Good morning and welcome to our full year results presentation. 2022 was undoubtedly another extraordinary year. After a positive start, macroeconomic and geopolitical conditions across the globe quickly deteriorated and indeed deepened as the year progressed. We had to contend with high inflation, rising interest rates, and the conflict in Ukraine, which combined to create a challenging backdrop. In the UK, this was compounded by political uncertainty. Despite the challenging environment, 2022 marked the second-best year for new business flows in St. James's Place history.
I will recap on these flows, then hand over to Craig to cover the record financials before returning to provide an update on our progress during the year. Turning to flows. Our figures flank the strength of the business model and highlight the fantastic job our advisors do to help clients create the futures they want.
During the year, our advisors attracted GBP 17 billion of new client investments, making 2022 our second-best year for new business. There are a number of reasons why we've been able to achieve this despite the difficult backdrop, but by far the most important of these is our fully advised business model. The partnership has always focused on helping clients achieve their long-term financial goals by making long-term financial plans and long-term investments. Even though the environment deteriorated as the year progressed and challenges for savers compounded, our new business held up well.
Our advisors have worked hard to help clients understand the current environment and the importance of remaining focused on their long-term financial goals despite short-term pressures from high inflation and the cost of living crisis.
This has ensured retention rates for client investments have remained very high at above 96%, contributing to net inflows of GBP 9.8 billion. This is equivalent to 6.4% of opening funds under management. The support and advice we deliver creates real value for clients, which is referenced in research from the likes of Vanguard, Morningstar, and the International Longevity Centre. This advice helps clients to feel confident in their futures. The stability of our net flows contributed to funds under management closing the year at GBP 148.4 billion.
Taking a step back, how are we faring against the 2025 business plan flow assumptions we first set out two years ago? Well, on a cumulative basis, we're ahead of where we might have expected to be at this stage of our journey.
We built on an exceptional 2021 with another strong flow outcome in 2022. We've always said that progress will not be linear, but we remain confident in our business and committed to our plan. As for funds under management, our goal remains GBP 200 billion. We know that markets can give and markets can take, and last year they presented a stiff headwind, but they're off to a good start in 2023.
2022 was another good year for flows for SJP, a testament to the partnership, our people, and the fundamental strength of our business model. Let me hand over to Craig to run through the financial results. I will come back to cover our other 2025 business priorities.
Thanks, Andrew, good morning, everyone. As Andrew said, I'm gonna run through some of the key results for 2022, in so doing, I'll look at the cash result, embedded value, IFRS, and solvency. First, the cash result, I'll start by commenting on the all-important net income from funds under management, which grew by 5% compared to 2021. Given the shape of the markets during the year, this may seem counterintuitive, it reflects a growth in average mature funds and includes in excess of GBP 40 million from maturing gestation balances which contributed to the result for the first time.
The margin on net income from FUM remains within the 63-to-65 -basis points guidance that we've given previously. As this is a post-tax margin, it'll be impacted by the increase in the main rate of corporation tax from 19% to 25% on the 1 April 2022 . This means that the margin will move to a range of 59- to- 61- basis points for 2023. Many of you have already factored this into your models, for the avoidance of doubt, this change is solely tax related. Of course, a furthermore modest impact will be seen in 2024 when there'll be a full year effect.
Funds in gestation awaiting maturity at the end of the year stood at GBP 45.5 billion. As Andrew's already commented, retention remains strong, this is of course a number that moves with market values. For illustrative purposes, if the full gestation balance were mature today, it'd be contributing over GBP 380 million a year to the cash result, free of course of any additional cost. This is a very significant store of value for shareholders with highly visible future emergences of cash. Our margin arising on new business for the year was GBP 122.4 million.
This is a 16% reduction compared to 2021. There are two main factors at work here. Firstly, the reduction in gross inflows year-on-year, and secondly, the higher allowances based on productivity for 2021, which was exceptionally high. Controllable expenses of GBP 277.9 million for the year are up 5% in line with plan and guidance.
It's critical that we balance the need to manage our controllable expenses in a disciplined way with the need to invest in the business to support long-term growth. This includes making sure we continue to invest in technology in order to capitalize on the material transformations that we've already completed and retain the talent that we have in the business. In view of this, we expect to contain growth in controllable expenses in 2023 to no more than 8% on a pre-tax basis.
On a post-tax basis, this translates to around 2%, the equivalent of around GBP 6 million in the controllable expenses line in the cash result for your models. You'll recall that around half of our controllable expense base relates to people, so professional wage inflation is the biggest single factor in our planning for 2023.
Inflation, of course, impacts on many other expenses, too. You'll also recall that if you stand back, well over 2/3 of our total expense base varies in line with business volumes or with equal and opposite income. This will continue to be the case. Furthermore, beyond 2023, we remain committed to our target to contain growth in controllable expenses to no more than 5%. We will need to see how inflation develops as the year progresses.
Our business in Asia has experienced the same market and economic challenges over the past year that we've seen elsewhere, and it's taken longer to pull out of pandemic restrictions, particularly so in Hong Kong. Consequently, although we're slightly behind on our cash result target for 2022, we're naturally further behind on the value of our funds under management.
In order to ensure a continued positive trajectory, we've taken decisive action in our Asia cost base to position for the future. As a result, there'll be some restructuring costs for Asia in 2023. That means we expect total net investment to be around GBP 14 million. Following this action, we continue to expect our Asia business to break even in the cash result in 2025, and we continue to see this as a great strategic asset in a very exciting part of the world. Our DFM business has delivered a result in line with guidance, and it remains on track to break even in the cash result in 2024.
As a reminder, DFM would experience a sharp reduction in costs in late 2023 and 2024 when we will have completed the DFM back-office rebuild, which is being charged to profit as the expense is incurred.
