We've just been informed that the music on the webcast is really great. So, I'm very, very sorry that that you're here, and not listening to that, but we'll we'll see what we can do. Listen, good morning, everybody. Thank you very much for for joining us for the Rathbones 2023 full year results presentation. A big thanks to everybody who's here at 8 Finsbury Circus. And for anybody who's obviously joining online with us today. We are, of course, recording today's presentation, so the usual rules about that mobile phone in your pocket would apply. If I could just remind you on that one, that would be fantastic.
So, today, you have a slightly changed team, joined today by Iain Hooley, as Group CFO. Very much welcome Iain to the Rathbones group, and the board. Iain brings with him an extensive knowledge of the U.K. wealth industry, and very much looks forward, if I can speak for you, Iain-
Absolutely.
Very much looks forward to meeting analysts, investors over the coming weeks and months. So Iain will take you through our financial results in just a moment, but I'll just talk through some of the highlights as I see it first. As always, we have questions at the end, and we'll take the room questions first and then go online. So look, it will be no surprise to report today to you that we use transformation very lightly, and it has been a transformational year for Rathbones as the combination with Investec Wealth and Investment really dominated the year.
But that was really only part of what we undertook in 2023, in a year, frankly, when the industry faced many challenges, both structurally, and external factors. We have a continuingly competitive industry in the U.K., and we... I suppose if I look back at 2023, we were facing some quite lackluster investment markets, inflationary cost pressures, and of course, some notable changes in regulation. But despite this, we're reporting strong financial results today that Iain will talk you through very, very shortly. I think the other thing to point out is that as we stand today, Rathbones is sitting on some very meaningful opportunities that look towards the medium term, rather than the short term, to create future value.
In summary, those are that the integration of Saunderson House is nearly complete, and it offers some meaningful upside. Some hard-fought technology development and advancements are nearing the end of what has been quite a high expenditure cycle. And of course, the combination with Investec itself creates future growth opportunities that we've already begun to realize. So I'll talk about those in a moment, but maybe it's a time to reflect on some of the key considerations externally for 2023. Now, I'm hoping that this slide won't be a surprise to many of you, because, of course, 2023 was characterized in our view anyway, by these three charts.
Of course, persistent inflation certainly suppressed asset values in the year, but it also presented operating cost expenditure challenges and, of course, cost of living challenges for some of our clients that, of course, dampened inflows. Rising interest rates, of course, generally, as a bank, were positive for us as margins widened, but of course, outflows were elevated in 2023, mainly as clients increased propensity to use portfolio assets to deleverage and reduce what were increasingly expensive interest costs. And the last chart on the right-hand side says really that 2023 was one of probably the narrowest years in equity markets that I've seen, and I think on record. An unusually small number of stocks beat the market.
And the right-hand side shows you what I'm sure all of you know, was the power of the Magnificent Seven versus the rest of the S&P, as an example. So it was no surprise, really, that investor sentiment in the year moved a little bit away towards from equities towards cash, which offered a very viable short-term alternative to investing in stock markets. And of course, that had an impact on net inflows. But in spite of all that slightly headwind sort of year, I think we should remind ourselves that the UK wealth market will continue to benefit from structural trends that are positive. Demographic trends continue to forecast increased life expectancy, and indeed, that's our target market population on the left-hand side, which continues to see an upward trend.
And of course, expectation in growth of U.K. investable assets actually outperforms GDP in terms of growth rates. So again, a nice tailwind. And if you combine that with the ongoing demise of DB pension schemes, flexibility, and the well-chronicled need for financial advice, they're all positive. For a business model that is, frankly, personal service-led, it offers flexible choice to clients, offer a whole of market choice as well. So that's the best way we think to capture all of those very positive strength trends. And of course, both of those model characteristics are present in both Rathbones and IW&I. So I talked when we launched and completed the transaction and announced the transaction, we talked about a cultural match. So we do start from a very strong model and a lot of similarity.
What the slide shows you here is a result of a recent client survey in both Rathbones and what I'm going to call IW&I, Investec Wealth and Investment. Both businesses compare very well against peers. Client Net Promoter Scores are well above the mean in both businesses. Clients have generally indicated a high level of satisfaction, with a likelihood to recommend, if I could say that score, increasing very much from 2022 to 2023. Both businesses scored well on reputation, fit of products and services, and relative value for money. All good and important criteria, particularly when facing the market environment that we did in 2023. We have an excellent opportunity together to improve client communication, engagement, enhance our services, and of course, find new ways to reach target markets.
Now, I should say at this point that, of course, as well as that client-facing point of view, there's the employee-facing point of view. We're a people business. So just to share a little bit of how we continue to focus on engagement and retaining our staff, employee surveys that we've recently run also show a strong Net Promoter Score, and we'll continue to focus on career planning and staff development, underpinning our overall culture. So that's a strong foundation, really, to build future growth. So let's have a look at what happened to growth in 2023. Overall, Iain will talk in a little bit more detail about the net position, but gross is worth just pulling out.
