Brooks Macdonald Group plc (BRK) Earnings Call Transcript & Summary

Welcome all to Brooks Macdonald's full year results for 2022. I'm Andrew Shepherd, CEO, and joining me today will be Ben Thorpe, our CFO. It's obviously been an unprecedented week following the passing of Her Majesty Queen Elizabeth II. We at Brooks Macdonald's deeply saddened by her passing and express heartfelt condolences to the Royal family at this difficult time. However, we must turn to the matter at hand, which, of course, are our full year results. Now today, it is our intent to take you through how we see the opportunity before us, how delivery of our strategy is progressing, where the numbers for the year have landed and how we intend to accelerate our growth profile, now we have the foundations in place. As background, our financial year has been one of much change globally with markets reacting positively as we came out of the depths of the COVID pandemic and then negatively as Putin invaded Ukraine, which then drove even higher and already rising inflation rate, which is now being followed by interest rates. This has created an atmosphere of uncertainty, which has not led to client outflows, but is certainly slowing decision-making when it comes to investment. Given these turbulent market conditions and the effect on client sentiment, if we turn to the summary on Slide 4, I am very pleased and proud of the performance of our business. Record revenue, record underlying profits and record underlying profit margin were underpinned by positive net flows throughout the year every quarter and indeed, every month, particularly impressive given the difficult second half. This was driven by our managed portfolio service, and in particular, our business-to-business investment solutions proposition. Since year-end, we've gone live on the SS&C platform, a significant achievement migrating to their systems in July. And I want to put on record my enormous thanks to all of our people who have enabled that go live, but also manage the change over the first few weeks. Major transformational change takes real commitment, and I'm proud of the way we're working together to deliver this solution. As a result of the continued strength of the company, I'm delighted to be able to announce an increase to the dividend for the 17th year in a row every year since we listed in 2005. Clearly, this shows the confidence that the Board has in our strength and in our ability to deliver on our ambitious growth plans. Turning to the opportunity on Slide 6. We've often spoken about our ambitions for growth, more on which later. But I don't feel we've reminded you for some years as to why we're so excited about the opportunity, which presents itself to us and the significant tailwinds that enable it and us. As you can see here, the opportunity for our main distribution channel, financial advisers, is immense. Wealth is gradually growing, and it is growing because, frankly, it has to. People are living longer and need to have larger pots to be able to provide for their retirement and for the erosion of asset values by inflation, never more relevant than now. This provides a clear need to invest that money for the long term. A large proportion of that saving is through pension funds and the devolving of responsibility to the individual is historically shown here with defined contribution schemes overtaking defined benefit schemes over the last decade. Equally, the number of people with no pensioning at all has more than halved in the same period due to government initiatives such as auto enrollment. We are seeing a large number of pensioners taking their whole scheme as cash, but more importantly, because there will be a lot of very small schemes in that prior figure, the vast majority in terms of wealth are going into drawdown. In both of these cases, it is imperative that advice is provided to ensure fully informed decisions are being taken that gain people the right outcomes for them. And pleasingly, on this point, on Slide 7, we can see that more and more clients are taking advice with around 50% more in 2021 than we're taking advice in 2016. It's interesting that over this period, the number of advisers has not really moved up in the same way. So capacity is an issue whilst demand is rising strongly. The need to make advisers lives easier so they can take on more clients has never been more pronounced. And we're making great strides to enable this through our partnership with SS&C, but more generally in our conversations every day with advisers. The opportunity for advice, therefore, seems to me incontrovertible. And I would strongly argue that this also applies to investment managers who support advisers. We can see on Slide 8 that it is clear that the expectation is for outsourcing investment management to continue apace, and the reasons for that outsourcing are clear and understandable, aligned to client outcomes and also to business success. DFMs are well used among small- and medium-sized advisers and multi-asset funds amongst all but particularly the larger adviser firms. On this point, our acquisitions of Cornelian and Lloyd's internationally in recent years have built up our capability in multi-asset funds and our recent price reduction of the Cornelian risk-managed fund range, which Ben will touch on later, and the arrival of Sarah Ackland to add her expertise in distribution, signal a step change for us in this space. From being a net detractor to flows, we now expect this segment to gradually increase its contribution over the coming years. This focus on building out our multi-asset fund capability will not detract from the great work being undertaken on our discretionary services. And in particular, on MPS, which as you can see on Slide 9, has continued to grow quickly at an industry level. We're targeting this market with 3 offerings: our business-to-business investment solutions and on platform offering and an offering in our own custody. And this provides advisers with the ability to tailor the solution for their clients and their business. Interestingly, it would appear that more advisers are focusing on having one provider for MPS, which very much plays to our investment solutions offering, where we're building propositions with advisers for their clients. Also interesting that BPS is still growing despite the market shift to MPS and multi-asset funds as the default solution for advisers clients. Lastly, on the opportunity. This is a fast consolidating industry, and it is very much our intent to grow market share inorganically as well as organically. You can see on Slide 10 that there's plenty to go for in terms of market share, particularly in the MPS multi-asset fund and private client segments. So in summary, on Slide 11. Firstly, overall wealth is increasing because it has to. Secondly, the demand for advice is increasing due to the devolving of responsibility to the individual and the choices available to them. Thirdly, outsourcing by advisers continues apace so that they can reduce risk in their firms, they can focus on clients and financial planning. They can offer high-quality outcomes to those clients. And fourthly, the opportunity exists to build market share through the acquisition of quality assets. And this is the opportunity, which I've described today, which allows us to come here to sit here today to present these strong results we have here, with which I'll pass on to Ben to go through the progress we've made on delivering our strategy and our results and numbers.

