Good evening, everyone. Thanks for waiting. We were just giving some seconds for everyone to join. I'm Andre Parize, Head of Investor Relations, and on behalf of the company, I'd like to thank you all for your interest in our quarterly earnings call. Today we have with us Bruno Constantino, our CFO. We will both be available for the Q&A session right after the presentation. Remember that you can raise your hand in the Zoom tool. I see that, as usual, we have some raised hands, and we will answer them after the presentation. Please refer to our legal disclaimer on page two. There we clarify, actually, the forward-looking statements, their definition, and on our IR website, you can find additional documents to forward-looking statements and why they might differ from actual results. Without further ado, I'll pass the word to Bruno Constantino.
We have a lot to talk about today, and it's later in São Paulo, right, Bruno, than usual. Let's get going with the presentation. Thank you so much, every one of you, for the interest.
Sure. Thank you, Andre. Good evening, everyone. A pleasure to be here with all of you one more time in our 12th earnings call. This call might take a little longer than usual, but I promise I'll try to be as brief as possible so we can jump into Q&A. We can move to the highlights. Here on slide five, the highlights. We have selected four main highlights for third quarter 2022. First is the improvement in our disclosure. Always considering feedbacks from investors and thinking about how to enhance our transparency over time, we have changed three points in our managerial disclosure. We have incorporated digital content into retail. As you know, digital content is an enabler much more than a relevant contributor to our revenue, so it doesn't make sense to disclose it on a standalone basis anymore.
Number 2, we separated corporate clients, companies with annual revenues above BRL 700 million annually, from retail clients. This change was motivated by, 1, growth of the corporate business, which was irrelevant until the end of 2021, and has been gaining traction throughout this year, as you're going to see throughout the presentation as well. Number 2, different profile of clients as well. Third, we have opened the retail revenue base on its main product classes. I think this is the main change in terms of disclosure that we are making from now on. What are the main product classes? 1, equities, 2, fixed income, and 3, funds platform. I hope that will help all of you understanding the dynamics of each business line, depending on what the macro environment is. The second highlight is about expenses.
We are still absorbing the impact of headcount growth in 2021, as you know. We do believe that our ongoing transformation should result in efficiency gains and better margins in 2023 onwards. Our total SG&A, as you're going to see, already showed this quarter signs of stabilization. I will talk more about that as well. Third highlight, we are discontinuing the adjusted net margin guidance. As of today, we introduce, in exchange of the adjusted net margin guidance, a new earnings before tax margin that will take into account the expenses related to share-based compensation. Finally, the last point is just an announcement that we have just released a 6-K informing about the increases in our actual share buyback program, moving it from a total of BRL 1 billion to BRL 2 billion and keeping the same timeframe. Which is until May next year.
Moving to the next slide. Starting with client assets. All-time high client assets, BRL 925 billion, helped by higher interest rates. That tends to increase, as you know, the total client assets. Net new money has been accelerating from an average of BRL 14 billion per month in fourth quarter last year to BRL 11 billion in third quarter this year. It's still between the soft guidance of BRL 10 billion to BRL 15 billion net new money per month. There is, as I've said, when you have two facts added together, poses a very strong headwind for net new money growth, which is not only higher interest rates, but higher interest rates coupled with uncertainty. Investors tend to choose daily liquid fixed income instruments instead of allocating their capital in anything else.
Especially in the third quarter, we also had an inversion in the interest rates curve. That makes even harder to make investors extending their duration. There is a scenario that poses a headwind. It's not new. It's been with us throughout this year, but we are able to keep the low end of our soft guidance despite all of that. Then we have on the right side, the breakdown of retail client assets per products. As we have done in terms of retail revenue, we also are going to disclose the total retail client assets breakdown by the same buckets. And here, it's pretty much clear from a year-over-year view, mix shift in terms of investment allocation. We had in the third quarter last year, 42% of total retail client assets in equities, and that number decreased to 34% third quarter this year.
When we look at fixed income, it's the opposite. It was 22% last year. It increased to 30% this year. Everything that we already have been talking and you know, but now putting figures on it. Moving to the next slide here is just to show what we have done. The old segmentation was retail, including corporate, institutional, issuer services, digital content, and other. Now we have many more details and the segment retail institutional. Corporate is not with retail anymore. It's together with issuer service. There is a lot of cross-selling there, corporate clients and investment banking activity. We believe it makes sense to put it together. In retail, we have, as I said, opened the three main revenue streams of retail revenue, equities, funds platform, and fixed income, and all the others are part of the new vertical.
Digital content is included in other retail. Now talking about gross revenue. Our total gross revenue went from BRL 3.4 billion third quarter last year to BRL 3.8 billion this year, a 13% increase. This risk-off scenario has mainly impacted our retail revenues. That represents, as you can see on the right side of the chart, close to 70% of our total gross revenue. Retail in the third quarter represented 69, 9 months, 71% of total gross revenue is the main component of our revenue and is the part of the revenue that has been impacted the most because of the bear market. A natural consequence of that is a deceleration of our growth pace, but it's still a growth. 13%, as I said, year-over-year, 5.4% quarter-over-quarter.