For 2023, we expect net investment of around GBP 8 million. Turning next to the FSCS levy and regulatory fees, our expense of GBP 40 million for the year was 6% up on 2021. Within this, our FSCS charge fell modestly to GBP 27.3 million, driven by reduced industry levy costs for the year, but offset by an increase in our market share. This means that we take a greater share of a reduced pool. The FSCS have announced that industry levy rates will fall again for 2023 across the classes where we contribute.
Our cost will, of course, depend on our market share, but we estimate the charge for 2023 could be in the region of GBP 15 million. This is clearly positive for 2023, but it's likely to revert back to previous levels in the future, since the reduction is a function of accumulated reserves being used rather than a reduction in cases needing compensation. We've always earned shareholder interest on investable cash components of working capital, predominantly held within the life companies. These are not client-related balances, but part of working capital, regulatory capital, and of course, shareholder funds.
The reality is, though, that the very low interest rate environment in recent years has meant that this has contributed minimal amounts to the cash result. The increase in the base rate from a quarter of a percent at the start of 2022 to 3.5% at the end of December means shareholder interest is far more significant in 2022, contributing GBP 15.9 million.
For modeling purposes, if the current base rate of 4% were to hold for the rest of the year, we estimate that shareholder interest could land in the region of GBP 40 million-GBP 50 million. If you step back from the financial dynamics of the business, this serves as a helpful in-year foil against inflationary pressure in the cost base. Tax relief from capital losses was GBP 20.7 million for the year, significantly ahead of where we expected them to be, some GBP 6 million higher than consensus.
It's largely a positive consequence of the market conditions that have impacted negatively elsewhere in our cash results. The high level of utilization in 2022 means the remaining stock of tax relief from capital losses stands at GBP 2.1 million.
We expect to use this remaining stock in full in 2023, after which point it will no longer be a factor in the cash result. In line with guidance, miscellaneous charges are some GBP 4 million higher than 2021. There's been an excellent post-COVID resumption of fundraising activity across our community for the SJP Charitable Foundation, which as usual, the business has matched. As I flagged at the half year, we've also seen the impact of having to reflect mark-to-market reductions in certain assets held on our balance sheet, the value of which move with markets.
Taking all of these items into account, our underlying cash result for the year was GBP 410.1 million, which is 2% up on last year. With nothing below the line in 2022, the overall cash result was also GBP 410.1 million, up 6%.
This is a record financial performance delivered in a very challenging operating environment. On our terms of embedded value, where there are a number of items that are worth commenting on. Firstly, the unwind of the discount rate is up 60% at just over GBP 440 million, driven by the increase in interest rates that we've seen. Secondly, as I mentioned at the half year, following a number of years of very strong retention for unit trusts and ISAs, we were required to book an operating assumption change, which is included in the GBP 210 million positive change that you can see.
These longer periods of investments are very positive for the business. The investment variance of GBP 1.3 billion is driven by market movements, and it's a feature we're used to seeing in EEV when the market's full.
Indeed, we experience the reverse when markets strengthen again. The economic assumption changes of GBP 235.1 million in 2022 are larger than we're used to seeing, this is due to the significant increase in long-term interest rates during the year. Together, these factors have driven an EEV profit after tax of GBP 371.4 million. The EEV NAV per share at the end of the year was GBP 16.66. I'll comment briefly on IFRS, only really to note that the change in IFRS profit before tax is almost entirely attributable to policyholder tax movements, which don't necessarily reflect the economic interests of shareholders.
IFRS profit after tax, however, is higher due to the increased cash results together with other positive IFRS timing differences. Moving on to solvency, there's no underlying change in our approach, which remains prudent and sustainable for our business model. At the end of the year, our solvency ratio for our life companies stood at 130%, which is materially ahead of our approach of holding 110% of the standard formula. This is largely attributable to the mechanics of the equity dampener and other positive IFRS timing differences, which in our capital planning, we assume will reverse over time.
I'll comment on the dividend. The board has proposed a final dividend of GBP 37.19 per share, bringing the full year dividend to GBP 52.78 per share. This is in line with our guidance and reflects a payout ratio of 70% of our underlying cash results. Well, that's it for the financials. You can see a summary of the guidance I've given during this presentation on the slide. We're pleased to have posted record results on our key metrics despite very challenging conditions. Back over to Andrew.
Thank you, Craig. These record financial results in a tough year clearly demonstrate the fundamental strength of our business model. For the final part of today's presentation, I want to spend some time talking about the operational and strategic progress we made last year, as well as about the power of partnership and why this makes me more confident than ever in the prospects for our business in the years ahead. By now, you'll be familiar with the six business priorities that underpin our 2025 ambitions.
I'll start by providing an update on these, except for continued financial strength, which Craig has just covered. Let's start with building community. A thriving SJP community is critical to supporting great outcomes for more and more clients. We're delighted to have welcomed a net 137 advisors into the partnership.
Some has experienced financial advisors and others who are new, having completed our academy program during the year. The academy has helped us attract a broader range of clients to SJP, a point I'll come back to shortly. Beyond growing the partnership, which remains key to our ongoing success, having a thriving community within the partnership is also about ensuring we're using our scale and capability to help advisors better achieve their own ambitions.
We've made increasing use of technology to build on-demand content and innovative learning modules that complement more traditional training methods. This is additional to a whole support suite for partner businesses and advisors at various stages of their development. From those in our growth and development cohorts who have identified areas where they would like to improve through to those who seek bespoke consultancy to help their businesses go from strength to strength.
We want SJP to remain the best place to be a financial advisor, and we feel this focus on delivering great support and development is another factor that sets us apart. Being easy to do business with is a program of work that will help us optimize and streamline what we do and how we do it. In 2022, we made further progress on the technology journey that underpins much of this. Having rolled out Salesforce across the partnership in 2021, our focus in 2022 was enabling every practice to fully embrace it.
We are excited by the potential of Salesforce and look forward to the full benefits being realized over the next few years as we increase utilization and further enhance functionality. Much like Bluedoor, Salesforce is a broad enabler across the business.
