Morning, everyone, and welcome to our 2020 half-year results presentation. Given COVID-19, today's presentation has been pre-recorded, and we'll be hosting a live Q&A at 10:45 A.M. The agenda for this morning is an introduction from me, followed by Craig running through the financials. Ian will then cover how the partnership has adapted to COVID-19 before I wrap up and look at the outlook. The first six months of 2020 has been an extraordinary period, both here in the U.K. and across the world. A six-month period of two halves, pre- and post-COVID. We began the year with renewed confidence and momentum in the business on the back of strong investor sentiment following a U.K. general election result in December 2019. We were back in the groove, so to speak, and experienced strong growth in new business during the early months of the year.
Gross inflows in the first quarter increased by 12% to GBP 4.04 billion. Given the continuing strong retention, net inflows for the period were up 9% at GBP 2.37 billion. This represented annualized growth of 8.1% on opening funds under management. Unfortunately, the momentum that was building was then interrupted by the COVID-19 pandemic, which has had a profound impact on all of our lives. Social distancing and other government-imposed measures have resulted in real changes to our normal routines. The pace of change, too, has been incredible, and we've all had to adapt rapidly, developing new habits and practices in short order. Key to our ability to react quickly has been the investment we have made over time in our technology systems, including our back-office administration system, Bluedoor.
The COVID-19 pandemic has demonstrated the real benefit of this investment, with our business being more operationally resilient, not least through greater use of electronic business processing. Our advisers have reacted with remarkable agility to ensure that they have been able to engage with clients despite the challenges presented by social distancing. By making greater use of digital channels, including webinars, video conferencing, and social media, advisers were able to provide relevant and valuable information at an uncertain and difficult time. Ian will provide more color on how the partnership has adapted later. We also accelerated the rollout of new and complementary innovations to support advisers and their clients. This included rolling out Qwil, a secure messaging tool, digital data capture systems, and DocuSign, a virtual verification process. We have also commenced the rollout of Salesforce software to our 2,500 SME partner businesses.
Despite the agility of the partnership and the organization, the difficult trading environment, together with social distancing, has naturally impacted our new business. During the second quarter, gross flows at GBP 3.22 billion were 15% lower, taking the six-month gross flow to GBP 7.26 billion, down just 2%. Despite stock market volatility and economic uncertainty, retention continued to be very strong, with net flows for the second quarter at GBP 2.15 billion, 5% lower than the second quarter of 2019. This resulted in net flows for the six months of GBP 4.52 billion, actually up 2%. Given the external environment, the outcome for both gross and net flows was strong, demonstrating the resilience of the business and the partnership.
At the outset of the pandemic, we took the decision to provide monthly updates of our gross and net flows due to the unprecedented trading environment, meaning investors had no reference point for forecasting our business flows. From this additional disclosure, you can see, however, that there was no material difference in gross or net flows month by month during the quarter. Going forward, now we are four months into this, we believe now is the right time to return to our historic quarterly market updates. The strong net inflows, together with the impact of investment markets, resulted in funds under management of GBP 115.7 billion, only marginally lower than the start of the year. Turning now to growth in the partnership.
As social distancing prevented face-to-face meetings and in recognition the difficulties many experienced financial advisers would have been facing, we decided it was right to moderate our outbound recruitment activity at the height of the crisis. Consequently, the growth in the partnership was moderated with an increase of 1.2%, taking the partnership to 4,324. Despite this more moderated growth in the first half of the year, the partnership is nonetheless 6% larger than 12 months ago. We have adapted some of our recruitment practices, including the launch of a virtual insight session for prospective recruits, as well as introducing an online introduction to wealth management, which is an accreditation course for new joiners to the partnership.
Our Academy operations have moved to an online delivery, and we are continuing to work closely with the Chartered Insurance Institute to ensure that the 379 individuals at various stages in the program continue to have access to professional examination sittings as necessary. We did, however, defer all new entrants, but these individuals will be joining in the second half of the year as the Academy is restarted. During these challenging times, it is important that we also remember the hundreds of individuals and small businesses with whom we have a relationship, including the charities that rely upon our support. I am pleased with how the corporate, our charitable foundation, and our community have responded. It is during such challenging times that the value of coming together as a community is most evident. I'm now going to hand you over to Craig to run through the financials.
Thanks, Andrew. Good morning, everyone. When I presented our full year results back in February, I explained that 2020 felt very different, and when I said that, I had no idea of the significance of that statement. Within three weeks of saying it, we were in national lockdown and having to consider scenarios that would have been almost unthinkable in the first two months of the year. Nonetheless, our financial business model is once again proving itself to be resilient in times of stress. In the next few minutes, I'll talk you through the highlights of the past six months. Andrew's already commented specifically on gross and net inflows and the partnership, so I won't repeat this. Instead, I'll comment on our cash result, the EEV result, and our capital position. I'll also cover the dividend position, which remains unchanged since our announcement in April.
Net income from funds under management grew by 10% to GBP 218.9 million. Growth has obviously been somewhat challenged by negative markets, but it has been boosted into net growth territory by strong and consistent net inflows, together with funds maturing from gestation and beginning to contribute to the results. The net AMC margin for the first six months is in line with the guidance we've given you, and this will remain the case in the next half and for the foreseeable future. The balance of funds in gestation at the 30th of June stood at GBP 39.4 billion. As a reminder, these funds are not yet contributing to the net AMC margin, but they will do so in the future.
Based on market values at the 30th of June, once they all mature, there will be an additional GBP 349 million of income annually in the cash result with no additional cost. It's worth noting, and you'll see from our disclosures, that the rate at which gestation matures increases quite sharply from 2021 onwards. This reflects the significant boost given to pension flows following pension freedoms in 2015, which resulted in a change in composition for new business in favor of pensions from that point onwards. This represents a significant store of value. The margin arising on new business has reduced by 6% to GBP 58.2 million. This is principally the result of gross flows being lower by 2%. As I've mentioned before, there is some operational gearing in this calculation because of short-term fixed costs.