Year on year, in spite of those market conditions that I've just referred to, gross discretionary and managed inflows in Rathbone Investment Management increased 18% year on year to GBP 5.1 billion. Indeed, Rathbone Asset Management itself, in a what was an extremely tough year for asset managers, were fifth in total retail net sales and still have some very strong shop windows in terms of performance in the core funds. This growth comes from a focus on four channels, and those are really the boxes that are in the slide. Client-facing teams, obviously, are our key form of distribution, but effectively now, we have access to over 115 financial planners, excluding Vision, and over 680 investment managers, all of which are representing Rathbones in today's society and have opportunities to grow.
They complement each other well, and direct flows from this channel increased 13% year-on-year, and that included around GBP 350 million of new funds under management that was introduced from the combined Rathbone Financial Planning and Saunderson House teams during the year, and that we expect to increase in 2024. We also work very hard with external advisors, third-party intermediaries, and the professional network that we now have access to as the enlarged group is market leading. We offer a broad range of propositions to those IFAs, all the way from bespoke DFM to single strategy funds. Advisor-linked growth flows, gross flows, were up 33% year-on-year. Equally, we have two strategic partners in the Rathbones Group.
The first is Vision Independent Financial Planning, and that continues to attract high-quality financial advisors and grows its funds under management consistently. Its funds under management, year on year, were up 27%, just to show you that underlying growth. It's a popular platform to join. The combination has also brought us an opportunity to work very closely with Investec Bank, and this year we've put in place teams and dedicated teams to work more closely with Investec Bank, and we very much look forward to the level of referrals and partnership that will bring for us. Lastly, and perhaps an underdeveloped area for Rathbones historically, has been in the direct marketing space. And for those of you who have visited our website, I hope you find it clearer.
We've had a lot of effort to improve that, and also overlay our brand, and that gives us some indication, some confidence that, you know, increasing flows or, or at least, referrals from that website source has increased 100% year on year, and it's an area that we will continue to focus on. Just to give you a bit of a flavor of the brand, we have completed a brand refresh. For shareholders, this wasn't a lavish exercise. This was merely a refresh. But I think what it does do is create a very targeted suite of brands that really harness many stakeholder views and represent us well, particularly digitally. The main Rathbones brand now sits alongside Rathbone Asset Management, that's RAM, but also separate brands that are Vision and Green bank.
So that positions each of those businesses very clearly in their position in the marketplace. Investec Wealth and Investment, IW&I, are currently a brand that's incorporated into Rathbones, but of course, will get merged into the Rathbone brand after the client migration exercise. So let's talk about that for a moment. So it's fair to say that putting two businesses like Rathbones and Investec Wealth and Investment together is never a small task, but the fact that we've been delivering the integration since April of last year, collaboration continues to remain strong, and a lot of the principles we put in place at the time of the deal and the combination in terms of future platforms, structures, locations, operating models, are all proving to be exactly what we expected them to be.
The fact that we've been preparing so long has enabled us to move quite quickly to establish what is a good framework for integration. In October, we announced senior leadership and governance structures for the combined group. The new executive team is working very well, and investment management turnover is low. Dedicated project and change resource have been set up to cover what are many work streams, not only driving change, but also looking for interdependencies. All enablement and support functions are now under common leadership. The other factor that we are very much focused on is our combined property footprint....
We announced in the combination that, this building, 8 Finsbury Circus, we will be saying goodbye to that and, and joining, Investec in 30 Gresham Street, and we expect to let all of the space, in 8 Finsbury Circus to a high-quality tenant in short order. Clearly, we have a number of other property footprint, projects that are ongoing, and very much the work to consolidate those properties is well underway.
The most important thing, in a way, well, everything's important, is, of course, to keep focused on the client migration, and from an investor perspective, that is the key to unlocking client synergies and to report today that progress on that client migration is very much as planned, and we continue to expect that to be concluded in terms of the client consent process by the end of this year with the actual transfer of clients in the first quarter of 2025. Now, Iain will talk about our financial goals in a moment, but I remain very confident on our ability to deliver on those objectives. Now, it's been a while, I think since 2022, since we acquired Saunderson House. Yeah, everything...
Yeah, a while since we acquired Saunderson House in 2022, so I think it's worth updating investors on where we are. First of all, let's look at the capability that deal has added to us. In spite of what has been an extensive client migration exercise, advisor turnover in Saunderson House has again been very low. That means we've retained the talent that was in Saunderson House, and it gives us the critical mass that we first thought we wanted and still want as part of that financial planning capability in enlarged Rathbones. Those advisors have built strong relationships with investment teams and indeed are introducing at least over 100 new clients in 2023, despite spending a lot of the year on client migration. We've also met our proposition goals.
Now, on the slide on the left-hand side, you can see what the proposition of Saunderson House was at acquisition. It was a proposition with a, an expensive fund of fund proposition, 30% of funds discretionary, and time-based charging, and that has largely moved now. We've been offering new propositions since June 2022 to in-house solutions, over 90% discretionary and a much more resilient and reliable charging base. Now, the migration has taken a little longer than we expected, but 91% of clients eligible for migration have now agreed to proceed to advice at the end of 2023, versus a target of 95%, which places us in a strong position to complete the migration by the end of June 2024.