One specific example is our new client app, which launched in the year and enables clients to see the value of their investments in real time and have easy and secure access to their information. The app is built using a Salesforce platform, which means that over time we'll be able to upgrade its features so that clients can better engage with their advisors. Next, delivering value through the investment proposition. 2022 was another important year for our investment team as they continue to evolve our proposition to ensure our advisors continue to have the tools to help drive great client outcomes for the long term.
The launch of our Polaris range of unitized fund of funds for clients in the accumulation phase of saving is a good example. This range of four diversified portfolios is simple for clients to understand, and they benefit from automatic daily rebalancing, making it easier for them and their advisors to maintain target asset allocations over time. This range neatly complements the unitized in retirement deaccumulation funds we launched in 2020. Our focus on delivering value extends to the work we are undertaking as part of the FCA's Consumer Duty, which comes into effect at the end of July.
This is a significant step forward for our industry, raising the bar to ensure businesses deliver good outcomes for clients. We naturally welcome the reform. There's a clear crossover in how we manage GBP 150 billion of client assets and how we can create positive impact as a leading responsible business.
Climate change is one such area. As a signatory to the Net-Zero Asset Owner Alliance, we set an interim target to achieve a 25% reduction in the carbon intensity of our funds under management by 2025. I'm pleased to report that we've already exceeded this target. Our work doesn't stop there. We'll continue to work with all of our fund managers to ensure we make further progress in the years ahead. Another key element in being a leading responsible business is having a positive impact on the communities in which we operate, both here in the UK and overseas.
It's why I'm proud of the generosity and commitment of our community to the St. James's Place Charitable Foundation. In a recent Association of Charitable Foundations report, our foundation was ranked as the third-largest corporate foundation in the UK today, measured by giving.
I'm also proud that our employees have collectively given up more than 10,000 hours for voluntary community causes over the past year. I want to thank my colleagues, SJP advisors, and our partner support staff for their incredible efforts here. We took a significant step forward with building and protecting our brand and reputation in 2022 with the rollout of a refreshed brand identity. We're delighted to have received very positive feedback from clients, advisors, and other stakeholders, and we're confident this will drive better awareness, recognition, and trust over time.
Especially as we start from a good place with strong client satisfaction scores and external validation in the form of industry awards, with some highlights shown here. A year of further progress in our business and strategic priorities. How do we see the future?
To my mind, the opportunity for us is as great, if not greater, than it has ever been, and let me remind you why. There are more and more people in the U.K. with investable wealth in our core target market. Some 13.1 million people with more than GBP 2.6 trillion of liquid assets. With tax, savings, and a world of investment, all difficult subjects to master, too few have the confidence, knowledge, or time to make the best financial decisions for themselves and their families.
This matters today 'cause individuals are increasingly having to take financial responsibility for their retirement as the days of relying on a defined benefit pension scheme or the state pension are fast disappearing. This is all happening at a time when the savings gap is enormous and set to rise further.
Of course, it's happening at a time when the transfer of wealth from one generation to the next is becoming more meaningful, but no less complex and no less consequential when it comes to efficient estate planning. We know there's a real opportunity to help more people have financial confidence for the future. Why am I so confident that SJP is best positioned for this? It's the power of partnership. Since our business was established back in 1992, we've always believed in working in partnership with our own advisors.
This makes sure we're aligned to striving to achieve great outcomes for clients, that we harness the best of our collective capabilities, and that we strengthen our ability to adapt to the evolving landscape. This is what makes SJP so different.
As we look to the future, we know that the landscape for financial advice is already changing. There was a time when face-to-face advice meant engaging with your clients almost exclusively through in-person meetings to discuss all matters relating to the client's financial affairs. That would be complemented by hard copy correspondence and statements to update clients on their financial position and investment performance.
Today, we still have many clients who prefer this, so we continue to make sure that they have a great experience if this is what they want. However, clients are increasingly accessing and making use of technology, so we must continue to embrace this to support and enhance engagement between our advisors and their clients. When we do this well, relationships grow stronger, clients, advisors, and shareholders all benefit. This approach amplifies the power of partnership. Demand for financial advice is evolving, too.
Going back, there was a perception that financial advice was a service predominantly for wealthy individuals in retirement or those just about to retire. However, a combination of successive pension reforms, intergenerational wealth transfer, and the complexity of personal tax planning has meant that more people than ever need help with making better financial decisions. For some, what they may need is simple guidance.
At SJP, we're remaining focused on those people with more complex financial affairs, those with higher levels of investable wealth, and hope those who recognize that they would benefit from the support of a trusted advisor. There are some 4 million mass affluent people in the UK who have said that they are open to receiving financial advice, but for whatever reason, they're not yet receiving it. That's our focus, and that's unchanged.
We are seeing a change in the client base over time, and this continues to evolve. What's evident, as the chart on the slide shows, is that we're increasingly being able to attract younger clients to SJP. Some of this will be due to our proposition becoming more attractive and more accessible. A key factor here is that the partnership itself has evolved over time. Put simply, because we've attracted younger advisors to the partnership, we've been able to attract younger clients to SJP.
We're focused on long-term value creation, so that means we are prepared to support our younger advisors by giving them the tools, skills, and expertise they need to thrive as advisors with us. If we get this right, they'll become great advisors that will stay with SJP for the long term and develop great partner businesses for the future. This is already happening.
If we go back just 10 years to 2013 and look back at those younger advisors who joined the partnership in that year, we can see the progress they've made. The chart shows average gross inflows per year from this cohort of joiners who were under 30 years old at the time. It shows that these advisors took some time to find their feet in the partnership as they built their networks, skills, and experience. After around five years or so, they were performing in line with their peers in the partnership.