As we also have been saying, thanks to a more diversified ecosystem, part of retail revenue, especially the new verticals we're going to show, and also outside with retail revenue, institutional revenue, and corporate issuer services revenue Have a different dynamic in such a tough scenario, helping the overall results of the company. That is why we believe XP has been building, over time, even more resilient business model. That's what make us believe, as Maffra mentioned in his letter to stakeholders, that our strategy is in the right path, going beyond investments and in investments, adding more products and services so we can keep diversifying our revenue stream, increase the loyalty of our clients, and also the LTV of our clients.
Imagine if XP nowadays, in this scenario that we are living, were XP back 10, 15 years ago, when we were a mono product equities and mono client retail. Move to retail breakdown. This slide will take a little longer if you allow me, because that's new, all the numbers here. It's completely new and we are going to share with you every quarter from now on. I will explain a little bit the dynamics of each block. It's pretty much straightforward, the impact of macro. When we have a boom market, equities benefit the most from it. Funds platform also benefits from it. Fixed income is hard to tell, depending on which moment of the boom market you are. When we have a bear market, it's the opposite. Equities, they get hurt. Funds platform also get hit by the bear market.
Fixed income benefits mostly because of higher interest rates. Here is interesting to look at the relevance of those three blocks that we are showing right now. Equities, fixed income, and funds added together in third quarter last year, they represented 86% of total retail revenue. In third quarter this year, 2022, their relevance decreased from 86% to 72% of total. A very relevant decrease in relevance. It's still the most relevant block of retail revenue by far compared to all the other components. What explains that decrease? The bear market scenario. This headwind has taken away more than BRL 1.5 billion in revenue from our results in 2022. How do we get to that math? You just add together equities and funds platform.
For example, in the third quarter this year, it will give you roughly BRL 1.4 billion, and you compare to funds and platform in the third quarter last year to keep the same seasonality, that will reach BRL 1.8 billion. This BRL 400 million per quarter, if you annualize that, it would reach almost BRL 1.5 billion in annual revenue for FAP. Now, another way to see this impact that have been mentioned about this headwind, including fixed income. You can include fixed income just to get the three main blocks of our retail revenue, and fixed income is a positive number comparing year-over-year. Let's add it together. You're going to see that those three blocks added together, even with fixed income, they decreased year-over-year 15%.
Here we can do all the math you want to, but it's going to be pretty much clear why retail is suffering in terms of revenue and revenue mix. Despite all of that, retail has been able to deliver strong revenue numbers. That has to do with all other components of the retail revenue, fixed income helping. Other, that mainly it has other things there, but as there is in the note, floats, digital content, FX, among others. Everything that is not embedded in any of those blocks goes into other. Float is more than 80% of that revenue. Fixed income, float, and all the new verticals, retirement plans, cards, credit, insurance, they all have been helping retail revenue to keep a very healthy number and still growing year-over-year despite this headwind that I've been talking about.
Another interesting data that we can extract from this chart is a comparison quarter-over-quarter. When we look third quarter 2022 compared to second quarter this year is a different view. Basically, equities, for example, it's growing 5%, similar to our DATS number, the daily average trading number that grew 3% quarter-over-quarter. Funds platform here decreased 29%, but if you take out, because then when you compare quarter-over-quarter, there is a seasonality. Okay. Second quarter, we have performance fees. When you take out performance fees, third quarter increased close to 10% quarter-over-quarter. The two main blocks that have been hit the most year-over-year, quarter-over-quarter, they show sign of stabilization, which is a good thing, in my view.
Looking at the other components that I mentioned, new verticals, the growth, it goes from 45% year-over-year up to 170% with cards. Cards has been growing a lot, 26% growth quarter-over-quarter. This is I think the main slide of the presentation where you can derive many different conclusions but it shows hopefully the impact of this macro environment in our retail revenue as a total. We can move to the next one. Take rate. Take rate is that retail revenue divided by average AUC, as you know. Now what is the difference? Now this take rate is taking into account retail revenue, ex-corporate revenue that went together with issuer services and the client assets, the total client assets. We are only doing the take rate for retail using retail client assets for sure.
The take rate 1.33, it was 1.40 in the second quarter, in the second quarter we had the performance fees. As I said, you take out approximately 8 basis points of performance fee. We have 1.32 with 1.33. Again, a signal of stabilization. On the right side, we highlighted funds platform and retirement plans. We believe when we think about take rate as a price, relating to the client assets and then as a price, those two components of the retail revenue are the components that makes more sense relating to client assets, funds platform and retirement plans. All the others, equities, fixed income and the other verticals, especially equities and fixed income, they have a lot of revenues that are transactional based instead of client asset based.