Financially, funds under management at Saunderson House when we acquired it were GBP 4.9 billion, and at the end of December, that was GBP 4.1 billion. Reflecting a couple of things, markets were not as favorable, but we did expect some outflows. We have seen some outflows slightly higher than expected, but attrition now are very much managed. The right-hand chart shows revenues over those two periods, 2022 and 2023. Importantly, as the migration proceeds, what we're also expecting is the margin that we earn across the Rathbones Group, now split between advice and indeed our asset management business and our wealth management business, will grow the more clients come on the proposition. A lot of the transfers of assets were towards the end of 2023.
So if I, I were to look at run rate now, we're expecting revenues to be around the GBP 33 million mark, and if, and when we transfer the GBP 4.1 billion of assets that we reported at 31 December, put those on the new platform, we're expecting a margin of circa 1% and annual revenues of GBP 40 million. So you can see the opportunity there. Saunderson House's cost base at acquisition was GBP 25 million, and since then, its current cost base has more than offset the level of inflation that, of course, has happened since we acquired it. We've achieved approximately 60% of the synergies. The remainder are very much dependent on completion of the migration, which will be done this year, and we expect all of that to be achieved and wrapped up, by the end of 2024.
So I hope that's given you a little bit of a window into the developments and improvements we've been making into Saunderson House. The other project in 2023 was, of course, our digital program and upgrades to MyRathbones; now we're treated as business as usual, so I'm not going to get into that in any way. So this year, as last year, we've been focused on the delivery of our client lifecycle management system with InvestCloud, and of course, the implementation of Charles River into Rathbone Asset Management. InvestCloud is a leading industry lifecycle solution for our industry and very much committed to its delivery. You can see from the slide that the project is now planned for launch, and this is the bottom half of the slide.
You can see it's targeted for launch in June 2024, and we will undertake a series of post-launch improvements post the migration up until the IW&I migration, which happens in the first quarter of 2025. After that, the project returns to what I would call a BAU footing, so a lot of the development then begins to subside. We are working very collaboratively with InvestCloud, and the scope has been managed very carefully to keep within committed expenditure levels and of course, protect the IW&I migration. It's thanks to the combination that we've also been able to look at the scope of InvestCloud and taken the opportunity to incorporate Salesforce, which is in place in Investec, and Iress's Xplan financial software, which is also in place there, and leveraging that across the Rathbones Group as well.
This not only strengthens our enlarged capability but also optimizes expenditure. The implementation of Charles River into Rathbone Asset Management is expected to complete shortly, and is very much on budget, and it's very much performing as we expected it to, which is saving a lot of operational efficiencies that we planned. Overall, both projects, we've spent around GBP 30.7 million to the end of December of last year, and very much expect total guidance that we've given to remain in place. So overall, where are we? We've said well-positioned, and in 2023, I think you would agree, we've delivered resilient results, which Iain will go through in a moment. But completed a combination that presents future opportunities that derive from scale, but also growth opportunity.
Built a strong foundation for revenue growth through Saunderson House, and are focused on four very clear distribution channels, that can only benefit the more we focus on them, as well as steadily progressing our technology agenda. So it's been a busy year, so let's see what that turned out in terms of our detailed financials. Iain, over to you.
Thank you, Paul, and good morning, everyone. As you said, Paul, a resilient performance in a transformational year. So I'll begin with looking at the key performance headlines for the financial year. Funds under management and administration, or FUMA, increased 75% to GBP 105.3 billion at the 31st of December. That reflects our delivery of the IW&I transaction, increasing our scale, which was a key part of the rationale for the combination. Operating income grew 25% to GBP 571.1 million. That includes the contribution from IW&I of GBP 87.8 million for the final quarter of the financial year in the period post-completion of the transaction. It also reflects 6% growth in the existing Rathbones business, driven mostly by higher interest margins.
Underlying profit before tax grew 31% to GBP 127.1 million. Similarly, reflects IW&I's contribution in the final quarter of the financial year, which was GBP 25.3 million, and growth of 4.8% in the existing Rathbones business, and that's after taking into account the fourteen point four million investment in the digital program during the year. So as a consequence of those factors, underlying operating margin increased by one percentage point to 22.3% from 21.3% in 2022. Moving on to statutory profit before tax, PBT reported on the statutory basis decreased 10% to GBP 57.6 million. This reflects the impact of the IW&I transaction, ex- deal execution costs, cost of the integration, and increased amortization following the completion of the combination.
We'll look at those costs in more detail later. Underlying basic earnings per share increased 3% to 134.7 pence. That's after taking into account the shares issued during the year in order to fund the IW&I transaction, and the adverse impact of the increase in the corporation tax during the year, which I'll talk about later. The dividend for the year of 87p represents a 4% increase on the dividend for 2022, reflecting a continuation of our progressive dividend policy, despite the short-term investment that we will make in the IW&I integration and our continuing digital program. We'll look now at the overall movement in FUMA.
The main contributor to the movement is, of course, the IW&I combination, which brought GBP 40.8 billion to our funds under management at the completion of the transaction. The existing Rathbones business saw a 4.7% increase in FUMA. Favorable markets and investment performance added GBP 5.1 billion, and we saw net outflows for the year of GBP 0.8 billion. And we'll look at those net outflows in more detail now. So the table on the left breaks down the net outflow of GBP 0.8 billion by service level. So we'll look at each service level in turn, beginning with the discretionary and managed service for the existing Rathbones business, excluding IW&I. This service represents GBP 51.3 billion of FUMA, so almost half of the group total.