Thanks, Andrew. Good morning, everyone. I am presenting 2 sections today. Firstly, setting out how we have successfully delivered on our strategy over the last year; and then secondly, putting out the key highlights from the financials. I've kept this brief today given this is covered in the RNS in detail, and we have a lot to cover on the opportunity, strategy delivery and our ambitions for the business. Turning to Slide 13, my first slide. You have seen this picture before, but it is always worth a revisit. We have a clear mission and purpose and our vision is to be the leading investment manager for intermediaries. And FY '22 was a very strong year of delivery towards this goal. I also think it's worth stressing that we are ambitious. We want to lead and shape the industry. As we have just set out, the opportunities are huge, and we are in the right place to capture them. We are focused and clear on how we create value and the 3 value drivers of market-leading organic growth, service and operational excellence and agile high-quality M&A underpin all our actions. And encouragingly, we have made strong progress on each of these this year. We put a lot of store in maintaining our credibility and track record as a management team, and we do this most effectively by doing what we say we will. Based on this year's deliveries, I believe this shows that we mean business. This clarity of thought, combined with our delivery capabilities, in my mind, sets us apart from the competition. And more importantly, the high margin we have delivered gives us the ability to invest back into the business to ensure we capture an outsized share of the huge opportunities that we see. So let's now go through some examples of what we have done this year. So turning to Slide 14. We have made huge strides on net flows over the last couple of years, and we are now solidly back into positive territory with a very respectable 5.3% net flows in H2. However, we are not planning to stop here. Andrew will talk about our ambition shortly, but we see lots of opportunities to increase gross inflows across the whole product range. And reassuringly, we expect outflows to continue to moderate over time. Turning to Slide 15. I think this is an excellent example of why we are confident about achieving market-leading levels of organic growth going forward. As Andrew said earlier, MPS is the fastest-growing part of the adviser market. And over the last year, we have been successful in capturing that growth, and we have won market share in a highly competitive space. This is the result of 2 things. Firstly, we have enhanced our regular platform NPS distribution, investing in the team, and we are now on over 20 platforms. This is working, and we had 98 new IFA supporters in the year. Secondly, we have Brooks Macdonald's Investment Solutions, and this has gone from strength to strength, and we have double funded under management in the year. Increasingly, as we set out earlier, IFAs want to work with just on MPS DFM provider. And over the year, we've become first choice for 9 new supporters. The key to our success is culture, something which is not easy to emulate. IFA Sears as the right long-term partner for their business and their clients. They see that we have a culture based on doing the right thing and making the right judgment calls, successfully balancing risk and return, and they value this, and they want to work with us. When we combine this strong cultural advantage with a proposition that aligns with their advice process and delivers the right outcome for their clients, it makes what it's a big decision for IFAs, a much easier one to make. We have a strong pipeline of business opportunities, and we expect this, combined with our reinvigorated MPS proposition to drive growth over the medium term. Turning to Slide 16. Here is an example of where we have taken decisive action and are leveraging our strong financial position to underpin our medium-term growth trajectory. In this case, in our funds business and in particular, our suite of risk managed funds. This range of funds was acquired when we purchased Cornelian and is attracted to those IFAs who used multi-asset funds to deliver their investment offering. However, pricing in multi-asset funds has been moving rapidly. And we believe by being bold, we can avoid further outflows and then move quickly back into positive territory and win market share. This will impact revenue in the short term, but we expect to break even within 18 months or so and then the rest is all upside. This move, combined with the hiring of our new Global Head of Distribution, Sarah Ackland, should power a step change in our funds net flow performance over the years ahead. Sarah joined us from Liontrust, where he is head of the multi-asset business. And before that, she's head of the U.K. funds business Architas prior to its purchase by Liontrust. Turning to our next final driver of service and operational excellence on Slide 17. We are incredibly proud of our achievements in going live with the final components of our system and process transformation with SS&C in mid-July. This is a huge milestone for the group and one that we have accomplished in a little over 18 months. As many of you will know, replatforming is fraud with pitfalls, and we have definitely navigated the challenges to go live on budget and only slightly later than first planned. It wasn't easy, and there are things that we still need to improve and that need to be embedded, but the platform is now in place, and we can rapidly move from embedding to benefit realization in the weeks and months ahead. The benefits of this change are many from enhanced client and adviser service levels to improve efficiency and operational gearing. This new platform is key towards maximizing value creation for both our organic and inorganic ambitions. It is worth reminding everyone, again, that this partnership is built around a tiered basis point contract lasting for the next 9 years or so, which is clearly helpful in these inflationary times. The marginal cost of adding additional assets from