In fact, this group's average productivity has exceeded that of the broader partnership in recent years. Younger advisors, whether joining through the academy or not, have no ceiling to what they can achieve while at SJP. Of course, they need more support at the outset.
The decision to invest in the academy all those years ago has clearly paid off. Today, the partnership includes more than 1,000 advisors who have joined through this route. Today, we are training more, we are training better, we are improving the diversity, and we are lowering the age of the partnership. In addition to helping to grow the partnership, the academy facilitates succession planning, helps improve diversity, build the great partner businesses of future, and above all, it helps us serve and support more clients with their financial planning needs.
The reason we were confident to make this consistent investment is 'cause we have a long-term mindset and a commitment to the power of partnership. That commitment will continue to sustain our business in the years ahead, allowing us to achieve our ambitions to 2025 and beyond, helping advisors build great businesses and helping clients have the confidence to create the futures they want. That's all about the medium term.
What about 2023? Well, the year has so far continued in much the same way that 2022 ended, we remain encouraged to see indicators that UK inflation may have peaked and that there are signs of optimism for the direction of economies and investment markets worldwide. As we indicated in our new business update in January, a sustained recovery in these indicators will be helpful in improving consumer sentiment, activity levels, and of course, funds under management as the year unfolds. I will finish with a summary of the results, which you can see on the current slide.
All in all, a year of robust new business, record financial results, and further progress in our business and strategic priorities. That's it. Thank you for your attention. As a reminder, the live Q&A starts at 9:30 AM. Good morning, everyone. Hopefully you've had an opportunity to digest our results and watch the results presentation. I'm here this morning with the whole of the executive team, to take questions. Alex, if we could have the first question, please.
Thank you. Our first question for today comes from Andrew Sinclair of Bank of America. Andrew, your line is now open. Please go ahead.
Thank you very much, and good morning, everyone. Three from me, please. Firstly is on the academy. Really liked the update on graduate productivity today, but just thinking about how many more to come? I think you said there's over 350 in the academy at year-end, but it was already 358 at the end of June. Do you still think you'll get that to around 400 in 2023? Looking back, I think this number was over 450 pre-COVID. How quickly can you ramp that back up to those sorts of levels? Secondly was on the partner loans portfolio. I saw you sold GBP 262.5 million of partner loans. What drove that?
Can you just tell us a little bit more about terms and what it means for cash? Thirdly, on new business, sorry to ask a short-term sort of question, but just on the guidance that you reiterated the January messaging. In January you were saying if economic indicators continue to sustain recovery, it should lead to improved activity. I think those activity and those indicators probably have generally been pretty positive since January. Has that actually led through to improving flows yet, or is it still just expectations of potential flows to come? Thank you very much.
Thank you, Andrew. I'll take the flows outlook first, then Craig, perhaps you can do the loans, and I'll go to Peter on the academy. I think firstly it's difficult to extrapolate January and February because they're always the quieter months of the year. If you look at the first quarter, March, in itself is always at least 40% of the first quarter numbers. We've got a budget on the 15 March 2023. Of course we've got the all-important tax year end. It's also worth remembering if you're looking at comparisons to last year is that January and February last year were the months pre the invasion of Ukraine.
The first quarter last year was the highest quarter of the year. As you said, Andrew, it's encouraging to see those economic indicators recovering. It looks as if inflation has peaked in the UK and probably most developed economies. That could mean we're sort of towards the top of the interest rate cycle, and markets are performing well at the beginning of the year.
As that continues, consumer confidence will increase. Indeed, last week we saw that UK consumer confidence has hit its highest level since April 2022. All that will feed into flows. March is the critical month for the first quarter. Craig, perhaps do the partner loans.
Hi Andy. The loans that were sold sat broadly within the securitization vehicle that we set up a number of years ago. You might remember at that point, we the accounting rules for that type of securitization were such that we didn't pass any derecognition tests, so we kept them within the consolidated balance sheet, but we showed them as non-recourse. Essentially what's happened is that those loans sitting within the securitization have been sold out of the securitization vehicle into a third party, which means that they are both non-recourse and off-balance sheets now.
The impact of that transaction was fairly minimal on cash. Where we did see a positive, if you like, for cash, was that we were a junior note holder in the securitization simply as part of the structure. That came back to us. You also asked about terms. The terms for the partners with those loans are unchanged. If you are in receipt of one of those loans that happen to be in the securitization and has moved, other than seeing a paper exercise, there's no change. It's just really another point on our whole journey of finding different ways of future funding.
Okay, thank you, Craig. On the academy, if I just say one thing and then hand over to Pete. Obviously the number of people in the academy at any point in time, some people graduate and more people join the academy, so it's obviously not the same number each reporting period. Pete, would you like to pick up that?
Yeah, no. Excuse me. Thank you, Andrew. The Andrew's point is exactly right. The number of people moving through the academy at any one time is a flexible number based on the graduation of individuals. The way we've enhanced the academy post-COVID is that we don't have four location centers anymore. People train through our 21 regional offices and indeed in partner practices. The vast majority of that training is done at the pace that suits the individual.
Therefore, the graduations will come across the whole year rather than at specific points in time. In terms of our confidence to return the numbers to where they were, yeah, we are very confident that the academy will continue to grow to the needs that we establish for the growth within the partnership. Absolutely no concerns whatsoever about the growth of the academy or indeed the graduations from the academy, which as I've said previously, are a point that the individual is ready rather than a set period in time.
Great stuff. Thank you very much.
Thank you. We go to the second set of questions, please, Alex.
Thank you. Our next question comes from David McCann of Numis. David, your line is now open. Please go ahead.
Good morning. Three for me as well, actually. Thank you. First of all, can you provide some specifics of any changes you are making or need to make out of the Consumer Duty coming in later this year? That's the first one.
Secondly, given the strength of the treasury and noting that you're returning around 30% of cash profits in the inverse of the 70% payout ratio, and arguably, with the share price being below fair value, why has St. James, to date, not had a formal share buyback program? Indeed, is this something the board might consider or reconsider in the future?
