's going to slow down or not. Obviously, interest rates have risen, and that is a factor that is relevant.
There's a lot of, there's a lot of money and there's a lot of acquirers that are trying to build models out there. I think that there are some that will no doubt come under challenge. Right now we haven't seen any material sort of slow down. We obviously watch the space. The final question on interest income, I'll hand to Mark.
Yeah. Thanks. Greg, on the interest income, there are three sevens to take account of, which gets you to GBP 21 million. The first seven is what we called out and called achieve with clients and the 50 basis points over there. The other seven is interest income at the center on the cash balances we hold there. The third seven, which I didn't specifically mention in the presentation, but it is contained within the detail of the board RNS, comes from the cash balances that support the regulatory capital position of the life company that's on the platform. So call to Quilter Life & Pensions. So that's another seven. Then we've got one further million each that comes through from shareholder cash and Quilter Cheviot and Quilter Investors, which gets you to GBP 23 million.
I mean, the three main blobs are the first seven that I spoke about.
Thank you, Mark.
Thank you.
We have one more from, on the line from Rahim at Investec. Rahim, your line is now open.
Good morning, thanks for taking my question, and apologies for not being in person. Three questions if I may. One perhaps just following on from Greg's question on interest income. Is the profile for 2023, I think you said kind of double 2022, similar. I had the split between the three main buckets. That was the first. The second, Steven, you talked a lot about productivity and improving productivity in the advisor business. You know, have you got a sense of where you believe that could get to? Clearly it's done well given the environment in the last year. Just wondering where you might hope that to get to.
Thirdly, just, you know, what role will you perhaps see M&A playing for the group more broadly? You talked a lot about consolidation outside of you, but I was just wondering if you saw that as being an opportunity to accelerate growth in the medium- term.
Okay. Why don't I take this.
Steven, I'll answer the first one while you think about the second two. Just on the interest income, there'll be a slightly heavier weighting towards the center and the Quilter's Platform than what they will be towards Quilter Cheviot, and that's because the Quilter Cheviot amount is capped at 50 basis points on those clients amounts. I'm expecting that there'll be a slightly heavier weighting towards the others, but broadly it'll be broadly similar, but I'll just slightly weight it a little bit away from QC.
Thanks, Rahim. On the questions of productivity. Advisor productivity, the way we measure it is we measure the total flows that the advisor generates in a year. We look at that actually of all product, and then we look at it, and we've given some numbers today, of just Quilter product. I think there are multiple drivers of that. There's obviously what the total gross flows are in the industry, and there's a sort of a whole market confidence, market confidence point. There's an alignment point as to how much the advisors are using our own propositions. Then there is the productivity of the actual advisors themselves. How much time are they actually able to spend serving clients, and how much time are they spending on other processes?
That's one of the areas I said that we're looking to make improvements in our business to improve the technology so that advisors can actually spend more time on advising clients, and that will up the productivity. I think all of those things are a factor. I think, you know, we're not gonna set out a target. I want to see the productivity continue to rise and improve, it is going to be a function also as you would've seen on what markets are doing. You need to look at the productivity in that context. We see that as still a metric that we look at very closely, and we want to drive that up further.
In terms of the final question on M&A for the group, obviously we are focused on organic growth. We have done acquisitions and advice in the past, and we will look at things when appropriate. We continue to monitor for opportunities, but our primary focus is on organic growth.
Great. Thank you so much.
I think we're done. Yeah, we're done.
Any final questions from the room? Andy, part two.
Two quick final follow-ups from me. Andrew Sinclair, Bank of America. Firstly, just on the interest rate benefit, will that be fully phased in 2023 or will there still be more to earn through in 2024 if rates stay at current levels? Is my first question. Secondly, you mentioned FSCS levy costs. I realize that's somewhat out with your control, but have you get any indication of what you're expecting for 2023 after a nice decline in 2022? Thanks.
Okay. Look, fully phased. If interest rates stay where they currently are, I'd be expecting the guidance we've given in terms of the uptick is at current rates. I think the current rates came into effect not quite at the start of the year, but pretty close to the start of the year. Andy, there might be, if they had to stay at current rates for an extra two or three weeks compared to where, you know, what we had this year, there'll be a slight benefit on that. I think for the purposes of your modeling, you can just keep it the same if you're assuming interest rates are the same.
On the FSCS levies, I'm always worried to sort of predict too much what an unknown third party is going to do to us when it comes to the levies. Certainly the indications or certainly the public statements have been made by the regulators so far lead me to believe that the FSCS levies this year should again be a slight reduction of what they were last year. Clearly, they've got the supplementary levy that they'll still will let me know about later on this year. That's normally sort of September, October time that they come out with that. Based on what's been said so far, I'm expecting that the FSCS levy should be slightly reduced cost for us this year in comparison to last year.
Given the increases that we endured in the sort of three years previous to that sort of gets us back on par with where we were maybe three or four years ago, so.
Okay. Well, thank you all very much. Thank you for coming. Thank you for those who braved the weather. We will see you again at our interims in August. Thank you all.