here on in is now very small. This is a game changer for the group. Turning to our final value driver on M&A. The first key point is that we have all the capabilities in place to do M&A and do it well. We have a well-tested internal capability to execute deals supported by a comprehensive ecosystem of high-quality external advisers. We also have a strong network in place across the industry. We are well connected, and we have good insight on what assets are coming to market. We think and act proactively and when we act, we can move at pace. Once acquisitions are over the line, we then have a strong internal integration capability to ensure that businesses are quickly and successfully integrated and that benefits are delivered as expected. We have tested these capabilities over the last 2 years with excellent results. We now have another acquisition close to completion with the acquisition of Integrity Wealth Solutions, and this is expected to complete shortly. This transaction will provide insight into the IFA market and provide scale and capability to our existing advice operations. These capabilities and our recent acquisition track record, combined with the SS&C go-live and our ambitions, mean we are now well placed to create further significant value through M&A. Andrew will talk more about our ambitions later and the types of deals we are looking to do. Now to the results. Turning to Slide 20 on the section on the FY '22 financial results. We are very pleased with the financial delivery in the year, and all our key metrics have moved in the right direction. As expected, second half performance was not quite as strong as H1, but this was due to the market backdrop. However, overall, we are very happy with where we have finished up for the year. Total revenue was up by 3.4%. Underlying profit was up by 12.7%. The underlying profit margin increased to 28.2%. Underlying diluted EPS was up by 12%, and we are pleased to announce a final dividend of 45p per share, taking the total dividend for the year to 71p, which is up by 12.7%, in line with underlying earnings. As I said earlier, I'm keeping this section brief. So I'm going to cover 4 key topics only. These are revenue yield, underlying costs, capital and guidance for FY '23. But always, I'm happy to take any questions shortly. Turning to yield on Page 21. As expected, the group yield is down year-on-year due to lower transactional income and the impact of mix. As we highlighted at the half year, we saw weaker transactional income off the back of lower activity in client portfolios due to a stable asset allocation in H1. However, activity did pick up in H2, and we have delivered slightly ahead of the 2.5 bps increase we guided back in January. Discrete product fee yields were broadly stable with any reduction being due to the movement from outflows to inflows in BPS year-on-year or more broadly, IFAs benefiting from our tiered rate cards, which share the benefits of scale with IFAs and their clients. Turning to underlying costs on Slide 22. Cost discipline is a key part of why we have been successful and how we have continued to deliver margin progression against the tougher external backdrop. We run a tight ship and to 0-based cost every year. The year-on-year increases in the chart were predominantly driven by the full year impact of last year's Lloyds Channel Islands acquisition and the increase in performance-based pay associated with higher profits and also the increase in T&E due to us getting back in the office. These have been offset in here by the impact of a number of cost-saving initiatives, our digital transformation, some good news on the FSCS service and the release of prior year tax accruals now that we have come to the end of our corporation tax from bad review project. To change from an in-house traditional IT and ops cost model to the outsourced model we now have with SS&C delivered a net reduction of GBP 2.5 million in the year. The majority of this related to onetime benefits associated with the transition between the 2 models and the slightly delayed full system switchover. An example of this being depreciation, where our historic platform was fully depreciated by midyear, but we don't start depreciating the much smaller setup costs associated with the new one until FY '23. Overall, we expect cost growth to be mid-single digits into FY '23 with costs expected to increase to the low GBP 90 million. Turning to my penultimate slide on capital, Slide 23. We remain very well capitalized and are now producing meaningful amounts of surplus capital every 6 months, from which it can drive increases in the dividend and fund the investment in the business increasingly through bolt-on acquisitions. We expect the Integrity Wealth Solutions acquisition to complete shortly and that we utilize a 1/4 of our current surplus. And we are also looking to do other similar accretive deals over the months ahead. The dividend payout ratio was held flat in the year, but given earnings growth, we still delivered a strong increase of 12.7%. And you can see that we do have room to move this upwards in the years ahead. And finally, turning to Slide 24 and guidance. As we stand today, our view of FY '23 underlying performance is in line with current market expectations. I'm sure you want to mark your models to market, but I would note that the impact of the investment in growth for RMF funds will pretty much offset that matched mark-to-market. But given the strength of our progress in FY '22, we can now deal with the impact of lower markets and have the capacity to invest back into the business at the same time and still deliver a margin in the mid-20s. On flows, medium term, we remain confident that we can deliver on our ambitions of 8% to 10%, and performance year-to-date has been fine for what is traditionally a quiet quarter over the summer. So in summary, another strong year. The size of the opportunity, combined with the quality of our people and the strength of our delivery mean we are excited and confident about the future of the business. And I'll now hand you back to Andrew.