Finally, given the rise in interest rates seen over, you know, recent periods, I mean, how much stress is this putting on the partner loan service cost for those partners? Indeed, perhaps the appetite for newer partners to actually want to take out new loans to finance more business purchases, especially if valuations have remained basically unchanged for those businesses. That would be great. Thank you.
Thank you, David. I'll take the Consumer Duty question, Craig, perhaps pass over to you on the partner loan point and share buybacks. Look, the Consumer Duty is a big project for the whole industry, obviously us included. We have a plan to be ready, and we're on track with that plan. I would expect all businesses will need to make changes. Indeed, it's what the FCA expects. I'm not gonna go into detail, David, but if I just give you sort of one example to put some flavor on it. We clearly believe that we provide good client outcomes, and we evidence those client outcomes.
Consumer Duty will require us to provide even greater evidence that we're providing good client outcomes. We will be able to use Bluedoor and Salesforce to help us, you know, with any gaps that we identify. So that gives you just one particular flavor. I might just ask Mark Sutton, our CRO, if he just wants to add anything on Consumer Duty. Mark?
Yeah. Thanks, Andrew, and thanks for the question, David. I think as Andrew said, our implementation's progressing as planned. We are very mindful of recent industry communications from the FCA, including sort of recent peer CEO letters and speeches from Therese Chambers and Sheldon Mills, which have been helpful in terms of highlighting some of the areas that they expect firms to focus on. As you can imagine, we are looking at those carefully. As Andrew said, you know, it's clear from the FCA that they are expecting to see some changes across the industry. There are some areas we are looking at.
An example of that would be around our direct client engagement and making sure that we have the evidence that Andrew referred to shows that the outcomes and our clients understand the implications they're seeing from the FCA.
Thank-thanks, Mark. Then Craig, do you want to pick up the partner loan one and make sure share buyback as well?
Yeah, I'll do the share buyback first. Hi, David. When we formulated the 2025 plan, one of the components of that plan was both the method distribution to shareholders and the pattern and quantum. When we considered all of the alternatives, which is what you do when you're horizon planning, we thought of it in terms of the stock of distributable profit that we had, the likely rhythm of newly emerging distributable profits, and have in mind that the profit emerges in some cases in regulated manufacturing companies.
Liquidity within those companies and free liquidity within unregulated companies. The level of distribution and also the style of distribution in terms of is it growth or is it pegged somehow to cash emergence and results.
One of the things that we were very, very keen to have was a sustainable approach. Something that shareholders would understand and be able to, if you like, calculate for themselves based on market conditions and other factors. What that left us with was, if we're gonna distribute 70%, 30% to use for ongoing investments in the business, but also importantly, to grow the capacity of some of the regulated companies that have capital profiles that are consistent with scale. It's quite a long answer.
I think my general point would be once you set that and you're distributing up at 70%, you're not leaving an awful lot of space for share buybacks in a meaningful way. If we were to contemplate that, something else would likely have to give.
What I've just described is the approach that we laid out a couple of years ago for the 2025 plan. I'm not gonna prejudge what a 2030 plan looks like. They're the things you have to balance. We do get odd questions, the odd question on share buybacks. I would say, and some of my purview being correct here I think many of our shareholders are quite keen on the idea of that continuing consistent and sort of easy to calculate dividend. That's the share buyback. Point, the point on partner lending, I mean, rates obviously have an impact on anyone taking out a loan, and therefore anyone providing a loan.
The data that I think I would point you to, and apologies for the 80-page plus tome that landed this morning. On page 32 of our release, we put some disclosures in which we do annually around loans to value ratios. It'll give some indication of the level of security that underpins these loans. It's important to remember that this security is not in the form of a fixed asset. Security itself is revenue earning. It's income generating, and it's that income that we use in order to affect the repayments due to us.
By the same token, what it's telling you is that there is income outside of the income that flows to us, that flows into the business that's taken out the loan. You know, these are, these are businesses taking out commercial loan arrangements with another business. Is, is anyone holding a loan happy that interest rates have gone up? You know, probably not, although it would depend on their other circumstances.
I think many people holding these loans, and many businesses holding these loans, will view today's interest rates as something actually that anything is more normal than the sort of rates they've seen in the past. The, the idea that where we are on the interest rate curve is making this in some way a less compelling proposition is, is not one we would agree with at all.
Thank you, Craig. Alex, could we go to the next set of questions, please?
Thank you. Our next question comes from Andrew Baker of Citi. Andrew, your line is now open. Please go ahead.
Great. Thanks for taking my questions. Three from me as well, please. First, just on the controllable cost guidance, the 8%, can you just give a little bit more granularity on where the increases are coming year-on-year versus 2022? Also, how you plan on bringing it back down to 5% going forward. Just circling back on the Consumer Duty, should we be penciling in any implementation costs for this in 2023, or does this run through the controllable cost base?
Finally, on the 70% payout ratio that you just mentioned, obviously 2023, you're gonna have a larger part of your underlying cash result driven by shareholder interest, which could reverse over time just given where interest rates are and where they go. Does that have any impact on the way you view that 70% going forward? In the event that you were to see a decline in underlying cash results at any point, is there still a consideration of having a growing dividend, or is it purely just that payout ratio approach? Thank you.
Yeah, thank you, Andrew. I'll just take the Consumer Duty one and then hand over to Craig on the controllable costs and the payout ratio. Just on the Consumer Duty, all costs that we expect for getting ready for Consumer Duty this year are included in our 8% growth in controllable expenses. On that subject of 8% controllable expenses, Craig.
Hi. The obviously inflation impacts on many cost lines. I made the point this time last year that in many regards, we'd contracted ahead, which is quite normal in a business like ours. Therefore, you know, even things like some of our energy costs were contracted some way ahead. All of these things face inflation catching up with them. There's a general picture of inflation becoming a factor in some of the contracts that we're renewing. I think the key one I'd put forward is around half of our controllable overheads relate to staff costs.