This gives a benefit in times of growth and results in a cost in times of lower flows. Establishment expenses have grown by 8%, which is 1% below the amount I guided on back in February. It's worth remembering that this guidance reflected the fact that advisor numbers were some 8% higher going into 2020 than 2019. The saving we've made is largely attributable to discretionary cost reduction activity carried out during the course of the second quarter. It's also important to note that approximately 2/3 of our establishment expenses are people and property related, and therefore fixed in nature. They're also planned in advance, taking into account growth plans. Our growth expectations for 2020 have, after getting off to a very strong start, clearly been disrupted by a challenging operating environment.
At this point, it's reasonable to assume that this could continue at least for the remainder of this year. We remain committed to protecting our operations and to keeping them primed for the current demands being placed on them and for future growth. We will, of course, remain focused on reducing any discretionary costs that can be deferred or canceled altogether for the remainder of 2020 without damaging the model. For the purpose of your modeling, I would suggest you assume an overall increase in establishment expenses of 8% over the 2019 cost. Operational developments have increased to GBP 14.1 million. There have been a number of specific accelerated developments during the first half, all geared towards enabling remote working and seamless client engagement.
This included an electronic signature rollout, a web-enabled identity validation, and other developments, which were so important to ensure that business was not interrupted following lockdown. It's worth saying that these investments will undoubtedly result in long-term efficiency as well. The charge also reflects our decision to roll out Salesforce to our 2,500 SME partner businesses, which once fully up and running, will bring significant benefits in terms of client experience, business efficiency, and risk management. Some of these expenses will continue to run into the second half, and for modeling purposes, I think the best assumption to make is that the full year charge will be equal to twice the half year charge. For the Academy in April, we reported that we were confident we could complete the training and development programs that had already started, but that we were deferring those intakes that had not yet started.
This decision is reflected in costs in the first half that are down by 4%. For your models, I would assume that there are further 2020 cohorts, and I would anticipate a total cost broadly in line with that of 2019. FSCS costs at GBP 27.8 million remain an increasing cause for concern for us. Although we're fundamentally supportive of a mechanism that protects consumers, we agree with a comment made by the FCA chairman when he said that all too often, the polluter doesn't pay. The cost of bad behavior by firms which then fail is usually mutualized through the FSCS rather than borne by the wrongdoers. We welcome the goal that has been outlined by the FCA of redesigning a system to make sure the polluters pay.
The June position on tax relief and capital losses has been materially influenced by movements in the markets for the first half of the year, yet it's only the year-end calculation that actually determines a cash flow. The position in June shows a credit to GBP 28 million, but for the year-end, our range of estimates show that GBP 18 million of this is likely to reverse, leaving an actual cash flow for the year of approximately GBP 10 million. For this reason, we've allocated GBP 18 million of the June credit to a positive variance included under underlying cash, and you should assume that this reverses in full by the year-end. Asia and DFM combined have seen a net investment increase of 26%, and this reflects an underlying expenses increase of around 9%, compounded by a reduction in income attributable to the operating environment.
This is clearly similar to the experience of the group as a whole from Q2 onwards. Expense management is under scrutiny across the group. This is particularly the case in these two areas. Given short-term uncertainty, it's difficult to be precise on what the year-end outcome will be. For modeling purposes, you might pencil in similar full-year outcomes as in 2019 for both Asia and DFM. Strategic development costs of GBP 5.6 million include a cost in 2020 for reconfiguring over 2,500 SJP partner business websites. This will result in a more dynamic content and significantly improved search engine optimization. I expect the total charge for the year on this line to be equal to around twice the half-year charge.
Taking all of this into account, the underlying cash result for the first half was GBP 114.4 million, which is 9% lower than for 2019, and a very strong result given the operating environment in the second quarter. I've already commented on the tax variance, which we expect to reverse in the second half. The only charge that we expect to see by the year-end in this part of our cash result is the GBP 10 million that I guided on for back office infrastructure. Of this, GBP 6.5 million has been spent in the first half as we decommission old systems and finalize new business processes. I anticipate final costs of GBP 3.5 million to arise in the second half, bringing the total cost for the year to around GBP 10 million, in line with guidance.
Taking this into account, the cash result is GBP 124.7 million, some 25% ahead of last year. Given the predicted reversal of the tax variance, I would suggest that an increase of around 7% better describes the like-for-like position. Again, a strong result. I'll now turn to the EV result, where there are two items worth commenting on. Firstly, we saw an EV operating profit of GBP 418.7 million. This is some 10% lower than for 2019, and this is a combination of costs of the new business margin that I've covered elsewhere in the cash result. Secondly, we saw an investment variance of -GBP 329.7 million , which reduced the EV profit before tax to GBP 45 million. The EV result in any given year will always be sensitive to market conditions and to changes in the tax regime.
It's important to note that fundamentally, our embedded value remains in very strong shape, with excellent retention of some 96% and consistently strong gross inflows, both of which result in consistent growth in funds under management, supporting an EV per share of GBP 12.78 per share. Turning to solvency, our capital position remains strong. The first half has seen an enormous amount of volatility in all markets, as you'll be aware, our business is unit linked and asset matched, which means that our assets and liabilities move in sync whatever the conditions. This is largely why our U.K. life company approach of holding Solvency II capital equal to 110% of the standard formula is a strong and sustainable approach. At the half-year point, the Solvency II ratio in our life businesses was 124%, which is significantly higher than the 115% we reported at this point last year.