Thanks, Ben. Looking to the future on Slide 26, our intent over the medium term is to become a top 5 wealth manager in the U.K. and its Crown Dependencies. Specifically, as previously stated, we are aiming for top quartile underlying profit margin. We're also looking at net flows between 8% and 10%, which combined with 5% market increases over a 5-year period, doubles our FUM every 5 years. Combine this with similar growth through acquisition, and we believe that you have the top 5 business we are ambitious to become. So how are we going to achieve this? As Ben has mentioned, culture is a key focus for the business, and this culture is built upon our guiding principles that we care, that we're connected, that we do the right thing and that we make a difference. And you'll note that the title of our annual report and accounts this year is making a difference. These keep the business focused on the drivers that make us a firm and a group of individuals that clients and advisers will want to work with. Ally that to strong long-term investment performance and being easy to use, and you have a powerful business case. We need the right set of propositions, more on which in a moment, and the distribution capability to take it to market. And our decades of accumulated knowledge and experience of the adviser marketplace as well as our constant conversations help to ensure that we're in the right place at the right time with the right proposition. That proposition set is where our medium-term organic growth will be sourced. Specifically, the development of investment solutions as a primary delivery mechanism for our platform MPS has made great strides and built great relationships with a number of adviser firms and the pipeline here does look strong. Building long-lasting relationships with advisers has powered our long-term success, and we're working hard to understand the requirements and to deliver for each individual company. As we've said, in multi-asset funds, we have the proposition set, now we're investing in the distribution of it. And given the size of the price, we're excited to see what we can achieve here. And BPS remains at the core of our business but with a different role than was the case a decade ago with a focus on really adding value where clients need it and are prepared to pay for it, such as decumulation, weather need portfolio is organized to provide for tax requirements for vulnerable clients or where clients are particularly sophisticated, indeed, also clients who just want their hand holding through the whole process. Private clients have always been an important part of Brooks Macdonald, and Martin Lindsey and his team from Integrity will add great capability and experience. We're really looking forward to their arrival later this year. As such, we feel we have the right set of tools to power our organic growth. But to be top 5, we need to match inorganic with organic. And on Slide 27, we detail that we see this as being across three categories. Investment managers will clearly add scale, but they also allow us to take advantage of the high levels of operational gearing enabled to us through the SS&C partnership. Advisers who we know well and are considering either an exit strategy or how to focus their time and their business on their clients rather than running their operations are always welcome to talk to us. And sometimes, this will lead to them joining Brooks Macdonald Group, such as with Integrity. A transformational deal would be a step change and would enable a combined stronger group to focus that strength on maximizing and accelerating -- take advantage of the opportunities, which we've laid out today. In all of these, our long-held acquisition criteria are key. We do not need to hoover up poorly performing businesses that need fixing. We want quality businesses that are going to add value to us as a whole. That strategic value comes in many forms, but examples would be the Cornelian and Lloyds deals, where the multi-asset funds have given us critical mass in that universe, both in the U.K. and overseas. We also need to extract economic benefit from any acquisition, but so does the seller. So we're looking to pay a fair price. And finally, and crucially, we must have a strong cultural fit with any business that we're joining with. Without this, no transaction work, particularly true in wealth management, where it is very much a people business. Looking at Slide 28. In summary, we feel the tailwinds, our vision, knowledge and reputation, together with the proposition we have in place, our centralized investment process focused on quality client outcomes and our market-leading digital capability, leave us well positioned for future growth with an experienced and ambitious team set to deliver on the opportunity. And to close with Slide 29. I am very proud of what we have achieved and very proud of our record of delivery, which has put us in such a strong position, and I'm very excited for the future and what we can achieve. Thank you.