One of the key drivers within that 8% is the annual pay review that we've been going through over the last two months. In terms of how we would see that coming back, if I take an optimistic view, and I take the view that inflation will come under control and go down to the extent some people think it could during the course of perhaps the second half, it may well be that we find ourselves in a very different inflationary environment for 2024.
If that's the case, we will take all steps to get back on plan. It's worth me just putting some context behind this. When we put the 2025 plan forward, inflation was running at a level below 2%, and we were going for 5%, which gave us real growth in our cost base of about 3%. Right here, right now, inflation's at sort of roughly 10%, 11%. We're putting forward 8%, which is actually eating in by 3%.
There's a 6%, a 5% to 6% delta there on what it is we've done to control costs in a challenging period. I think that kind of approach will roll into any future approaches, which is that we're acutely conscious of the importance of controlling the controllables, if you like. The second question you asked was quite broad, apologies if I've misunderstood it. I don't see the emergence of income from shareholder interest changing the dividend pattern in any way because, of course, it's baked into a cash result that delivers an underlying cash result on which the dividend is based.
To the extent it emerges as a benefit, so too does the dividend grow. You're right, rates go up and rates go down. I think the way I've described it at the moment is that we've always carefully managed our working capital within our life companies. It just so happens that we're now being rewarded for that because base rates are up from where they've been over the last few years. You're also right, in as much as when rates go up, they can go down. What I would say, though, and perhaps I'm being optimistic here, is that when rates go down, it means things have settled.
It means inflation is under control, and it could well be one of those drivers of longer-term confidence that Andrew was talking around at the moment. You know, things will go up and things will go down that are market related in our cash results. But I see this as quite a helpful tailwind in a year where, you know, the rate of corporation tax is going up and there are various other things that perhaps go in the other direction. It's a good benefit for this year, at least.
Okay. Thank you. Alex, can we go on to the next question, please?
Thank you. Our next question comes from Ben Bathurst from RBC. Ben, your line is now open. Please go ahead.
Morning. Thanks for taking my questions. I've also got three, if I may. Starting on the new business margin within the cash result. Just to clarify, is the message for that line for 2023 that we should expect the margin on inflows and basis point turns to move up even if gross flows, say, remain flat year-on-year? Just given presumably that there's gonna be lower 2022 allowances flowing through. Could that mean that the level in basis point turn returns to maybe the 2021 level?
Secondly, on client cash. What are your clients earning on the GBP 5.7 billion of investments they have in cash? Has there been anything you've been able to do to boost those returns with rates being higher? Finally, on SJP Asia and the DFM business, just maybe starting to think beyond 2024 and 2025 once they reach cash breakeven. Should we be expecting these businesses to post incremental annual growth and profits? Do you think they might hang around the breakeven mark for a few years past that point? Thank you.
Okay. Yeah, thank you, Ben. I'll pass the new business to Craig in a moment, and perhaps you can pick up DFM, and then Iain Rayner can pick up the Asia question. Just on the client cash, I'll do that one as. It's really important to remember here that this is we are different to, say, a platform.
The cash that you're seeing is cash held within the funds. Yeah? It's the working capital within the funds, the asset allocation that the individual fund managers made. This is not cash sitting in a client bank account where we're taking a sort of net interest margin or anything. Hopefully that explains.
Sure. Yeah. Thank you.
Craig, do you want to pick up the new business, new business margin?
Yeah. The, I think if I've understood your question correctly, if inflows for 2023 are flat compared to 2022, I think the general message is so too will be that margin. The reason for that is that you end up with a year where allowances are set looking very similar to the year in which new business is written. Where we find variation is where you get a year like 2022, where we had extraordinary poor performance in 2021, which drove higher business allowances, followed by a year where gross inflows were lower. Put simply, if 2023 gross inflows go up, the margin will improve.
If they stay flat, it will stay broadly flat. If they go down, the margin will reduce. There are other things that make this an imperfect linear margin, but what I've said hopefully gives you a good feel for what you might expect.
Okay. DFM cash positive by 2024, and then we would expect it to continue to grow its cash result?
Yes, I would expect it to grow as cash result. You know, the breakeven target is a point in time. At that point in time for DFM, we'll have completed the back-office restructuring and the DFM business will begin to see the benefits of the investment that's been made over the last few years. Look, a similar thing on Asia, cash positive by 2025, thereafter we'd expect it to, you know, to start.
Earning incremental returns. Iain, do you want to add anything to that?
That's exactly right. We're still very confident about the cash break-even by the end of 2025 target, yes, exactly as you said, we expect that curve to trend upwards from that point.
Yeah. Look, we have a good little business in Asia, a very exciting part of the world for growth going forward.
Okay. Thank you very much... [crosstalk]
Alex, could we go for the next three questions, please?
Thank you. Our next question comes from Rhea Shah of Deutsche Bank. Your line is now open. Please go ahead.
Thank you. I have three questions as well. Just going back to this margin on new business. I mean, how variable are the partner expenses and allowances within this? The second question, going back to advisors. Away from the academy, what are your expectations for growth in the experienced advisor cohort? The third question is around flows. A bit more long-term than maybe Andy's very, very short-term question, but for the entirety of 2023, are you comfortable with consensus growth of 4% in gross inflows?
Okay. Thank you, Ria. I'll obviously come to the new business margin back to Craig here and go to Pete on the academy. Look, I think on flows, as you say, the consensus is 4% or 5% for 2023. I think if we weren't comfortable with that number, we would have been saying something this morning. Yeah. Craig, do you wanna just pick up on the new business?
Yeah. I'll pick up on new business... [crosstalk]
Margin, sorry.