There are, however, two areas where we've benefited during the first half that are important to note in order to understand the like-for-like comparison. If you take these into account, both of which will reverse over time, our underlying solvency ratio remains broadly consistent with last year at 115%. Finally, I'll recap on something that we announced in April, and that concerns dividends. We're relieved that the more extreme potential scenarios that we modeled back in April haven't materialized, and indeed, there are some encouraging signs of a gradual return to a more normal life.
There is still, however, significant uncertainty for the world ahead. For this reason, the board remains satisfied with the decision that it reached in April, and we will continue to retain approximately 1/3 of the previously proposed 2019 final dividend until such a time as the financial and economic impacts of COVID-19 become clearer. In addition, the board will make one decision on the 2020 dividend in February 2021, when we believe we'll be in a stronger position to assess the impact that all of this has had on our 2020 business. We are, of course, mindful of the importance of cash returns to shareholders. We'll continue to balance this with the need to ensure the business is protected even in extreme circumstances. Overall, a strong set of results delivered in a period characterized by an extraordinary range of trading and operating conditions.
I'll now hand over to Ian, who'll give some insight into the way in which the partnership has responded to these conditions.
Good morning, everyone. I'm delighted to provide some observations as to how the partnership has responded to the challenges and opportunities presented by COVID-19 and the lockdown. To start, let's just remind ourselves that the partnership is not a homogeneous entity, but a rich, varied, diverse community of over 2,500 advisory businesses with a geographical spread ranging from Plymouth to Aberdeen and Mayfair to Lombard Street. It consists of a range of business structures, from boutique single-partner practices to multi-advisor businesses with 40 advisors and 100 support staff. We have businesses who've been with us since 1992, and we have recent graduates from our academy who have barely three months standalone experience within the business. Some of our businesses manage over GBP 1 billion of their clients' wealth, and as I've indicated, some are very much in the startup phase of building their businesses.
To the exam question, how has the partnership responded to the severe dislocation caused by COVID and the lockdown? Well, for me, it would be characterized by resilience, agility in adapting to new ways of working, and embracing technology to enhance client engagement. We have to remind ourselves of the situation at the end of March, a volatile market downturn, and the announcement of lockdown. For a while, it was scary, and this was when clients wanted to speak to their advisors, and that is exactly what happened. The immediate response at the end of March was one of incredibly high levels of client engagement, reassuring clients at the height of uncertainty, helping them to be rational and calm, to avoid making poor short-term decisions, simultaneously moving to remote working themselves and utilizing Zoom and Teams for client meetings.
Partners have continued these high levels of client engagement throughout this period. If anything, my observation is that relationships have strengthened during this period. Goodwill has been banked, value added. Internally, we've run a range of workshops and best practice sessions to assist and improve virtual presentation skills, the use of split screens, the importation of visuals and animations, forward agendas, and more creative ways of interacting. At the same time, we've re-engineered some of our own internal processes, making business easier to process. For example, the use of DocuSign. Partners are seeing clients return 47% of documents within one hour and 75% within the day. Client ID is now routinely collected utilizing the Capture app, and these all add operational efficiencies within partner businesses.
I've no doubt that we've also benefited from our previous investment in Bluedoor and the fact we were well on our digital journey. The general lockdown mood in the U.K. has meant that clients welcomed virtual meetings and wanted contact from partners who reported a deepening of client engagement during this period. It was also helpful that clients were a lot easier to get hold of and often had more time to talk about their affairs and what really mattered to them. Our younger partners have adapted very quickly, and our older partners usually have tech-savvy individuals in their support staff. COVID-19 has done a lot to accelerate the journey towards digitally supported face-to-face advice. The changes we made internally to process business demonstrated a commitment to treating this as an opportunity more than a challenge.
Now, the mature businesses have rightly spent more focus on existing client reviews during this time in the markets. I think that is evidenced by our retention figures. There's also a lot to suggest that some new business has been deferred until a greater semblance of normality returns. Traveling at the pace of the client is important. Our partners take a long-term perspective. Younger businesses have faced probably the biggest challenges in marketing for new clients. Again, there have been creative responses such as virtual client events, seminars, webinars, presentations, and more informal interactive sessions such as wine tasting. There are many and increasing examples of partners taking a potential client from initial first meeting through the full advice process and onboarding them fully as clients and doing this entirely remotely.
Interestingly, this also opens up an entirely new horizon in terms of partner reach, in terms of their own geography and referrals. This hybrid model of client acquisition and maintenance is an exciting development and outcome. What has also been very clear is the client and potential client's total acceptance of virtual meetings and consultations, and our skilled partners are becoming increasingly good at this. However, we also have a full schedule in place for the reopening of our offices, and this call today is from Lombard Street, open and ready for safe client meetings. There is no doubt that COVID and lockdown has been a short-term shock to the system. However, if there's one attribute that characterizes the partnership, it is resilience.
It is the attribute which has made them successful, and it is that, coupled with adaptability and agility, which has led to more creative ways of working with clients. As I've said, clients have proven very receptive to these meetings and themselves have been keen to take stock, think about their own mortality and life goals during this dislocation. Strategic advice is valued in times of uncertainty. As you would expect, internally, we've held numerous virtual meetings across the business, sharing best practice, as well as building a sense of community and mutual support. We are seeing a change in work patterns, greater flexibility and agility, more use of technology to drive efficiencies, and an overall positive response to the challenges, as you would expect from 2,500 small, dynamic businesses.
I hope that has given you a flavor of what has been happening over the last three months or so. I would now like to hand back to Andrew.
Thank you, Ian. It's great to see how the partnership has adapted. Some final reflections from me on the first half before finishing on outlook. As I said earlier, the business adapted very well to the extraordinary environment we all found ourselves in. Against the backdrop of empty streets, empty bars and restaurants, and empty offices, we have nonetheless achieved what, in my view, are a very good and resilient set of results. To recap, gross flows were GBP 7.3 billion and net flows of GBP 4.5 billion, the equivalent to 8% of opening funds under management on an annualized basis. Against a backdrop of lower world stock markets, funds under management were GBP 115.7 billion, just 1% lower. The underlying cash result at GBP 114.4 million was only down 9%, with the total cash result actually higher than the first half of 2019.