Question from Paul Bryant from Equity Development please go ahead.

Thank you, Andrew, and then 2 from me, probably linked. The appointment of Sarah Ackland, could you talk us through what that means in terms of changes to distribution and new business targeting? I mean is there going to be more of a focus on particular products, geographies, that sort of thing? Then the second one, and it's probably linked, the international business, how do you see that in terms of its potential almost as a proportion of the whole group, given the growth strategy? Do you see that being a bigger or smaller proportion?

Many thanks, Paul, and good morning, all. Okay. So 2 questions in. The arrival of Sarah Ackland. So we've been in the process of redefining the propositions over quite a period of time now, and we feel that we've now got the foundations in place to really drive forward the distribution. But what we needed with someone to come in and actually own that part of the business, both the sales and the marketing. Sarah's a fantastic individual, really fits into the culture of Brooks. She's only been here 10 days, and you can clearly see that already. But her experience very much in the IFA world and very much in multi-assets, specifically multi-asset fund Architas and then multi-asset, in general, including MPS at Liontrust. She's responsible for the full gamut of products and services that we have. What I think her arrival does say is that we needed to bring in further expertise in the multi-asset fund world. We are very strong in discretionary sales but not so strong in the sale of multi-asset funds. So we're anticipating that her experience will help us to win more market share in the multi-asset fund world. So Ben, do you want to jump in.

Hi Paul, and good morning everyone. In terms of the international business, we -- as we said before, we firmly believe we can grow in line with the rest of the group, 8% to 10%. So as Andrew mentioned, you add on your 5% market, and we expect it to be able to double every 4 to 5 years, in line with the group. So on that basis, it gets bigger, but on the same proportion. . But it's an exciting opportunity in the Channel Islands, the Crown Dependencies and internationally with trust IFAs and direct private clients supported by a recent acquisition of Lloyds. So actually, we think there is ways that we can supercharge that growth. And actually, in terms of our ambition of being a top 5 wealth manager, it's not just in the Mainland U.K. it is in Channel Islands as well. So it's a really exciting time for that part of the business. And it's been through tepid times, but it really is coming out of the other side. It's a great team, and we expect it to push on.

The next question comes from Ben Bathurst from RBC.

I've got three, if I may? Firstly, on digital transformation. So congrats on going live with the client and adviser processes. I just wondered what the next milestones are on the digital journey? Secondly, the investment in price in multi-asset. I wondered, following that repricing, do you consider your charges now to be below the average market rate or in line with the market rate? Some color there would be helpful. And then elaborating maybe just a bit more on that decision. I wonder if you could just sort of share your thinking around the decision to invest in price in the multi-asset funds proposition rather than perhaps cutting fees to further an MPS, where you've obviously shown very strong growth recently, but there's arguably a kind of a cleaner growth opportunity? So any insight on that too, and that decision would be welcome.

Let me kick off on digital and Ben will chip in and will go into repricing and acquisition. So from a digital transformation milestone perspective, I mean, first things first, it's ahead of an achievement to go live on a change transformation project of that side. And as I said in the presentation, I'm really proud of the team and the assets that they've made to get us there and then to get us through these first few weeks of change as well. Now we are into that process of refining, actually using systems in live gives you the experience that you need to meet the refinements that you need to make. So we're going through that process, going through the process of embedding and we were 17 years on the last system. So it is a big change, and it does need embedding. And then it's a case of realizing the benefits over a period of time from the changes that we've made. Whilst we do that, we're constantly looking at, okay, what can the systems provide us to, a, improve the service that we're providing to clients; and b, how do we make advisers lives easier, as I say in the presentation, we need to allow them to look after more clients, and we can really play our part in that. So it's -- there's research to be done as we go through these early days of using the system to see how we can best improve things. And there's also -- there's a big opportunity around AI for us here. We've now got control of a lot of data that we can use to improve the products that we take to market but also our understanding of what clients and advisers need. There's a real opportunity there.