This service reported positive net inflows overall, amounting to 1.5% growth for the year. Gross inflows of GBP 5.1 billion were strong, 18% higher than 2022, as Paul referenced earlier. This shows our ability to generate new business, that remaining strong. Outflows, though, were elevated with regards to closed accounts in this service level. They were elevated, particularly due to to charity mandates, which we've reported previously. But the notable factor was the level of partial withdrawals from existing portfolios, which Paul talked about earlier. They were 36% higher than in 2022, reflecting the need for existing clients to reduce their debt, in which has become increasingly expensive, and meet the higher costs of the cost of living.
So those specific factors which drove outflows higher, are short-term factors. Once they normalize, then the fact that we are continuing to deliver strong gross inflows means we are, well-placed to deliver, and return to stronger net organic growth, going forward. The chart on the right also, shows, our multi-asset funds, with external flows being strong in the year, increasing 13% year-on-year. Moving on to IW&I. It was a similar backdrop in IW&I. Solid gross inflows with elevated gross outflows. IW&I's FUMA at 31st of December was GBP 42.3 billion, so that's 40% of the group total. The same economic factors drove higher partial withdrawals from existing clients. Outflows, gross outflows include those relating to, investment managers who left the business prior to the announcement of the combination.
As Paul referenced, investment management turnover has been low since, and engagement has been very positive through the integration process so far. We do maintain, of course, a strong focus on limiting future outflows of FUMA and securing the relationships of clients with their new investment managers. But we do expect some continuation of those outflows through to 2025. Looking now at Saunderson House, which Paul took us through earlier, this slide shows the net outflows of GBP 391 million, reflecting some attrition as we went through the integration process. These outflows are in the context of the progress made during the year of migrating FUMA into Rathbones' investment management propositions, which, with GBP 2.4 billion successfully migrated during the year.
With regards to those assets that are yet to be migrated, as Paul referenced, there's a high degree of client engagement in the advice process that precedes migration of those remaining assets. However, it will take longer than planned to complete the migration, the benefit of the related revenue synergies will be lower in 2024 than we had originally expected. Moving on to single strategy funds, which represent GBP 6.7 billion or 6% of the group's funds under management. The picture is very much aligned with the backdrop in the wider asset management industry, with lower inflows and higher outflows. Albeit, our funds showed resilience relative to that industry backdrop.
Investment performance remains strong in the core funds, with the 2 core single strategy funds delivering top-quartile performance. And as a result of that, funds under management overall increased 5% year-on-year. We'll now look at total income for the year, which was GBP 57.1 million, at a growth of GBP 115.2 million, or 25% relative to the prior year. IW&I's contribution of GBP 87.8 million came through in the final quarter of the financial year. Income growth in the existing Rathbones business, excluding IW&I, was GBP 27.3 million, being 6% higher year-on-year. With regards to the individual income lines that are shown in the table, fee and income...
Fee and funds income benefited from higher average FUMA during the year, reflecting both higher average market levels and the benefit of the migration of Saunderson House assets. Commission income declined. That does reflect a continuing trend towards cleaner, fee-only charging structures, but also includes the effect in the year of the relative volume of a mix of transactions, during the year. Interest income increased, significantly during the year as a result of the higher interest rate environment and the benefit of our banking license. Advice income, showed some decline as a result of the short-term pressure on Saunderson House advice fees, which Paul talked about earlier, and we expect that those fees will recover, post-completion of the migration.
The other income line includes GBP 9.4 million of net interest margin relating to IW&I and our businesses in the Channel Islands, which operate on a client money rather than a banking model, and therefore, the interest margin from those appears on the other line, rather than the interest line. And just with regards to interest income, we have, of course, considered the FCA's Dear CEO letter to platforms and SIPP providers in relation to interest margin. Having considered that thoroughly, we consider that there's a limited read-across of the principles set out in the letter to our execution-only services due to the specific nature of execution-only services and the related charges, which are comparable to platform charges.
So going forward, we will no longer charge fees on the cash element of execution-only portfolios where interest margin is also generated. The revenue impact of that, though, will be relatively small. It's around about GBP 0.6 million per annum. So while we consider that the Dear CEO letter is relevant to execution-only services, we do not consider there to be a further read-across or a wider read-across into discretionary managed services. Discretionary services, of course, involve active management of all the assets within a portfolio, with the custody or platform charges being an ancillary part of that overall more fundamental service. If we now turn to our income margins, investment management fee margins remain resilient, improving slightly to 62 basis points in the year.
I've also shown Q4 separately on the slide, being the first quarter of the combined IW&I and RIM businesses. Commission income margins declined in line with that continuing trend that I talked about earlier on towards cleaner fee-only charging structures, but is also affected by the specific mix and volume of transactions during the year. Asset management margins reduced slightly, that reflects the mix of funds and the successful growth in our multi-asset funds, which now represent an overall larger weighting of our overall funds under management. The treasury interest margin in the bottom right corner, that relates to the treasury book of the Rathbones business only, i.e., the extent of our liquid assets that are under the banking model. So it excludes the client money that's within the IW&I business currently.