Let's not forget the six months embedded value operating profit of GBP 418.7 million, a measure of the long-term value added during the six months, with the embedded value per share at the half year being GBP 12.78. Before moving to the future, a couple of other comments on the first half of the year. The last four months have been a period where the value of trusted, personal, long-term financial advice has been really demonstrated as individuals have sought to navigate complex, volatile, and uncharted waters. It's during times like these that having someone to hold your hand, communicate, and provide peace of mind, as well as prevent behavioral mistakes, is worth its weight in gold. Financial advice transforms lives by helping people build well-diversified portfolios to achieve long-term goals in line with their risk profile.
In this respect, our portfolios have fared better on the downside compared with the broader markets. Advice also delivers wider benefits, such as inheritance tax planning, maximizing the use of tax allowances, and even the discovery of missing pension pots. Alongside the advice is our proposition, which we continue to enhance. In February, we appointed Somerset Capital Management as the new manager of our Global Emerging Markets Fund, and more recently, we have appointed Pzena Investment Management, Sanders Capital, and Artisan Partners to manage our Global Value Fund. We look forward to working with all of our new managers. Alongside achieving long-term financial goals, our portfolios also look to invest responsibly. As previously reported, we were awarded A+ in the latest United Nations Principles for Responsible Investment annual assessment.
We also continue to influence our investment managers to become signatories to the principles, an important step to further embed responsible investing in our investment management approach and towards our goal of helping clients achieve financial wellbeing in a world worth living in. We've recently published our first quarterly portfolio carbon emissions report, which compares the carbon footprint of our portfolios with their equivalent benchmarks. We believe it is a significant step forward in providing our clients with greater insight into their investments. We will continue to develop and shape our proposition to meet the changing future needs of our clients. Our clients value both our proposition and the advice they receive, and I'm pleased to report that St. James's Place has once again received numerous awards. A particular highlight was being voted the City of London Awards 2020 Wealth Management Company of the Year.
We have now received this award eight out of the last nine years, I would like to thank our clients who voted for us. What does the future hold? The country is slowly emerging from the lockdown. Restaurants have opened, with businesses large and small starting to open their doors. At SJP, we are phasing the reopening of our offices in measured and cautious but deliberate steps, as safety of our community and our clients is paramount. By the end of this week, we'll have opened the majority of our offices, with the remainder scheduled to open during August and early September. It is also important to remember that across the country, 85% of our partner businesses operate from their own offices, many of which are open for business.
As you've just heard from Ian, the partnership has adapted extraordinarily well, embracing new technology to manage both existing clients and build new client relationships. However, to return to normal and get back into the groove, it is important to be able to have face-to-face, albeit socially distant, meetings. As the population at large recovers from more than four months of lockdown, we anticipate a period of recuperation for the U.K. Nonetheless, from what we have experienced so far in July, we still expect the total value of new business flows for the third quarter to be similar or slightly lower in terms of value to the level of flows recorded for the second quarter.
We're then hopeful that as the country returns from the summer break refreshed and ready for a return to the office, and given the high levels of client service provided by the partnership since lockdown, that we will see momentum build through the final quarter. Overall, 2020 is set to be another year of major net inflows as our business model proves resilient in a really difficult period. Let's remind ourselves of the long-term structural fundamentals of our business model. The number of individuals with investable assets of between GBP 50,000 and GBP 5 million is large and growing.
The demographic profile of the population is also favorable, and with the demise of defined benefit pension schemes, individuals need to save for their retirement and long-term care. Individuals need to be their own actuary, investment manager, and trustee, if you like, or alternatively, find someone to assist them. This challenge for individuals is compounded by the very low interest rates, which are unlikely to increase to a meaningful level anytime soon. Planning for one's future financial wellbeing is complex and requires a skill to navigate through the multitude of rules and maximize tax allowances. We also live in a globally interconnected world, and having a trusted advisor help establish a well-diversified portfolio which meets your own attitude to risk, aspirations, and time horizon provides peace of mind.
At the same time, there is a large intergenerational transfer of wealth occurring in the U.K., which we estimate could amount to GBP 1 trillion over the next decade. All this points to the need for trusted financial advice. Here's the most interesting point. There is simply not a sufficient supply of financial advisors in the U.K. Given the number of the existing industry pool of advisors reaching retirement age, the supply will become further constrained over the coming years. A perfect environment for a face-to-face business like ours, and therefore the long-term prospects for St. James's Place remain as strong as they ever have been. In fact, I would argue that as we emerge from COVID-19, our prospects will be even brighter. For me, the need for a trusted face-to-face advisor has only grown stronger.
We have all adapted to new ways of working and embraced technology which will make us more efficient, supported by our recent technological investment. This investment not only put us in a good position to adapt to COVID-19, but also provides us with a great platform to continue our technological journey, from which the business will benefit in coming years. Recognizing the advice gap, we continue to invest in the Academy, which is now well established with 379 individuals currently in the program, the majority of whom will graduate into the partnership in the next couple of years. The difficult trading environment caused by COVID-19, whilst at the same time as increasing regulatory and PII costs, will increase the attraction of existing industry advisors joining the St. James's Place partnership. With both a savings gap and an advice gap, we are ideally placed to continue to grow.
We are therefore planning for GBP 200 billion of funds under management in the not-too-distant future. That's me finished. I will leave you with a summary of the results. Thank you for watching.
[Break]
Good morning, a very warm welcome to the St. James's Place half-year results question-and-answer session. If you would like to ask a question during the presentation, you may register to do so by pressing star followed by one on your telephone keypad. I will now hand over to Andrew Croft, Chief Executive, to chair the call.