The new business margin. It's worth me just picking up on that last point. What we are very likely to see, though, is quite a bit of variation in comparatives in the current year. Yeah? [crosstalk]
Yeah.
It, and it's worth having that in mind. last the first quarter of last year was our second highest ever quarter, for reasons everyone will understand, the whole operating environments in the markets turned quite markedly in second quarter. And then third quarter and fourth quarter are in recent memory. For that reason, we're gonna see some pretty tough comparatives in the first quarter, but then obviously the picture changes as the year progresses. It is important to remember that shape. On, on the margin on new business, it's not so much variability between partners.
I would really think of it in terms of volume. It's business volume related. Where you see a nonlinear pattern within the margin, it's simply because you get some years where volumes are very high and other years where they are less high. The cost element that goes into the margin is a year out of sync. That's what really drives that variability.
Okay, thank you, Craig. Pete, the experienced advisor marketplace.
Yeah. Thank you, Rhea. The recruitment of experienced advisors has always been a cornerstone of the growth of the partnership at St. James's Place. Historically, we have selected people to join the partnership based on a number of criteria. One of the things to remember about people joining the partnership who are currently active in face-to-face advising in the UK is that they come with legacy. The quality bar has always been quite high to gain acceptance to be offered the membership of the partnership.
I think this will remain strong moving forward. I think the important decision we made some years ago to introduce the academy and grow it over a period of time has allowed us the balance not to have to make decisions that we wouldn't automatically want to with new joiners to the partnership.
I have absolute confidence that we will continue to attract the right number of the right people who've got the desire, ambition, and importantly, the time in front of them to grow a sustainable business at St. James's Place. Just one important factor here is established recruits tend to be in excess of a decade older than graduates from the academy, and that balance is something we factor into our manpower growth to give us the longevity of production and productivity growth over the extended period.
Okay. Thanks, Pete. Alex, could we go to the next set of questions, please?
Thank you. As a reminder, if you'd like to ask a question, that's star one on your telephone keypad. Our next questions come from Nasib Ahmed from UBS. Your line is now open. Please go ahead.
Morning. Thanks for taking my questions. First one on IFRS profit and the payout ratio, and appreciate your previous answer to this, Craig, but when I look at the results today, the IFRS post-tax result is pretty close to the underlying cash result of full year 2022, and the gap has improved significantly since you set the target, the payout ratio target of 70%. Keeping this in mind and the fact that you only have two to three years of pre-RDR business left, when can we expect an increase in the payout ratio? Do we just kind of anchor onto the two to three years of pre-RDR business guidance in the pack?
Second question on kind of Asia. What flows are you seeing between the geographies? Has there been a move away from Hong Kong towards Singapore? Related to that, which part of the Asia business has performed better than others in 2022? Finally, on your mature FUM margin guidance of 59-to-61- basis points for 2023, is that expected to be lower in 2024 given the tax rate impact would be bigger in that year? Thanks.
Okay. thank you very much. Two financial questions for Craig here. Then I'll ask Iain Rayner again to talk about the Asia flow. Perhaps Craig, over to you for the IFRS and mature fund.
Yeah. Thank you. The IFRS profit, you're absolutely right. It does bear far more resemblance this year to the cash results than certainly it has done in some years in the past. There are a few drivers for that, not least because you'll have seen in this year's cash result that we haven't posted anything below the line. The underlying cash is equal to the total cash result. Therefore, the amount on which the dividend is based is probably one step closer towards IFRS.
But I wouldn't underestimate other adjustments that happen within IFRS that actually don't really reflect shareholder interests other than the fact that they create timing differences. And the one to watch out for is the tax asymmetry.
The way I think I would encourage you to think about it is if you're looking at the IFRS results and you have a good feel for the impact that deferring a lot of income and amortizing a lot of the deferred expenses is going to have on the bottom line there, it'll give you a pattern of development that is consistent with the cash result. Fundamentally, they're driven by business activity. What we did when we set the 70% payout ratio is that we took account of any variability between, if you like, the emergence of distributable profits and the emergence of cash.
Plotted a course using 70% that enabled us to continue investing in the business and keeping that capital growing where it needs to grow. I don't think you're seeing anything in IFRS that all of a sudden opens a window into distributable profits that you won't see emerging within the cash result. I think in short, what I'm saying is that there will certainly be variability between those two, but that they will broadly correlate in the same direction.
Okay. Thank you. Iain, difference between Hong Kong and Singapore last year?
Yeah. Yeah, it's been very interesting. There's no doubt that the major factor has been COVID, and that's both been the lockdown, but also the differing timings of opening up of COVID in both those geographies. Obviously, Singapore opened up fairly early in 2022, and Hong Kong was much later, had an impact. As these places opened up, clients and partners who'd been in those geographies probably for two years in many cases, often went abroad to see friends and families for a period of time. That had an impact.
In terms of Hong Kong to Singapore, there's been some evidence of clients and business flows migrating that way, but I wouldn't say that's material. Hong Kong stayed remarkably robust. We're beginning to see migration back into Hong Kong from a client and advisor point of view. I think broadly going forward, we'd see them as fairly equal, in terms of advisors, flows, and future opportunities.
Thank you, Iain. Craig was trying to get away without answering the mature funds under management, but I'm not gonna let him on your behalf. Craig?
Well, it's an easy one. If you look at the guidance summary that we put forward for 2023 and then roll into 2024, where you get the whole year effect of the tax changes, you need to take one bit off each end of that margin range, which would make it 58% to 60%.
Okay. Thank you, Craig. Alex, could we go to the next question, please?
Thank you. Our next question comes from Ashik Musaddi from Morgan Stanley. Your line is now open. Please go ahead.
Thank you, and good morning, Andrew. Good morning, Craig. Just a couple of questions I have. One is, I mean, if I think about, you're reiterating your 2025 guidance. Now, thanks a lot for that. Just want to get a bit more sense as to how you're thinking about the GBP 200 billion of AUM. Now, clearly, year-on-year, your total AUM is down. Flows outlook is a bit different compared to what the outlook you would have had when you had given that guidance or say at least ambition of GBP 200 billion. What are the moving parts on that?