Going back to funds platform and retirement plans, we are not considering in the funds platform performance fees here. What we see is the same movement, shifts away from equity and multi-market funds that have higher management fees into fixed income funds. The take rate went from 71 basis points last year to 55 basis points this year, a 16 basis points contraction. Again, quarter-over-quarter, a slight increase of 1 basis point. Basically flat quarter-over-quarter, same signal. Going to issuer, corporate and issuer services and institutional. On the left, institutional, on the right corporate plus issuer services. Here both revenues, both segments, they performed really well in the third quarter. It's a fact. The numbers speak for themselves. Institutional more than doubled year-over-year.
Corporate and issuer services increased 34% year-over-year and quarter-over-quarter both of them grew more than 30% quarter-over-quarter. Third quarter, no doubt was a very strong quarter for institutional and corporate plus issuer services. We believe there is a relation with the elections in Brazil, a lot of anticipation, the positive impact in the OTC derivatives trading that we do with our clients, either corporate or institutional clients. This shows the benefit of the diversification. It's very positive. Anticipating myself that I expect a question in the Q&A. In the fourth quarter we do not expect those two segments to perform as they did in the third quarter. It's natural to think that if there is an anticipation in the third quarter because of elections, you need a transitional period like a hangover to absorb everything that has been anticipated.
It's hard to estimate how much. The concept behind the fundamentals, I believe the third quarter should be the record quarter for 2022 in those two segments. One more thing that I forgot to mention about issuer services. It's interesting to note that we had this quarter an all-time high quarterly securities placement revenue of BRL 525 million. You can see that in our earnings release. That number is as per our accounting income statement, okay? Out of the BRL 525 million, we had BRL 228 million in the third quarter here in issuer services, everything is kind of related. The other part of the revenue goes into retail. It's mainly distribution fees and they go into retail in different segments. It was an all-time high of securities placement revenue in a quarter that we still are in a bear market.
Not equities playing a role because DCM is really weak, but DCM and also alternative funds playing an important role in this quarter. SG&A and earnings before tax margin. Total SG&A has been flat quarter-over-quarter. I believe that's a good thing. The apparent growth in non-people, you have the breakdown here on the left of people and non-people that are included in total SG&A. The apparent growth in non-people expense quarter-over-quarter from BRL 374 million to BRL 405 million is lower than it shows. Why is that? I talked about a reclassification from depreciation amortization into SG&A. You can see that also in our earnings release. Depreciation quarter-over-quarter decreased approximately BRL 12 million, and that's most of it a reclassification between lines. Okay? Discounting this effect, non-people would have grown 5% quarter-over-quarter.
Remember that in the third quarter, we also have our annual event Expert, that the expense is embedded in there. We also can see an EBT margin on the right part of the slide recovering. We had our lowest EBT margin in the second quarter, 25.3%, coming from 28.6% in the first quarter. Third quarter already shows a recovery going to 27.2%. We are giving this new guidance of EBT margin from 26%-32%. We tend to be always conservative in our guidance, as you know. We had 25.3% EBT margin the second quarter this year.
It's our expectation that, as I mentioned, the ongoing transformation in the company, no matter what the macro environment is, looking at the signals that I also mentioned of stabilization in those revenue lines that get hit the most by a bear market compared to a bull market. We believe we are going to scale up our EBT margin from 23%-25% in the next three years. Next year, you could expect our margins closer to what it is nowadays and increasing a little bit, moving towards the 32%, the top of the range, in 2025. That's what we are going to fight for here in the company. Also in terms of expense growth for next year, when we look at total SG&A and also people expenses, we for sure are going to have a lower growth than we had this year compared to 2021.
No question about it. Net income and net margin. Here it's a record net income helped by the EBT quarterly that we have in the third quarter. It was the third-highest EBT in our history, only behind the fourth quarter of last year and second quarter of last year. Remember that second and fourth quarter, usually they can have seasonal revenues that the third quarter doesn't have, performance fees. Also helped by a positive account tax expenses. Record net income ever. We also kept a healthy margin here, 28.5% in the third quarter. Our basic earnings per share is growing a little bit more than our net income. That's related to the buyback in place.
Our adjusted net income, although we are not using any more the adjusted net margin as a guidance, we're going to keep our adjusted net income in our spreadsheets, in our investor relations site in the internet. Finally, we have two more slides to share with you. This one is about the net asset value. We've had several doubts, mainly in the last two quarters, about our cash flow conversion, cash flow generation, and capital allocation. We thought in a way to bring here and share with all of you some slides that hopefully they will help to understand better those issues. First, it is complicated issue, especially considering that XP is a platform but also is a financial institution. We hold several types of financial instruments with different characteristics in our balance sheet.