Morning, everyone. Welcome to our conference call this morning. I hope you've all had the opportunity to watch the presentation. I've got a number of my colleagues on the line for this Q&A session, which we intend to run for 30 minutes. For the first question.
The first question comes from Andrew Sinclair from Bank of America. Andrew, please go ahead. Your line is open.
Thanks. Morning, everyone. Three from me as usual, if that's okay. Firstly, just when you look at flows across the business over the period since lockdown started to now, how has performance differed across the partnership? Has there been clear criteria of partners that have been adapting quickly or slower to the new world, or is it actually just pretty consistent across the partnership? Secondly, on the academy, can you give us some color in terms of what you expect from new entrants into the academy in the second half of 2020? Should we be expecting a bumper intake? Likewise, what are you expecting in terms of graduates over the next couple of years? Third question was just on the dividend. Just really looking at the portion that was retained for the 2019 dividend. That's about GBP 60 million. Just really wondered why retain that amount?
It seems fairly small in the group context. Can you give us a bit more color on the adverse scenarios that you feared and why that was the right portion to retain?
Okay. Thank you, Andrew. I'm going to pass over to Ian Gascoigne to answer the flows in the academy.
Hi, Andrew. Thank you. I think the first question relates to flows and whether some partner businesses adapted quicker or whether it was pretty consistent across the place. I think it's fair to say at the announcement of lockdown and the market downturn, there was some variety in terms of how partner businesses initially reacted. Some partner businesses very quickly to adapt, took it as an opportunity, drove forward, didn't miss a beat, and have shown growth over the period. Other businesses, slightly longer to adapt, to come up to speed with the technology and what's required, and the kind of psychological acceptance of how to respond to situations. It's not consistent across the community. It'd be unfair to say that. I would say that three months in, best practice is emerging.
It is becoming more the new normal. Businesses have adapted very well through sharing with each other best practice and basically responding to client requests and meetings as appropriate. On the second point on the academy, I think the numbers are about 340 academy students in play at various levels of the process and who will tend to graduate over the next 18 months or so. When we reopen the doors, we will be reopening the doors at the normal rate of digestion. We don't expect a bumper. We're not going to double the size of the academy in the final quarter or new joiners. What it may well do is the pent-up demand might actually have an impact of allowing us to be more selective in the quality of people who come into our academy. That would be my feedback on the academy.
I'm just going to pass to Craig for the dividend.
Yeah, the question on the dividend. The decision to retain the amount that we retained was a balanced decision that took account of the potential need to support the wider business in the event that certain, again, potential extreme scenarios were to manifest themselves with the need to make sure that we maintain shareholder returns. The description of the GBP 60 million was modest. I think the reality is that combined with the resource that the Group has, was sufficient to make sure that we are in a position to make value-added long-term decisions in the event of a very extreme shock to the Group. Those conditions haven't manifested themselves, there's still a lot of uncertainty ahead. Really, that decision goes back to the work we were doing in March, April, when we first made the decision.
Thank you, Craig. Can we have the second question, please?
The next question comes from Jon Hocking from Morgan Stanley. Jon, please go ahead. Your line is open.
Should we look at 2020 as a year where both through the academy and experienced hires, we're going to see a below normal level of recruitment, and then we'll get back to the usual 7% or so expansion in 2021? That's the first question. Secondly, I'd be interested in an update from Ian in terms of the behavior of the partnership in terms of signing up new clients. Clearly, the retention has been very strong. It's seeming it's harder to get new relationships at the moment. If you could give some thoughts there, it'd be appreciated. Finally, in terms of central cash and dividend upstreaming, I noticed that the liquid assets had come down about GBP 300 million or so from the full year.
Given that you're going to make a single payment of the dividend next year, are you going to continue upstreaming from operating entities as usual? Are you going to wait and do that later than would have been normal given the environment? Thank you.
Okay. Thank you, Jon. I'm going to pass over to Ian again on the recruitment and new client experience.
Yeah. I think it's fair to say that net manpower growth this year will be below our normal range of what we've experienced, and I would suspect that going forward, we'll revert to a more normal range of recruitment next year. This year, it's fair to say we don't anticipate the 6%-8% that we've been experienced over the last four or five years. In terms of new clients, this is the interesting dynamic. The good news is obviously that people can have face-to-face meetings again, and we've got COVID-secure offices. That moment in time where you couldn't see people face-to-face has passed. It is clear that partners have through the use of technology, discovered ways of engaging with people through the whole process and onboarding them as clients without physically meeting them. Some partner practices are doing this incredibly well.
Others have taken a bit longer to come to terms with that way of working. Some partner practices don't see that as appropriate way of working. Don't forget there's 2,500 different business models working with clients in their own particular way. Some work with referrals and existing clients far more than a model where they would be onboarding clients who they've never met.
Thank you, Ian. Again, I'll pass over to Craig for the dividend upstreaming.
Yes, Jon. I think the figure that you're referring to is the Well, included within it is the GBP 810 million of fixed interest. Sorry, the investment in collective investment funds. Actually, it's unrelated. A lot of the movement in that line, both up and down, tends to be caused by different types of settlement in and out of the underlying funds. What we've seen during the first half was quite a sizable input to those funds in the form of the equivalent of tax credits. Really what you're seeing there is the normal mechanics of working capital within the Group. Turning to your question, the way in which cash flows within the Group from the operating subsidiaries, the operating regulated subsidiaries into top co, if you like, for onward use and distribution will remain unchanged. There'll be no change that we would see there.
Thank you, Craig.
Thank you.
Can we have the third question, please?
Our third question comes from Andrew Crean from Autonomous. Andrew, please go ahead. Your line is open.