Margins increased, of course, as a result of the higher interest rate environment. The overall margin was 193 basis points. Within that overall margin, if we just look at the margin on the portion of our liquidity that relates to client deposits, that margin was 141 basis points, and that's represented by the red box around the bottom right-hand corner. So if we now look at our underlying expenses, underlying cost base, underlying costs include the GBP 14.4 million invested during the year in our digital program. That brings the total invested so far to GBP 30.7 million.
As Paul referenced earlier, the launch of the new CLM system, Client Lifecycle Management system, will arrive slightly later than planned, but the overall cost remains within our existing guidance of GBP 45 million. However, the continuation of the investment into 2024 will put some downward pressure on our 2024 operating margin relative to previous guidance, and I'll come back onto that later. The cost base has, of course, been affected by inflation, but also increased headcount. Headcount has increased in 2023 as, we've continued to recruit into client-facing roles in order to, pursue, part of our growth strategy. We've also continued to resource our change in technology agenda, and we've also taken on resource in order to prepare for the IW&I integration project. We did see cost reductions.
The FSCS levy reduced GBP 5 million year-over-year. We consider that to be a one-off reduction, returning to more normal levels in 2024. Saunderson House's cost base reduced by GBP 3 million as we delivered cost reductions following client assets being migrated. However, the effects of inflation are still relevant to our outlook for the coming year, and I'll come back to that later on. I'd just like to now have a look at the statutory profit after tax, which was impacted by non-underlying costs. So those non-underlying costs were the increased amortization following the IW&I transaction, the deal execution cost for the IW&I transaction, which amounted to GBP 19.5 million.
Those are one-off costs, and the level of which was in line with industry norms for a transaction the size and nature of the IW&I combination. We also incurred IW&I integration costs of GBP 17 million, and those form part of the overall cost to deliver the integration, which we've announced previously. We also incurred integration costs of GBP 7.7 billion in relation to the Saunderson House and Speirs & Jeffrey transactions. That GBP 7.7 billion represents the final amount that will be incurred in relation to those acquisitions. The effective rate of tax increased to 34.9% due to the IW&I deal execution costs, which were disallowable, and also the increase in the statutory rate of corporation tax.
Underlying earnings per share reflects the shares issued during the year to fund the IW&I combination. EPS was also impacted by the increase in the corporation tax rate, the average statutory rate for 2023 was 23.5%, compares to 19.0% for 2022, and that equates to a downward pressure on EPS of 8p. Statutory EPS, of course, was also impacted by the non-underlying costs, which we've just talked through just previously. If we now look at the integration costs that we expect to incur as we go through the IW&I integration process, those costs, we've incurred GBP 17 million, as I've just referenced earlier. The table on the right shows the total, including that GBP 17 million, that we have announced previously.
So the total cost that we will incur to achieve the overall integration of IW&I includes the cost to achieve the integration and the related synergies of GBP 98 million, incentive awards for key employees who are key to the success of the combination of GBP 65 million, and the fit-out costs of our new premises at Gresham Street, where the combined London office will be located later this year, of GBP 40 million, which will be net of any expected lease incentives. Of that 177 million, GBP 45 million of that has been funded by the Investec Group under the terms of the combination. That was delivered via excess capital being retained within the IW&I entity at completion.
So while a significant portion of the overall cost has been funded by Investec, the full cost of GBP 177 million will be a cost to the Rathbones Group and impact the group's profit after tax going forward. And the majority of that cost will be incurred over 2024 and 2025, and a high proportion will be categorized as non-underlying costs. Despite being at a relatively early stage through the integration process, we have delivered GBP 8 million of synergies on a run-rate basis by the end of the financial year. That represents more than half of the year one synergy delivery that we committed to at the announcement of this combination. It didn't, though, have a particularly material impact on the 2023 results due to the timing of when those synergies arose.
We continue to expect the remainder of the synergies will be delivered, and integration costs will be incurred in line with our guidance that we announced at the time of the transaction. I'll now just talk about capital. We continue to maintain a robust capital base, with a surplus of GBP 134 million at the year-end, based on 2023 profits now being audited. The increase reflects the changes that have arisen in the year from the IW&I transaction, including the issue of shares, the impact of new intangible assets arising, and the overall larger size of the combined group. The CET1 ratio remains consistent with the prior year, therefore, the increase in the capital surplus is proportionate with the size of the enlarged group.
The capital surplus will be utilized in the short term as we incur integration costs ahead of the benefit of synergy realization, while maintaining our progressive dividend policy. So finally, just looking forward, with regards to, and to sum up on the factors that we've talked through just now. With regards to revenues, the Saunderson House migration will deliver increasing investment management and asset management revenues in 2024, plus a gradual recovery in advice, Saunderson House's advice revenues. We expect salary inflation to be around 4%, and FSCS levies to return to a more normal level following the reduction we've seen in 2023. We will continue to deliver the synergy benefits resulting from the IW&I combination, as I've set out earlier. And we will see the...