I've said that before, when you go into our cash flow statement that follows an accounting rule, it's not business sense to analyze that. We are working on a better managerial cash flow statement to help you to understand exactly what our cash flow generation, if you may say, is. The way we look internally here is to our net asset value. That could be an analogy to our net cash. What is it? It's basically the adjusted gross financial assets that you have on the left part of this slide, and that we have been sharing with you through our earnings release, minus our debt instruments that are not embedded in the adjusted gross financial assets. Because the adjusted gross financial assets take all the financial liability.
Anything that goes into our results as NII, net interest income, is because there is a financial liability associated to it. It's already embedded in the adjusted gross financial assets. We also have corporate debt that is not embedded in there, like the bond that we have issued, like the debenture that we have issued. On the IFC debt that we still have in our balance sheet. All of the borrowings, the corporate debt that we have, is what we are calling here the gross debt on the right part of the slide. We discount it from the adjusted gross financial asset, reaching the net asset value, which at the end of this quarter was BRL 9.8 billion. In the last slide, we want to present a bridge. A bridge that explains a little bit the way we look at it internally and the asset allocation.
What we have here, starting with December 2019 until September 2022, we're talking about 2 years and 9 months, after the year of our IPO. On December 2019, our NAV was BRL 6.4 billion, already considering here the proceeds from the IPO. We have a total net income of BRL 8.5 billion, plus BRL 1.4 billion of a follow on that we did on December 2020. If you add BRL 8.5 billion, BRL 1.4 billion to the BRL 6.4 billion of NAV at the beginning of the period, we should have, if net income conversion rate to NAV was 100%, BRL 16.3 billion of NAV. We have a little bit less than BRL 10 billion. Where did the money go? What happened with the company throughout those 2.9 years, roughly? You have the bridge here showing what happened.
Most of the money, if you take out the share buyback, that is BRL 0.5 billion, BRL 0.3 billion is basically working capital, that's also tricky because BRL 0.3 billion in a period of BRL 2.9 is nothing. We always are going to have some variation between quarters, because between quarters, NAV can fluctuate a lot in terms of the working capital. For example, tax reasons, for share-based compensation reasons, and other reasons that might have these fluctuation. When you extend the period, this effect gets, of course, diluted. The main thing here to highlight is the BRL 4.2 billion in investment in our IFA network and the almost BRL 1.5 billion in M&A. Here we add together BRL 5.6 billion of investments that we have made.
Those investments, they are not financial assets per se, in the sense that we use in our adjusted broad financial assets. They are not included there. That's why they reduce the NAV, right? We, as Maffra also stated in his letter, we believe that the investment that we decided to do in our distribution network was important. That's a competitive advantage that we have. We were able to sign long-term contracts with our IFAs. Of course, all of the transactions, including M&As, we always look to several metrics. The two main metrics are payback and return on equity. We consider all of that in our decisions here. Also, M&A is small. I have said already that we are not planning to do any relevant M&A going forward.
We already have the deal with Modal waiting for approval of the Central Bank in Brazil. The message here is this BRL 5.6 billion should be much lower going forward. That's exactly one of the additional reasons that we decided to increase our share buyback program in place. Because we are going to have more investments as we have had throughout these years, especially in the IFA network, but nothing compared to the size of what we have done in the past. Except for a little bit more than BRL 1 billion that we already have committed, but we have not done yet with our IFA network in terms of the broker-dealers that we're going to be minority shareholders of our IFAs. Except for that, the other is more of the same.
It's basically investments that we do on an annual basis, considering that we have a distribution network that is the biggest one in Brazil. With that, I will stop here, open for Q&A, and then we can answer doubts that you might have. Thank you very much.
Thank you, Bruno. Let's go to the Q&A. Our first question comes from Tito Labarta from Goldman Sachs. Hey, Tito.
Hi.
Can you hear me?
Yep. Can you hear me? Good evening, Bruno, Andre. Thanks for the call.
Thanks for all the additional information. That's very helpful and useful to think about, and help us model the business, appreciate the color. A couple of questions, I guess. One, just looking at the retail revenue breakdown, right? You show that other line has increased a lot, I think. Should that be just mostly a function of the higher interest rates that we're in right now? As rates come down, that should come down? A second question on the inflows, I know you still have the guidance, the 10 to 15. We saw the equities picked up a little bit in 2Q. I would expect in a lower interest rate environment should be positive for that. With markets doing a little bit better, any visibility there in terms of the inflows, either by segment? Are you seeing more interest in equities?
Is it still more fixed income? Just to try to get a sense of when there can be an inflection point on those inflows longer term.
Yeah. The other retail, most of it is flows revenue. That is a retail revenue and goes into other. That's the most relevant one. Okay? Regarding your second question about the client assets inflow, net client, net inflow. It's what I said, Tito. When you have uncertainty, think as an individual investor, affluent client with a lot of uncertainty in the market, where if you're going to buy a longer duration secured, fixed income secured, you're going to get a nominal remuneration that is less than the one that you can have with daily liquid. It makes hard. It's a headwind. Even in that scenario, net new money that it's above BRL 10 billion per month. In a scenario like that, usually people, they freeze. They wait. They don't have to.