Good morning, all. Three questions if I can. Firstly, looking at your controllable cost per average advisor, they're still growing 6%, which is in line with the long-term average. Do you see with the advent of Bluedoor that you can get this growth rate down to more like inflation rates? If not, why not? Secondly, has the last six months caused you to reflect at all upon having a small loss-making business halfway around the world? What is the future, as you see, in the Asian business? Thirdly, could you comment on the average initial charge both in life and pensions and in unit trusts and ISAs compared with the 6% and 5%? I think at one point you said it was down to about 2.9%. Is that still true?
Okay. Thank you. I'm going to ask Craig to pick up the first two, and I'll probably come on Asia as well. Craig, do you want to pick up the first two on expenses?
I think it's fair to say that we would always have an ambition to reduce the controllable cost per advisor if you use that optic to look at the P&L account. I'm not sure, though, that Bluedoor would be the answer to that. Bluedoor is a back office that is certainly scalable. It's been worth its weight in gold over the last few months with lockdown and the need for electronic exchanges of information rather than paper exchanges. I think the answer is likely to come through the normal economies of scale that you would see. It's important to remember that a lot of the benefit that we've had from Bluedoor has already appeared within the cash result because the inefficiency of running the old systems was posted below the line, and now those old systems are being switched off.
That will no longer appear there. I think it's important to bear those costs in mind that have already exited with only GBP 6.5 m illion below the line for the first half. The other thing I will also say, Andrew, which I think is relevant to the question, when we plan our expenses, we do so based on growth plans. This half year is actually quite extraordinary when you think about it, because if we'd have taken a snapshot view of where we had very strong belief we were headed, say, mid-February, you would see a fundamentally different outcome to the one that you perhaps would have seen if you took the same snapshot in April. It was one of those half years where the first quarter was one of real acceleration, and then we all know what happened in the second quarter.
Sometimes there is a need to plan for some of these costs, which are fixed in nature, in order to accommodate growth that you believe you can achieve, whether that growth is expressed through the size of the business in terms of the number of advisors or the profitability within that business. Asia. I'll start with Asia from a financial position. I think it's fair to say that this is the second tough year that Asia has had in terms of the operating environment. I think in the last presentation I did, I expressed some disappointment that we hadn't gone at least embedded value neutral on those businesses. The root cause of that was something that we understood very clearly. This year has been very much the same.
I would view Asia really as a microcosm of the wider group, but it's a microcosm that doesn't have the benefit of 28 years of trading behind it. Therefore, the moment you do get any kind of deviation from a planned level of income, the cost base exposes itself in a way that the group wouldn't necessarily do so.
Yeah, look, I think I'll just add there, if you look at the performance of Asia for six months, new business is up 22%. We now have SJP funds under management of around GBP 1 billion. We're building critical mass there. It's all about making sure that business now becomes efficient, now it's got critical mass. The investment will reduce over time and then start becoming positive. I'm going to pass over
Do you remain committed?
We remain committed, yes. I'm just going to pass over to Ian on the sort of initial charge question and also why there would be differences as well.
Hi, Andrew. Yeah, as you know, the initial advice fee is agreed with the client through the customer agreed remuneration process. Depending on the complexity of the case, the client will agree the initial advice fee. In terms of unit trusts and the bid-offer spread, that also includes our ISA portfolio, and it's hard to argue that ISAs are a complex financial planning issue. Partners, in conjunction with conversations with the client, often do that for far less than the bid-offer spread. In terms, some partners will actually give advice on ISAs at no initial charge. The range across the portfolio is under 3%. It's actually between 2.5% and 3% on an average for that portfolio of our business.
Okay. Thank you, Andrew. Can we take the fourth question, please?
The next question comes from Andrew Baker from Citi. Andrew, please go ahead. Your line is open.
Hi, guys. Thanks for taking my question. Three from me. Just first back on the dividend, can you just remind me of the intent for the retained 33% of the full year 2019 dividend? Is the intent to return this at a later date? Also, as we think about 2020 dividend, is 80% of the underlying cash result still the guidance to be thinking about there? Second question is on, are you expecting any impact on flows from the FCA's change in the DB to DC charging structure? Finally, are you able to give an update on whether you've seen any increase in underperforming or non-performing partner loans in the first half? Thank you.
Okay. Thank you for your questions, Andrew. I'm going to pass the dividend and underperforming one to Craig. It's quite good chairing these meetings, isn't it?
The way I think we would see the retained dividend is the same today as it was when we talked about this last back in April. Yes, we do see this as a retention, and it's an amount that we expect to retain until we are clear on what the final impact on the group is of the conditions that we all find ourselves in at the moment. That is unchanged. The part B of your question was on the guidance. What we've said, just as a reminder, is that typically we would expect to distribute approximately 80% of underlying cash. We haven't changed that.
The only rider I would put on that is the one that we always put on it, which is that is the core approach that we would take. We would always take into account the results for any given period. Critically, we would take account of the outlook at the point at which any dividend decision is made. I suspect that's exactly the same answer as I would have given this time last year and the year before that. Again, there's no change there. The third bit was on a question of underperforming partner loans. The short answer is no. There's been very, very little movement there. Actually, if you stand back and consider why that might be, well, it's for the same reasons really. We have strong security, but that's not really what drives that outcome.
What drives that outcome is the underlying success of the business. When you look at the sort of cash result that we're posting at the moment, that shows that there is underlying success. That underlying success is replicated across the businesses that have taken out those loans. We're in good shape.
I'll answer the question on the DB change. Look, I think firstly, it's important to remember that doing a DB transfer is not right for everyone. In many cases it would not be the right advice, but in other cases it most definitely is the right advice. Not all of our partners are licensed to do this business. We have a high bar for acceptance. All business is pre-approved by our business assurance team, which is independent to the partnership anyway. A very high bar. Most cases that go through business assurance will be approved. Do we expect there to be an impact? I'm sure there will be a small impact on this, but we don't expect it to be a large impact.