We'll also see the full effect of headcount costs relating to recruitment that's been undertaken during 2023, with the full year impact in 2024. With regards to our underlying operating margin, we expect the operating margin to be in the mid-20s for 2024, due to our digital investment being extended over a longer time period, and the Saunderson House benefits fully coming through slightly later than we originally planned. With regards to non-underlying expenses, we expect IW&I integration costs to be incurred, as indicated, and the increased amortization costs will, of course, continue going forward. We expect the effective tax rate to return to more normal levels of around 4-5 basis points above the statutory rate of 25%, and our progressive dividend policy will remain in place.
So while our 2024 underlying operating margin guidance is lower than previously stated due to the specific factors I've set out, we continue to expect the margin to increase to 30% or more from September 2026, being three years following the completion of the IW&I transaction, as previously set out. So our focus for 2024 is very much on delivery. Delivery of the IW&I combination of our digital program and of the Saunderson House migration, while also ensuring that we manage our cost base through strong and effective cost discipline. And with that, Paul, I'll hand back to you.
Ian, thank you. I know that was quite a lot of financial information, but there's been quite a lot going on in the group. I do hope that that was helpful and transparent. Of course, we have an opportunity for Q&A in a moment. If I could just wrap up, as I look forward, I'd very much echo what Ian's just said. Getting our digital delivery in time and on budget is a real priority, has been, and will continue to be. Of course, we have also a responsibility to make sure that that doesn't threaten in any way the migration from Investec, and there's no hint of that at the moment. That's all good, too. It's an important project for us.
At the same time, you know, if we're looking at growth opportunities, there's still an awful lot to go for in the combined group. So what we don't want to do is take our eye off the ball on all of that. And there's a lot of momentum in the underlying business as well, let alone what we hope now the Saunderson House advisors will tell you, which is they've got an awful lot more time to do proper financial planning after spending a year, a year and a half doing client migration. So we very much look forward to that. And as Iain said, I would echo very much the objectives of managing the integration very carefully. We have two great businesses, and there are some very exciting opportunities ahead.
But also maintaining a cost discipline that is also representative of the external environment we're facing, too. At the end of the day, we're very, very excited. I just wanted to mention that point. There's an awful lot to do. There's a lot of hard work ahead, and it's always a good opportunity to thank our employees as well, who have worked very, very hard. But I have to tell them this afternoon that they're having to work even harder in 2024. So plenty to do, but actually plenty of opportunities to benefit from, and we're very much looking forward to that. So without further ado, what I'd like to do is offer you all now the opportunity to ask any questions. Very happy to answer those.
Then we'll go to the wires, as it were, to see whether there are any questions. We've got some roving mics, if you'd be kind enough to say who you are and where you come from.
Hi, it's Kim Bergoe from Deutsche Numis.
Okay.
Just a couple of questions from me, if I may. The first, you mentioned how the deal with Investec is sort of going according to plan and what you thought at the time. Could you sort of mention, maybe talk a little bit about the things that have surprised you, both sort of internally in terms of you know, employees, but also externally in terms of clients and how they've reacted to it? And then secondly, a little bit more on consumer duty, and how do you see that? And how might or might not impact you, and how should we be thinking about that? Thanks.
Yeah, sure. Absolutely. It's gonna be quite a boring answer, I'm afraid, on what we're surprised. And in a way, that's probably a good thing from an investor perspective. It's certainly a good thing from a management perspective. So the level of, you know, sort of major surprises that we've seen has been, you know, next to nothing. So inevitably, there are some, you know, things that you are delighted about as well, and what I am most delighted about is the cultural fit, and how I've seen individuals from sort of both sides working together collaboratively to try and solve problems. You invariably go through that curve, don't you?
A sort of shock, and then come out the other side, you know, storm, norm, perform, all of those types of things. And, you know, there's—that's very much happening in the organization today, but there's a lot of what's coming out of that that's very encouraging to see. In client sort of reaction, I think, generally, the client reaction we get, and we've—it's been a very consistent client reaction that we've got whenever we've brought in businesses into an enlarged Rathbones Group, that they invariably ask their advisor, investment manager or financial planner: "Are you all right?
Does it work for you?" So they want continuity, and they want a view that nothing's gonna change because they've all got very busy lives, and, you know, that's generally the reaction. And the client reaction has accordingly been, nothing has changed that much, and I often say to clients, "You know, we'll try not to trouble you with all of this." So that's very much been the case. I think possibly more in the quasi-institutional space, the charity space, there's been a little more sort of, "Let's see." So maybe one or two pitches that bring up the merger as a factor that wouldn't have been there before.
But, our proposition in those spaces is much improved or, and certainly can improve further with the combination. So that's very much a temporary thing. So that's very much how we see that. In terms of Consumer Duty, I think as a highlight point, we're clearly very supportive of the principles in Consumer Duty. I think it's helped us clarify our propositions and indeed, our target markets. It's added a little bit of discipline, I think, to Rathbones, which has been built on a business model of saying yes a lot to clients, so adds a little bit of a framework for us. So we've welcomed that, and that's actually helped us portray our website in a much clearer way.