Yes. I mean a couple of points I'd add to that. Once it's embedded, we do believe there's benefits that can be extracted, both in terms of further improvements in service levels and insight but also in the way we operate to make us more efficient. And that should lead to lower costs in the medium term. I think the big price here over and above the many we've always listed, the two big ones in my mind. One is really getting this piece of kit integrated into the IFA business process, talking to their systems, which we're already doing in part with Intelliflo and that will just make the whole journey so much more easy. But the big milestone for me is making the most of this platform and the operational gearing, which is getting as many assets as we can organically but also inorganically. That is a huge price. And I pointed out many times, but this been a kit -- a great bit of kit. There's no real inflation in that contract. That's -- a lot of people are looking at the technology costs and operations costs and thinking, wow, add 5%, 6% to that of year is becoming a big number. We are not going to have that issue. The only reason we're going to pay us and see more is if we're successful in growing assets, which is clearly really good alignment. I can go on to talk about pricing as well in terms of multi-asset funds. We clearly did a lot of work before we made that price reduction and the distribution team got a lot of heat for me whether we can really make that play. And we believe we can. We've got a very compelling proposition, very supportive IFAs, very -- distribution team. We've now go Sarah on board. In terms of the actual pricing, we're about in the middle at the moment just -- which I think is where we want to be. We were at the more expensive end. However, it is a great proposition. And you also got to think about the OCF and the add-on costs. And again, we're very well placed on that. So we think we're exactly where we need to be, but we always keep pricing under review.

But also say you've got to look at it in comparison to where the rest of your product set is in pricing. And I think we're really comfortable with where we are now. I think when you look across MPS, the math, then BPS, we're constantly -- it's the stack isn't it? And what added value we're bringing for the extra money that we're charging in each part. And I think we've got -- we're in the right zones in each one. We're not the cheapest, but we don't need to be because of the quality that we're delivering, and we're very comfortable.

Yes. I think that logic goes into MPS. We've chosen to invest in multi-asset funded costs as Andrew set out, there is a huge opportunity there. One of the adviser market is using multi-assets funds. We've got 1%, 2% market share, that's not enough for us. Actually, we don't really need to invest in price on MPS at the moment because we're doing so well as it is. The actual proposition, combined with the strength of our culture, it's growing at 6% annualized rate. We can get better than that. And as I mentioned earlier, we're selling it at the face value of 20 bps. And that's not where we're facing pricing pressure. .

Sorry.

No, was just going to say thanks for the answers. Might just follow up on MPS, if I may, by just asking -- I know if you look at sort of sequentially half flows work through in '22, MPS, end of the year, being a high proportion of flows. Should we expect it to be similar mix in '23, notwithstanding maybe some comments around caution given the macro?

I would expect it to be a similar proportion in '23. I would -- our aim would be for '24 to be slightly more balanced. Those stats that Andrew put out at the beginning of the presentation about where the growth in the market is, you can see outside the MPS. Therefore, MPS Investment Solutions is going to be the engine of growth, probably for this year, maybe 80%, but in the medium term, maybe 50% to 70%, depending where the rest of the products stand out. Funds may pick up more slack actually in the medium term and maybe bring us down to 50%. But I think for '23, to answer your question, I think we are broadly similar shaped expected.

The next question is from Stuart Duncan from Peel Hunt.

I've got three questions as well, actually, if that's okay. The first one is actually going back to Slide 8 in the really helpful details of market opportunity. The chart on the right-hand side where there's a sort of step change from medium-sized adviser firms down to big adviser firms and the -- I guess it falls off a cliff in terms of outsourcing to DFM. I'd just be interested in any sort of color on why that's the case? Second question is you've obviously made very impressive progress in operating margins in the last few years. You're obviously reinvesting some of that. I just wonder what the sort of right level of operating margin is, particularly given you some comments about being sort of top quartile in terms of the sector? And then lastly, just on the M&A opportunities. I just wonder whether you could sort of, I guess, comment given the sort of level of private equity capital looking at the sector, whether there's as many opportunities that you'd actually even think about compared to previous years?