They have an instrument that is daily liquid That pays on a nominal terms more than extending the duration. It's not easy. You need to do a lot of explanations, and that's why advisories are so important in a scenario like that. It's not an easy sell. That's what explains, in my view, the weaker net inflow. We have seen stabilization across all signals, but not a reversal yet. We still have a lot of uncertainty upon us. You have global inflation, you have a global recession, you have higher interest rates where Fed funds are going to stop. You have a war still going on. You have a lockdown in China. Many things happening. Brazil has a new government that needs to tell about what the fiscal policy is going to be, and so on.
Too much uncertainty, in my view, to see a reversal. The good thing is it has stabilized. I think the worst is behind us. That's the point.
Great. Thanks, Bruno. You also disclose the assets sort of by segments. I'm just trying, how much of equities was up, like BRL 30 billion? I don't know how much of that was just the market performance versus potential inflows. Looking at the fixed income, it was like BRL 28 billion last quarter down to BRL 20 billion. Just to try to understand what drove the increase in the assets by segment.
Yeah. You mean the equity in the third quarter compared to the second quarter?
Yeah. If we look on the breakdown of the AUC, it was like BRL 278 billion. It was BRL 247 billion last quarter. I imagine there's some market appreciation in there.
Yeah.
Looking at the fixed income number, it was lower relative to last quarter. Just to try to see how those inflows are evolving by segment now.
Okay. I got it. Yeah. I would have to get what was exactly the market appreciation of equities quarter-over-quarter. We can get back to you later on.
Oh.
At the end of the day, look, we are not opening any more adjusted anything, like adjusted client assets or anything like that. As we segregated corporate from retail, in our view, it doesn't make sense because corporate, by nature, has a different kind of volatility compared to retail. Of course, we can have some unusual movements in one single quarter. Whenever we have something like that, we are going to explain in our earnings release. Okay.
Okay. Thanks, Bruno, thanks again for the additional disclosure.
Thank you, Tito. Next is Geoffrey from Autonomous. Hey, Geoff. Good evening.
Hi. Can you hear me okay?
Hi, Geoffrey.
Hi. Can you hear me?
Yeah.
Great. Thank you for taking the question, and thanks for the new disclosure. There have been some articles recently talking about IFAs moving away from XP. I wondered if you could elaborate on why you think some of those IFA moves have happened, and can you confirm, are these IFAs where you had the long-term exclusivity in place and they decided to pay a break fee to go somewhere else?
Yeah. Oh, look, Jeffrey, it's competition. A competitor comes, pays, the IFA decides to go, or we do not think it's worth retaining the IFA, whatever the case is, then it happens. It's natural. It's not the first, and it's not going to be the last time that it happens. Okay. Remember that we have more than 13,000 IFAs, we have close to 12,000. We have more than 13,000 advisors in total. We have close to 12,000 IFAs in our network. We have approximately, if you look only at the IFA world, 70%, roughly speaking, market share. It's something natural. Okay. We look at it as a natural thing that will happen again, and it has happened in the past. Yes, the IFAs that you referred to, they had long-term contracts.
In this quarter, if you go in our financials, you're going to be able to see the disclosure of revenue, where we have revenue from incentives from B3, CERC, Gereto, and others. Part of that revenue, when we get back the fine that we have in the contracts, it goes in there. This quarter, if I'm not mistaken, the total amount of that line was close to BRL 40 million, and part of it was helped by one IFA, and we might have that going forward as well. We get our revenue, get the cash back, and that's it.
When they decide to leave, do they tell you that's purely a financial consideration for them, or are there elements of your competitors' offerings that they're choosing because they think the competitor offers something that XP doesn't?
Money.
Got it. Thanks very much.
Thank you, Jeff.
Thank you, Jeff. Have a good one.
Thank you.
Next is Thiago from UBS. Good evening, Thiago. How are you?
Yes. Are you guys hearing me?
Yeah.
Yeah, Thiago. How are you?
Okay. Thanks for the new disclosure. Very good the new format. I have one question about the excess cash that you mentioned in the press release. You mentioned BRL 5 billion reais. Only to make sure if I understood the concept of this excess cash. In the case of no relevant acquisition or M&A, do XP will be able to distribute these BRL 5 billion reais in the coming years, or part of this BRL 5 billion should be used in your organic expansion, with CapEx, with IT investments. Only to make sure if this BRL 5 billion should be distributed in the near future if you don't have any big M&As.
Look, the BRL 5 billion, in the near future, I don't think so. In the future, yes. In the near future, I don't think so. Why is that? Number one, we are conservative the way we approach our financials, and we always think about the long term. Number two, we still have a lot of uncertainty upon us. I just talked about it. We think we are here for the long term. It's wise to keep a higher, let's say, margin of safety in moments like that. What I can tell you, Thiago, is we keep generating cash. Our company does generate a lot of cash on an annual basis. Yes, we are going to keep evaluating the excess cash because we are distributing. We think BRL 5 billion is enough for now to keep as excess capital in our balance sheet.