I've also got Ian MacKenzie, who looks sort of after the advice guidelines on the call, and I might just ask Ian if he'd like to add anything to that.
No, thanks, Andrew. I think that covered it quite well there. In terms of where the partnerships are and the feedback we're getting from our advice policy perspective, is that the changes will be embraced. Indeed, some partners who are specialists in this area see the changes increasing the demand for the specialism. Because the advice and the decision to consolidate your DB pensions into a DC environment is for many of our clients we're talking to, the right advice for them and the right thing to do. I would hazard a guess that a number of people on this call probably have done it as well and have been down that journey. It is appropriate financial planning, wealth management advice. The partners are looking to embrace that going forwards within the new constructs.
Thank you, Ian. Could we go on to the fifth question, please?
The next question comes from Colm Kelly from UBS. Colm, please go ahead. Your line is open.
Thanks very much. Morning, everyone. First question, just on margins. You commented on the net income cash margin on the average mature funds under management was within the guidance of 63-65 basis points. Would you mind just telling us if the exact number for 1H is, it's just that the number I roughly calculated is falling slightly outside of that range, although clearly I've less information to work with. The second question is on advisor growth. Clearly, this year will be a bit tougher for advisor growth, even though the numbers are quite robust at half year. Do you think COVID-19 might help accelerate advisor growth in future years, given it has enabled SJP to showcase its digital capability and the value of the platform to non-SJP advisors? Be interested in comments there.
Lastly, on recent press articles commenting on incorporating more passive funds within the fund offering. Just wondering if you could update on this. I suppose the current investment management process and selection process of actively managed funds is quite a core competitive advantage of SJP, is somewhat differentiated and very central to the client value proposition. Be interested in comments around any potential incorporation of more passive funds into that offering. Thanks very much.
Good. Thank you very much. I'm going to pass the margin question over to Craig.
Yeah. Colm, we weren't planning on disclosing the actual margin at any half year interim point. You'll be pleased to hear, though, that we did so last year for the full year, and we will do so for the full year for 2020.
The amount, as I've said in the presentation, was within that range for the first half. The cluster of estimates that we had when we were gathering consensus was actually reasonably tight. I'm pleased at the very least that the guidance we gave has enabled people to have a pretty good estimate of the income for the first half. I have to say that's particularly credible given the level of volatility we've seen within funds under management. That's probably what I would say on that.
Okay. Thank you.
Hi.
Ian, do you want to pick up the advisor recruitment point?
Yeah. Hi, Colm. There's two or three things on this. The first one is, during previous market dislocations, there is absolutely a flight to quality. We are seeing inbound calls from people wanting to hear a little bit more about SJP's proposition, particularly how we've adapted during this period. That's very positive. The second is that we can afford to be more selective. I think the issue of quality going forward is more and more important than ever before. It always was important, but I think we can afford it to be higher up the hierarchy now, so we can be far more selective. Finally, there is a slight issue in the industry in terms of selecting people who are appropriate for our business and their own back catalog and their own back book of business might contain advice and issues that we're not too happy with.
We have to turn them away. There's lots of dynamics in there. Coupled with the success of the Academy and the success of our being able to place advisors in our successful partner businesses, I think that the future is quite positive in that respect.
Thank you, Ian. I have Rob Gardner, who looks after our investment divisions. I'm just going to ask Rob to answer the question.
Thanks, Andy. Hi, Colm. Look, a couple of things to kind of set the context. I think the first thing is that on the passive, I was misquoted in the press. Let me sort of articulate what the plans are. When I joined, one of the things I wanted to do was ensure that we have enough capacity in our IMA to ensure that it's never a constraint for growth. We've built a capacity model out to 200 million, 400 million, 600 million and beyond. As you know, based on our flows and our growth in our markets, over the medium to long run, we will grow to 200 billion. Managing capacity in our fund is key. To put it into context, SJP as an asset owner is one of the largest asset owners in the U.K. and is the same size as Texas Retirement.
Really trying to think like a long-term asset owner. The second big drive that you will see from us is to position SJP really as the leading wealth manager in the U.K. around responsible investment and ESG. The key move this year was to increase our fund managers all being signed up to the UN PRI and the release of our carbon footprint. Going forward, we're going to have four global equity building blocks. We've got our Global Value one. We're going to re-profile and have Global Growth, and then Global Quality. The new fund is going to basically be a low cost, but I'll come back to what I mean by low cost, RI integrated, but low carbon. A key thing within ESG is how do we lower the carbon footprint of our portfolios?
Our global equity funds have about half the carbon footprint of the MSCI, our goal is to continue to be able to, for clients who want to kind of flatten that carbon footprint and demonstrate that their financial wellbeing in a world worth living in is going to deliver in line with the Paris Agreement. Then in terms of asset management, this is not passive. We're using a technique called systematic, which is really using algorithms and AI and machine learning. Because of our size and scale, we can do this for about 10- 15 basis points. The average external fund manager fee is about 39 basis points. I suppose the so what in all of that is that that is not passive in my mind.
That is high capacity, low fee, low carbon fund, and that's the fund that was being talked about in the press.
Thank you, Rob. I'm conscious of time, we'll try and take two more questions. Could we go to the next question, please?
The next question comes from Abid Hussain from Credit Suisse. Abid, please go ahead. Your line is open.
Hi. Morning all. Thanks for taking my question. I've got three questions, if I can. I know you're pressed for time. The first one is just on the client interactions. I was just wondering, during July, have you seen increased willingness for clients to take face-to-face meetings or even transact virtually? Just sort of more color on what you've seen since the easement of the lockdown, please. The second question was on your operational leverage. Thank you for the guidance on the 8% growth on the operational expenses. I was wondering if there's anything that you could do further or is there potential to reduce that expense growth
Below that, given the upturn on flows might not be as robust as we would like in the second half. The final question is on the fund performances. Could you just give us an update or any color if there is available on the individual fund performances versus your benchmarks on, say, one-year, three-year, or five-year basis, please?