Now, Consumer Duty, of course, there are some implications of that in terms of advice fees, but Rathbones is very confident in its propositions there. We're very confident in its control mechanisms to control the quality of advice. So, you know, that's very much business as usual for us. As Iain mentioned, I think on interest rates and things like that, I think we've covered the execution-only point on that. But look, the principles of Consumer Duty have been, you know, very heavily embedded in the Rathbones and Investec wealth group for many years.
Thank you.
Hi, Alex Medhurst, Barclays. Thanks-
Hi, Alex.
-questions. Three from me, if that's okay. A couple on sort of acquisitions, Saunderson House, Investec. Firstly, I take the comment, that we expect sort of an outflow dynamic in Saunderson-- in Investec, sorry, for going into 2025. If I look at net outflows in Saunderson House post-transaction, they're, you know, well into the double digits% of the acquired AUA. Can you give us some comfort that that's, that's sort of a unique scenario, and that some of the learnings you've got from that-
... situation won't transpire in Investec?
A second question, I mean, just, it's interesting, the point on shifting from a time-based charging model in Saunderson House to ad valorem. I'm interested in that in the context of Consumer Duty and some of those pushbacks there. Have all the clients from Saunderson House now switched to that ad valorem charging? And is that the right answer for a high conversion rate in the context of that scrutiny through Consumer Duty?
And then maybe just a final one, on the wider group, you know, we've seen better markets for a few months now. Is there any indication of better activity into 2024-
Okay
... across your proposition? Thanks.
Great. Thanks, Alex. So look, I'll try and take some of the Saunderson House points. Just in terms of the outflows, yes, they are higher than we thought, and I think inevitably when you take in a business, you make some guesstimates as to what that they would be. But I'd point out to two things. Firstly, we were very well aware that there was a, you know, a competitor in the wings there, and it was always going to be a bit of an estimate as to how many funds under management that competitor would take. They've been reasonably successful, I would say, slightly more than we thought. But although it looks bad in outflows, we'd priced in quite a few of those as well.
So, you know, just as always, that's a little bit of a estimation game. Are there any learnings from that? Well, I say actually, the learnings are positive. I think the level of defense that team has been able to put up in terms of that exercise has been terrific. And actually, one of the benefits of migration, of course, is there's a lot of client engagement and client engagement is great for Consumer Duty, et cetera, et cetera. So I think that's a good learning point. I think operationally, we have some learning points, Alex. You know, did...
We did see we are effectively taking on GBP 4.1 billion of new funds, and that at some point stretched our account opening processes in Rathbones. So that's one thing to bear in mind that we will be taking forward as lessons learnt into IW&I. It's a very different migration, though, because that migration at Saunderson House was client by client, whereas this will be a much more of a bulk asset transfer, a bit like we've done historically with Speirs & Jeffrey. In terms of the pricing, I think two or three things. Clients have generally welcomed the transparency of pricing. The old Saunderson House model was one based on time, which some clients do like.
But of course, time is not very predictable, and time is very time-consuming to deliver and prove, as a lot of other advice businesses have to go through. So I think from a sort of cleanliness of operating model, it suits us, and from a level of transparency, it suits the client. So obviously, as you might imagine, we're very upfront with what all that adds up to. And actually, we've made the transition for Saunderson House clients from the old expensive fund to funds proposition to a proposition in Rathbones that actually saves clients, most clients, money. So there's a benefit as well to them, as well as the benefit that we've had to us.
So that's how I'd say to respond to those points. Your last point, I think, was on sort of client sentiment and activity. A bit early days yet. I think, as you might imagine, I wouldn't say that the retail industry, the retail wealth industry, is at the leading edge of any bow wave of change in sentiment. We tend to follow a little bit of the asset management industry flows, and they've not really seen much of a bow wave being created just yet. So that's broadly the answer, Alex, to that question. Does that answer your question?
Perfect. Thank you.
Thank you. Hi, Stuart.
Thanks. It's Stuart Duncan from Peel Hunt. I've got two questions. Firstly, it seems from reading a lot of the industry press, there's been a lot more team staff recruitment generally across the sector. Just wonder if you can sort of give us a general feel on what's happening, what's driving that? Are there more opportunities with the enlarged business? And then secondly, it's around the sort of relative growth rates of bespoke versus MPS-type solutions, and clearly, I think your flows last year were fairly broadly split between the two. But just going forward, how you think about the relative growth rates of these two different propositions, given the four distribution channels you're focusing on?
Yeah. Thanks, Stuart. Just very briefly on staff recruitment, I think maybe two points to make. I don't think our combination has put anybody off. In fact, I think, and to make the second point, I think we're about as busy as we, as we've ever been in terms of interest of, the possibility of recruiting, high-quality people into the organization, such that, we are where I would like us to be, which is in a position where we can actually be a little more choosy, in terms of who we, who we bring on. So I think it is a positive environment. Some of that, inevitably, Stuart, is driven by instability elsewhere. So you know, we are very cognizant that instability can be an enemy.
We don't see much instability now in the enlarged group, and that's what we're very much focused on maintaining. But we're in a strong position, I think, there in terms of recruitment. But obviously, you know, recruits of financial planners, I think, if you take on a financial planner from scratch, it probably takes three years for that J-curve to work its way out. So the other thing we just need to be cognizant of is obviously managing short-term profitability with that versus long-term growth, particularly when we've got our hands full with many other things. So that's, it's important.