We can change our mind in the future and decide to work with less than that or a little bit more. For now, BRL 5 billion seems more than enough. The excess above the BRL 5 billion, yeah, we can keep distributing to shareholders. Remember that XP is a disruptor. We are in the financial industry, mostly in Brazil, and we have less than 2% of the financial industry revenue pool. We are at very early stage of the potential that the financial industry in Brazil offer us as a disruptor, and opportunities might arise. Right now, where we are in our strategy, what we have done, I think that XP has already invested a lot. Our expense numbers, they show it. We have invested a lot in new verticals. We have put in place our digital account. We have cards.
We have launched cards that we co-brand. We have our offshore account. We have our digital asset platform. We have the insurance business up and running and developments happening as we speak. We have done all those investments. Now it's time to consolidate the investments that we've done to increase the share of wallet of our existing clients. That's part of the strategy, why we decided to go beyond investments, and consolidate all of that and look for more efficiency in our company. Of course, we can be more efficient than we are right now.
It's natural in a company like XP that more than double its headcount base during the pandemic, since the pandemic to today, doing so many things together, that we now believe is the right time to put our energy into consolidating everything that we have invested in, plus searching for more and more efficiency in our company. If that is the strategy for the near term, and we are concentrated in that, the additional excess capital above the BRL 5 billion, we start to distribute that. We don't need that right now. We don't want to also to keep distributing capital, remember that we have less than 2% of the revenue. One year later, we think now we want to do this or that, we go back to shareholders and do a follow on every six months. That's not what we want to do.
We are conservative the way we make these decisions, but when we do it, we go forward.
Very clear, Bruno. Thanks.
Thank you, Thiago.
Next question from Morgan Stanley. Hi, Jorge.
Hi, Bruno, Andre. How are you?
I'm fine
Congrats on the numbers. Again, I know it's been said before, really, thank you very much for the additional disclosure. I think it's going to go a long way in helping the market understand your business. Thanks for that. My question is around what you've been discussing, Bruno, sorry for that. When you think about your retail business, is it you think the direction of interest rates that will potentially improve the inflows? Or is it actually the level of interest rates? I'm thinking obviously on the equities business, which is a big part of your revenues. I'm saying this because hopefully we've seen the peak of rates, right? I mean, the central bank has been on pause now, and the next move, hopefully, is down.
The fact that rates are going to start to come down, do you think that's the trigger? Is the trigger actually the absolute level of rates? What do you think that absolute level is for you to get more inflows into the equities business?
Yeah. I think it's more the direction than the level. Remember what I just mentioned a few minutes ago. Retail investors, they look to nominal terms. If interest rates is still going down, but the long-term rates are lower than the spot rates, that's a headwind. You need to convince, you need to explain why is it, what is the premium embedded, what is the expectation of futures rates, and so on. We do that, of course, we do. It's a headwind, I would say. At the end of the day, it's more about the direction, in my view. We need to take out part of the uncertainty. When we take out part of the uncertainty, equity market should react first, I guess, as usually. Investors will follow. It's the cycle that we've had in the past.
For ourselves, I would say the best, the sweet spot is when you have a boom market start forming, level of interest rates are still high. For XP, the interest rate at 2%, it's not the best scenario, honestly. Would be in the middle range, I don't know, 6%-8%, something like that. When you have a more stable environment with higher level of interest rates, but stable, that's a good environment, a very good environment. We navigate in all kind of scenarios. We have been. What changes? The mix, it gets worse, we keep growing, and we grow at a slower pace. That's what it's happening exactly in 2022. The business is resilient, no matter what the macro environment is.
Great, Bruno. Thank you. I have a second question. Can you remind us what is the level of asset attrition one year later when you lose an IFA? I remember maybe like one year ago or so, you published a press release with some of the actual numbers of specific IFAs that you lost in the past, the numbers were very small. Has that changed?
No.
Can you remind us what the level is today and how does it compare to IFAs that you lost three, four years ago?
Yeah, sure. No, the 70%-80% of the client asset stays within XP. It doesn't migrate. What we lose is basically the growth of that IFA office. If it was a good IFA office, we lose. If it was not a very good IFA office, we don't lose much. At the end of the day, that's basically it. Because when the IFA migrates, the client's ours. The client has XP accounts, has XP app, everything. Then we have more than 13 advisors in our ecosystem that would be more than willing to serve that client. That's what happens.
Great. Thank you. Thanks. Thanks again for the additional disclosure.
Sure. Glad that you all like it.
Next, Mario from Bank of America.
Hi, Andre. Hi, Bruno.
Hey.