Okay. Thank you, Abid. I'm going to ask Craig to pick up the operational gearing point. Of course, part of the expenses is to do with growth in adviser numbers as well. We get interconnected questions here, Craig.
Andrew stole my first line on that. The question is quite specific, though. Is there something we can do? There's always something you can do, but there is then a question, should you do it? I would estimate over 2/3 of our cost base is sort of fixed in nature. It's property and people. The overall framework that we have, which you see reflected in establishment expenses, is all geared towards supporting the business as it stands today, but also accommodating the future growth, which we've consistently achieved. The challenge here is always to reflect on the cost base, but to ensure you can see through to the other side of whatever particular problem you may be faced with. At the moment, I think we're all very clear that the next few months, and it could be the next six months, look very uncertain.
Every time we've experienced something like this, whether it's this type of crisis or a financial crisis, there is another side. You need everything in excellent shape in order to benefit from that. I think there's a short-term and a long-term answer here. The way we see things at the moment, there's another side to this, and therefore, the guidance I've given remains the case, and that's 8% growth year-on-year with some benefit from the previous guidance I gave to reflect the fact that there is discretionary expenditure that can either be delayed or canceled. There's then a long-term question. I can't really answer the long-term question. Needless to say, if something were to happen that really raised a question over that long-term growth potential, then we're no different to any other business. Yes, of course, there are things that could happen.
Thank you, Craig. I'm going to pass to Rob again just on the fund performance point.
Yeah. Hi. With nine portfolios, 39 funds and 70 sub-strategies, I don't think I'm going to do the one, three and five-year performance. I think a key thing to note is the average client with SJP invests in eight to 10 funds. Those eight to 10 funds are designed to meet the goals within the risk tolerance of that client. Remember, the key thing to financial advice is making sure the clients have a global allocation of equities, bonds, and properties around the world. Now, our funds that are global and growth-oriented have done very well. You all know that in the last five years, 2/3 of U.S. stock market performance has been driven by just the FANGs and Microsoft. The U.S. market makes up over 50% of global stock market returns.
Our U.K. managers that have a bias towards value have done poorly, but they have done in line with what we'd expect because they're U.K. and they're value-based. Our alts, our alternative funds on our platform, again, haven't fared as well as we would have liked. They're funds that we're working on. At an overall level, and when we think about our funds in terms of the funds under management, our global growth funds have done very well in absolute and relative performance. Where we've got overexposure to U.K. or value, they've underperformed over the last five years. That's in line with the benchmark that we set those by managers.
Thank you, Rob. Ian will pick up the client interaction point on fully gearing partners.
Yeah. Hi, Abid. I don't want to generalize here, but I think there's some interesting dynamics going on in the kind of psyche of clients at the moment. At the end of March, during the start of lockdown and the market correction, I think there was a lot of anxiety amongst clients, and levels of interaction with their advisors was high. I think if we go forward now, I would characterize clients as being far more reflective and are open to deeper conversations with their partners about their own life goals, wanting to be more organized and actually, what I would call a more reflective phase in this kind of weird world we're living in. They also have their own personal risk appetites in terms of whether they want to meet their partner remotely through a Zoom call or actually face-to-face.
Partners are reporting high levels of desire for meetings, and some clients are more than happy to have those meetings face-to-face with clients, obviously with social distancing, but in terms of wanting themselves to have those conversations, they're keen to do it.
Thank you, Ian. We're sort of over time, but we'll take one final question, please.
The last question comes from Oliver Steel from Deutsche Bank. Oliver, please go ahead. Your line is open.
Gosh, just squeaked in before the bell. Thank you for taking the question. I'll keep it to two. The first is your new business margin, the one that goes through the cash results. It was down 6% year-on-year against a 1% fall in gross flows.
I'm sort of surprised that it was down because last year you said that the ratio, the margin between the two effectively was down because of a fall in new business. There was new business much more level this year versus last year. I'd have thought then you should have actually seen that ratio dip, or you should have seen a rising new business margin, not a falling one. Second question is on the growth in the agency numbers. Is that 1% year-to-date? Are you still seeing a circa 5% per annum retirement rate out of the older partners? Have we seen a sort of slight mix shift towards younger, less experienced partners implicit within this calculation?
Okay. Thank you, Oliver. I'll pass to Ian first to do the growth in the agency and then leave Craig to finish.
Yeah. Hi, Oliver, well done on just making the cut there. I was pleased to hear your voice. In terms of the recruitment, we're not seeing any real trends of early retirements or older partners jumping off at the moment. We're not seeing that. We are seeing a greater number of youthful professional people wanting to come into the business. As you know, the academy and next generation has produced some great candidates and has been a driver of growth over the last three or four years for the business. I think next year will revert back to normal growth levels. This year it just didn't seem appropriate to be very active in recruitment at the start of the COVID period.
Great. Thanks, Ian. Craig, do you want to just pick up the operational gearing point in the new business margin?
Yeah, that's exactly what it is. Hi, Oliver. It is that operational gearing point with certain costs that are predetermined and therefore what I'd describe as short-term fixed costs. With a 2% fall in gross flows, you begin to get a nonlinear comparison to some of the fixed costs that go into that calculation before any new business is written. It's always the case that in periods where you have lower flows than you anticipated, that will be a cost. For many years it was a benefit, but not clearly visible because obviously both sides of that new business margin are very large figures.
Thank you. I'm going to draw it to a close, everyone. Thank you very much for coming into the call. I think it's probably a bit of a new experience doing an investor presentation and call like this, so thank you. Also, apologies for anyone that had some questions and we've run out of time. Do please contact Hugh or Tony with any outstanding questions, and we'll get back to you. Thank you, everyone.