I mean, would you say that there was, say, some headroom in that guidance which makes it more, more reasonable now to get it? Would you say that, okay, there is some... would be interesting to get some color on what are the moving parts, why you are still comfortable about the GBP 200 billion of AUM. Second question is, now clearly interest rates have gone higher, so are you seeing any change in the asset allocation by the investment managers that you have? Is more or less asset allocation for the customers are still more or less same? Thank you.
Okay. Yeah. Thank you, Ashik. I'll take guidance, 2025 guidance plan, strategy and hand over to Bill, on the investment question. Look, so two years ago, we set down four financial targets. One was gross flows, the other was maintaining retention. The third one was controllable expenses. The fourth one, with a small modicum of m arket growth, the math takes you to GBP 200 billion. Two years into that plan, it's, we're in a good place in terms of flows. Our ahead of where we would expect it to be. Retention is ahead of where we have expected to be.
Controllable expenses are on target. And funds under management are perhaps, a little bit behind target because the markets. Look, I think we all know, don't we, that markets can take and markets can give. And the increase in the market so far this year, has already contributed, a reasonable amount to the, to the stock of funds under management. I think we always said this was never gonna be linear.
I think being where we are two years in, we're really pleased, and I'd much prefer to be there than behind type situation. It won't be linear. This year could be difficult on flows. You know, it, as we said, investor sentiment is improving. It doesn't mean that 2024 and 2025 wouldn't be good years. It's not gonna be a straight line, Ashik, and we remain confident of those targets. Craig, do you want to add anything to that one?
Nope.
No? Okay, cool. In terms of the asset allocation, I'll hand you over to Tom. Now some of you may not have met Tom. Tom assumed the role as investment director in September. Yes?
Yes... [crosstalk]
I got that right. That's good news. I'll hand over to Tom.
Thanks, Andrew. Good morning, everyone. In terms of asset allocation, it's been relatively stable. Our positioning remains that we're ever so slightly underweight equities relative to a sort of traditional bond and equity index. We have a slight skew to value over growth, which we adopted early on last year, which has benefited performance. We've got a slight increased allocation in credit as yields have been rising. We're slightly overweight credit, underweight sovereigns and duration. In terms of the shape of the asset allocation is broadly stable compared to what you would have seen previously.
Yeah. Thank you, Tom. Thank you, Ashik.
Thank you.
Alex, the next batch of questions please.
Thank you. As a final reminder, if you'd like to ask a question, that's star one on your telephone keypad. Our next question comes from Larissa van Deventer from Barclays. Larissa, your line is now open. Please go ahead.
Thank you, very much and good morning . Two questions on customer demand. Actually, the first local, the other one in Asia. In the UK, have you seen any changes in the products that customers are seeking out that may impact the margin? Then in Asia, there's been some talk of high-net-worth individuals, specifically from China, but from the broader region, migrating to Hong Kong and Singapore, and the two cities having a race to secure those funds. Are you seeing that trend? Are you seeing the same trend in both markets? Are you noticing differences between the two, please?
Thank you. I'll ask Iain Rayner on the second question. I think on consumer demand, at a sort of global level, we're not seeing anything that would change guidance anywhere. There will be an awful lot of conversations with clients at the moment around inflation and what inflation is doing to people's savings. No need to change any guidance on the numbers. Iain, on the Asia question and the high-net-worth Chinese individuals... [crosstalk]
Yeah. Thanks, Andrew. Are we seeing that trend? Yes. Is there a certain amount of competitiveness between Hong Kong and Singapore? Yes. Anyone who spends any time in that part of the world will know that's true. I wouldn't say that one materially is outperforming the other on that trend. Is it a big focus for us as a business? The kind of high net worth family office Chinese? No, it's not. It's not really where we're focused at the moment. It's not something that we're spending a lot of time on, but we do see the trend.
Okay. Hopefully, that answers your question. Alex, I believe there's one more question.
We have a follow-up question from Andrew Sinclair of Bank of America. Andrew, your line is now open. Please go ahead. Oh, sorry, Andrew, we're not receiving any audio. You might be on mute.
Apologies. Apologies. That's my idiocy. Just on firstly on the GBP 40 to 50 million of interest on cash. Is that fully phased for 2023? Or is there still some more to come if the rates stay at current levels in 2024? Finally, was just on net advisor recruitment. We've got the academy graduates figure, but just wondering if you could give us the other numbers of experienced hires and departures for the last year. Thank you very much.
I'll probably answer the second one on behalf of Pete. Look, we're not gonna get into granular numbers here, Andrew, I'm afraid so. No, I guess is the answer to that one. On the phasing of the interest margin, Craig again.
This is on the shareholder return line. It's worth me emphasizing something Andrew mentioned earlier. This is cash that is already in working capital. Shareholder working capital, the balances are always there but haven't earned a margin in the past. The shape of the balances that we hold are broadly consistent, but they do have a degree of volatility, which is what you expect in life company working capital, where we use the cash to settle liabilities. The guidance of GBP 40 to 50 million is making an assumption that the base rate stays where it is today for the remainder of the year.
It'll be the case for as long as that goes on. If theoretically, putting aside any rounding, base rates stayed the same for the following year, unless we have something unforeseen that means that those cash balances reduce, and I can't think of anything offhand, I would expect that to be a consistent income. Hopefully, that addresses the question, Andy.
Yeah. That's all great... [crosstalk]
Okay.
Thank you very much.
Thank you. Alex, any final questions or are we finished?
We currently have no further registered questions.
Okay. I think that probably just leaves me to thank you all for your time and questions this morning. Look forward to catching up soon. Thank you to the executive team and thank you to Alex. Have a good rest of the day.