Thank you for taking my question. Also, we really appreciate the improved disclosure. My question is related to what Jorge just asked you. Last year, you published this report saying that 80% of the AUC of the IFAs who left stayed with you. When we see this slowdown in your net new money, are you able to break down for us how much is lower inflows and how much is due to higher outflows? Can you just give us the dynamics that you're seeing between inflows and outflows? My second question is related to your buyback. You're increasing your buyback program by BRL 1 billion. On your presentation, you showed that you only executed half of your previous buyback. I'm assuming you still have BRL 1.5 billion left to be bought back. I wanted to understand the decision between buybacks and dividends.
Why are you doing everything in buybacks and not in the form of dividends?
Okay, Mario. Your first question, it hasn't changed. The slower pace of net client assets is not because of migration of IFAs. Of course, there is a component, but it is small. It's small. It's basically the macro environment posing a headwind in terms of bringing more money into the platform. We are still bringing, but not with the size or amount that we would like to and think we can do. It's not related to IFA leaving the platform. Your second question about buyback. You were right in what you said. It's approximately BRL 1.5 billion, considering the additional BRL 1 billion we announced today that we have to buy back shares until May next year. The reason we decided for buyback is basically because we think it's a more attractive option nowadays. That's basically the reason.
It could be dividends, but we decided to buy back shares.
Bruno, any updates on the Itaú and Itaúsa decision to continue to sell down their stakes? Are you talking to them? Could you use your buyback to negotiate directly with them?
No news about that. Itaú or Itaúsa, they have our direct contact for sure. They know we are here to help them to sell whatever they want. We have said that. As far as I know, it's not in their intention. I don't know. You would have to ask them, Mario.
Okay. Thank you.
Thank you, Mario.
Thank you, Mario. Marcel Teres from Credit Suisse. Hi, Teres. Good evening.
Hi, Andre. Hi, Bruno. Thanks for the time. Sorry to sound like a broken record here, but I'm very happy to see the disclosure you guys did. Great initiative. I think this definitely help people understand the story, well done. I have a couple questions. Actually, three questions. The first one, with regards to investment in IFAs, as you mentioned in your presentation. You had about BRL 4.2 billion of investments, plus some M&A as well. I remember, I think until recently, I think kind of like a soft guidance for investments in IFAs on a yearly basis would be to be something similar to the amortization of the investments in IFAs. Which I think was about BRL 400 million a year. How should we think about that going forward? Is that still a reasonable assumption? That's my first question.
The second question is more of a housekeeping item. I was looking at your adjusted gross cash flow. For the second quarter, it's a bit different versus the number that you guys published. I think there's almost a BRL 600 million difference. I just want to understand what was the change there. I think you guys had about a BRL 9.8 billion in gross cash flow, and I think now it's around BRL 9.2 billion, to understand the difference. My last question is more of a strategic question. Thinking of your business going forward, of course, very successful investment platform. You've been adding new businesses to your core business, cards, the bank, and so on. When you think of your business today, including these new products, what are the areas that you think you are not in yet that you'd like to be? I don't know.
I'm thinking acquiring, maybe be more a digital bank. How should we think about your business five years down the road? Would it still look very different from what we're having today with these new products or maybe more of the same? Thank you.
Thank you, Teres . Regarding your first question about the IFA amount of annual investment, it's hard to tell. You mentioned about a soft guidance. Probably, when we get that kind of question, we answer a number. I don't know if we should, but at the end of the day, it depends because we analyze case by case. That's how we do it. As I mentioned, in terms of the capital allocated in the IFA distribution network, we analyzed all the deals that we have done using several different metrics, using the data that we have for so many years with those IFAs, considering payback, return on equity, and so on. It's hard to tell how much it's going to be. What I can tell you is we do have part of our long-term contracts with our IFA distribution network.
There is a component that is upon certain performance, okay? That part of the investments, if the IFA reaches the performance that we have established in contract, then we have to pay X million additional. When we do that, because it's embedded into the same contract, it goes into that line, the prepaid expense. That's one part of the explanation. We keep doing, our network keeps growing. You can see by our number of IFAs and so on, and we keep doing some incentives and contracts with our IFAs when we think it's a good opportunity, it's a win-win situation for XP and the IFA, of course. This year, we probably are around putting all together BRL 500 million, so greater than the BRL 400 million.
If you look at the prepaid expense, it has increased a little bit this year, but it's not relevant if you go to the notes. I don't have a specific number to tell you. It could be higher than what you mentioned, the soft guidance of the BRL 400 million, but it's not going to be anything close to the amount that we have disbursed in the past, as I said. Your second question about the cash flow, you're right. You remind me something I should have said. We included in our earnings release, we included the energy, for example, and compulsory in the asset part. Energy. Thank you. Energy, that's probably what you're talking about, Tito, the BRL 619 million in the third quarter and BRL 540 million in the second quarter.