In terms of the those growth rates, yeah, there's no question that there's a power of our bespoke solutions, but I think the most important point to say there is our business model is set up with an asset manager in the group. And what that means that the underlying margins that we can earn by having an asset manager in the group are not too dissimilar from bespoke DFM that we would get through the direct channel. Whereas if it's a third party MPS, you are totally relying on high volume, low margin.
Whereas we can see this growth in the context of our overall sort of discretionary growth and look at a quality revenue output if I look very much across the wealth and the wealth part of the business. So actually, it's about choice therefore, and as long as we can provide choice to clients, you know, through those two channels, very happy to deliver it.
Hi. Hi, good morning. It's Rahim Karim from Investec.
Hi, Rahim.
Three questions, if I may. I guess it would be remiss if someone didn't ask about remediation and risks around advice review. So if you could perhaps share your thoughts on that and generally whether you think regulatory changes is gonna intensify over the course of this year. The second question is around Vision. I mean, you've clearly stated, you know, the rebranding and how that positions in the group. Could you give us a sense of how that could evolve over time and what your longer-term ambitions are for that? 'Cause it feels like there could be a lot more that could be done with it.
Yep.
And then the third is just to go back to client attrition. Is there any kind of number or guidance that you could provide in terms of potential loss for both Investec and Saunderson House over the course of 2024, so that we can calibrate our models in that regard?
Okay. I'll let Iain come in on the Investec piece in a moment. Just very quickly on remediation. I'll just go back, Rahim, to sort of our background. And we've 100% focused on the quality of advice. And we've also 100% focused on, if there's any consumer detriment, for many, many years. So I don't see Consumer Duty or indeed, you know, recent announcements in the industry changing that focus. Our propositions are new, pretty refreshed. You know, we link billing very closely to work done. So I don't really see, you know, any remediation issue in Rathbones today. I'm very confident in our control processes around that. So in a way, we press on.
Do I see, you know, more regulator scrutiny? Well, I think we've seen some quite targeted Dear CEO letters from the regulator, which we are taking very seriously. We now have a very strong relationship. We've always had a strong relationship with the FCA, and that's got stronger through the combination. So we've always got an opportunity to sort of sense the direction of travel in that area. And yes, I think I can understand a regulator that's, you know, gonna be looking for consumer harm and act on it. So I don't think that's going anywhere soon. So, you know, no problem, but business as usual really for us.
In terms of Vision, Vision's roughly got about 130-odd advisors on the platform, and a little bit back to Stuart's recruitment question, you know, we also have a pretty busy book there, where we've got people who want to join the platform, and we can be a little choosy, because to join that platform, the advisor needs to be a DFM buyer in large part, and there's obviously a proven track record in running their own advisory business. So, you know, growing that is very easy to do with numbers, but growing it with quality is sort of less straightforward.
But in saying that, ambitions to grow from about 130 advisors to sort of 200 advisors are still out there, and we think that's perfectly achievable with the business model that we've got in Vision. It's a high-quality team, it's a strong, very welcoming platform, and its approach, again, to Consumer Duty, in my view, has been, you know, pretty close to market leading. So pleased with that. In terms of Saunderson House outflows, I think if the migration hasn't flushed out any of those, I would be extremely surprised.
So we, we're very much now in Saunderson House getting back to business as usual, and actually, with the advisor teams having much less time to spend on migration and much more time to spend on future client interaction, we could see that actually unwinding now. And I'm quite optimistic about what that business now can deliver over the next couple of years, and also, through external channels and its specialist market with, you know, city professionals, lawyers and accountants, but equally in the internal market where it's supplementing Rathbone Financial Planning. So, very optimistic and, some encouraging things going on in that, in that business. In terms of IW&I, and I think,
Yeah.
I'll leave you to comment.
Thanks, Paul. Yeah, I mean, clearly our focus is very much on defending those funds under management and making sure that we keep any further outflows of funds under management to an absolute minimum. And we've got, you know, processes in place to make sure that we do that to the maximum possible ability and help the new relationships bed down with the new investment managers. It's always difficult to predict exactly what those future outflows might be. You know, typically, we might see overall outflows through natural attrition of around about 6% or 7%. I mean, things are elevated now for the specific reason we've talked about. But if you look at closed accounts, you might normally expect sort of 3.5%-4% gross outflows in relation to closed accounts.
We're running a little bit higher than that at the moment.
And that's not, that's for sort of normal, you know, death and, yeah, rather than going to competitors, that sort of normal, normal wealth stuff.
Indeed. Yeah, normal part and parcel of the business.
Yeah.
So, we're running a little bit elevated at that. It probably will continue on into 2024 and into 2025, but we'll keep it to a minimum. We expect it to reduce over time as we go forward.
Any other questions in the room? Shelly, then I'm going to look right.
We don't actually currently have any webcast questions.
Okay.
Are there any on the conference line?
That feels like silence to me. I look for affirmation. Okay, great. In which case, can I thank everybody for their questions and their time this morning, and wish you a very good rest of day. Let's see what the chancellor says. Thank you.
Thank you.