In the second quarter, we had the liability part, we didn't have the asset part of the energy because the way the accounting recognizing, this is a credit business, prepaid energy for corporate clients that we have this business here. The accounting measure goes into a line that is not considered a financial asset, but at the end of the day it is. That's the adjustment that we have made there. The other adjustment that we have made is the commitment subject to possible redemption that you can see in the liability part. That is a reduction, is about the SPAC that we have in our balance sheet from our asset management arm. As you know, SPAC stays in secured T-bills, which is a financial asset, it goes into the asset line.
The liability is not a financial asset, so was not included, and we included there. Those are the main adjustments that we have made. Your third question about the strategy, what we can think about XP 5 years from now. We are now focused on consolidating all the investments we have done. I think that's the wise thing to do. First, because we believe the strategy of those investments, they are in the right track, and we believe we can really benefit from those investments. All of the investments, they are at very early stage, so we need to focus there and put traction on that. That's going to take a while. It's not going to happen in 1 quarter, 2 quarters, not even in 1 year.
That's where I believe most of our energy is going to be, besides, of course, the efficiency part that I also talked about. 5 years from now is hard to tell. We have many ideas here in XP. We are a bunch of entrepreneurs that don't believe anything is impossible. That's 1 of our core values. We have many, many ideas. If you had asked me the same question 5 years ago, I would get totally wrong. I would not say that we would have the businesses that we have right now, and the way the company would be. It's hard to tell. We like to go step by step. That's how we got here. We like to keep our profitability. We are not satisfied with our margins.
We understand our margins, they are a consequence of decisions we have made that we believe they are in the right track, as I said, and they have a clear strategy backing them. We always think we could have been doing better. That's how we are. We like profitability. We like to go step by step. We like to feel that we can move to the next step, but we think of many ideas. We have a very small part of the financial industry. I don't have, "Oh, we are going to go into acquiring business," as you mentioned, or no. I don't have a clue to give you as of today, Marcelo.
No, Bruno. That's very clear. Thank you so much. If you allow me just to follow up on 1 of the previous questions from the other analysts. I think Thiago asked that question about the $5 billion excess capital that you mentioned in your earnings release. Which, by the way, thanks for putting that there. I think that's very helpful indeed. This $5 billion, does that include the amount of money you need to have, let's say, to do warehousing or to participate in a syndicate? How should we think about that? Or this is in addition to what you already have, let's say, allocated, let's call it your minimum operating cash, right?
No, it does. You need to separate capital from cash. To get to the $5 billion, we use metrics to adjust all our assets. Beyond the Prudential conglomerate for the whole group. That's what we do here. We adjust all our assets by risk and compare that with our available capital. Also for the whole group. We use our internal targets. That is pretty much similar to what we have in our Prudential conglomerate. That's how we get to the excess capital that we have. Cash is not an issue for us in the sense that we have an NAV, a net asset value. We could leverage our balance sheet if we wanted to, but that's a different discussion. I would answer your question, yes, everything's taken into account to consider the $5 billion.
Just bear in mind that cash and excess capital, they are not the same thing because in a financial institution like ourselves, those things get confused sometimes. This is one of the reasons that I talked about the cash flow from operations, for example, that we had to disclose from the accounting perspective. It's tricky. You cannot look at a company like XP, cash flow from operations, and your operations are not making or generating cash flow in this quarter, that quarter.
It doesn't make any sense to make this analysis because, for example, if we take a financial asset that we have bought in our asset liability parts, for example, like a government bond that is longer than 90 days, we just decide to sell and invest in something shorter term, like 60 days, it will not be there anymore in this cash flow account because it will go directly into cash and equivalent. It doesn't change anything. It's the same thing. If you go there is financial instruments payable. Basically, the banking business CDs that we issue, et cetera. If we have other financials or we are issuing CDs there, it's going to be a financing part of our cash from operations. The increase of that source of funding, because at the end of the day, it's a financing.
What matters is what you do with that money. If we buy short-term, again, matured securities, it's going to be in the cash and equivalent. At the end of the day, you're going to look at the cash flow from operation, you're going to say, "Oh, your cash flow from operation is increasing." It's not, because we had a financing part that we are investing in cash and equivalents. We are working on a better managerial cash flow that makes sense. The one that we present is accounting reasons, but it's tricky to look at it and get to any conclusion. Capital and cash is tricky. I give a long answer, $5 billion take everything into account.
Thanks a lot, Bruno and Andre.
Thank you.
Thank you, Thiago. Nice to hear from you. That was the last question. Thank you all for sticking with us. It's a busy earning season, right, Bruno? Everyone is looking at the results.
You guys are busy there, I know.
everyone's busy. We'll be happy to connect with you guys over the next few weeks to discuss the results and anything you might have interest. I don't know, Bruno, if you want to say good night to everyone.
No, just thank you. Thank you, y'all. Probably you're going to have doubts, and we released a lot of new numbers, count on us to help you understand anything you need. Thank you very much.
Thank you all. Have a great night.
Have a great night. Bye-bye.