Okay. Cool. We'll start and -- it. I'll start at the top and dive in on the op margin. So larger drivers. So in that large adviser world, which we haven't previously really considered to be our space, it's most often the case that they are undertaking their own investment management solutions. So in some cases, you've got -- they've got their own DFMs. But in some cases, you are -- they're giving advice around the investment solution, which, in that case, may well be okay, we're going to buy 1, 2, 3 or 4 multi-asset funds, put them together as a solution for the end client. That is their investment solution so they use multi-asset funds to do that. So that is an area that we haven't really played in before. We are making good strides with networks of IFAs, which are some of the larger ones. For example, one of the biggest, we have one of our multi-asset funds sits on the buy list, so that very purpose to be part of the portfolio of multi-asset funds that they buy. But the actual outsourcing of those big firms to DFM is rarer because they're normally building their own solutions.

Yes. On operating margins here. I mean, I think we've -- when we said top quartile, continue assessing what that means, but over the cycle, I think that is 25% to 30%. We've clearly just delivered results at the top end of that. And market is slightly weaker in H1, so we would expect to sort of move sideways or slightly backwards on that basis. But we've got that strength to invest back into the proposition, which is what we're doing with on the multi-asset funds. So this year, we're looking at 25%. So that's the range I think we would expect. When we get to the top end towards 30%, we look to do something with it. But that's on an organic basis, assuming 8% to 10%. If we do -- when we hopefully do larger transformational deal or even actually synergy-led investment management deals, depending on the size of that, they can actually really turbocharge the margin over and above 30% because if you use Cornelian as an advantage -- sorry, as an example, we brought that business in, it was a 30% margin business. Within 6 months, it was a 70% margin business. So actually the way that -- when we add that into the group, if you do a big version of that, the whole group could move into the high 30s. So it really just depends on the shape and the speed of our M&A. But the core organic -- the business on this current trajectory is somewhere in 25% to 30% over the cost cycle.

From an M&A perspective, I mean it is still a competitive environment out there. I think for PE, it's probably slightly less competitive than it used to be with the cost of debt financing for them. But we're seeing plenty of opportunities. But it does tend to be -- whether we're successful or not tends to be culture-based. So -- and I think that's absolutely right. The criteria we have, which I mentioned in the presentation, the culture of it is just key in. We have companies coming to us and asking us about, is it right for us to come together for us to join the group. And that's because they look at the culture of the business and how we run it and how our people interact with other people outside the business and they're comfortable that that's something that they want to be a part of. So I think that's hugely important. We will look across all three of the categories that I mentioned earlier. I'd say there are conversations going on all the time as they always are across the industry. And as we take off these acquisition criteria, then we'll have more to say about it. But I actually feel that we're in a better place now than we were a year or 2 ago to challenge for really high-quality assets.

We have questions from the web. Alick, please.

Thank you, France. We have three questioners on the web. First, Tim Valmas from Numis, who asks, how should we be thinking of the impact of the SS&C platform and growth through M&A?

Well, as I mentioned in the presentation, it is the game changer. It's a key point. We now have the ability to integrate businesses and put them onto that platform, de minimis additional cost. We could double in size in terms of funds under management and only put a few hundred thousands of additional costs into the mix from an operation and technology point of view. So that clearly gives us great gearing. Also, gives us the ability to pay a little bit more for those assets because -- when it comes to synergies, we can deliver more with confidence than the next company. So it's hugely important to our ambitions to be a top 5 wealth manager in the U.K. And increasingly, especially at times of high inflation, the shape of the contract gives us the ability to know we're going to have a higher margin, we can capture that growth. But it's going to allow us to spend money investing back into the proposition while others are going to have to spend that money just paying for their existing platform and inflating it. That is also a huge point of differentiation which when we signed the contract, we thought it was good, but today, we think it is excellent and really stand out. So it's very important and we're extremely pleased to have gone live pretty much on budget and just slightly later than first thought, but I think that is a great result compared to the trials and tribulations that many have had to try and get these things over the line.

The second half of the question is about growth through M&A.

Well, as I said, I think it is the platform through which we'll do that, and it will allow us to win through paying decent prices for things. And yes, it's critical.

Okay. Second question is from Ben Williams from Shore Capital. What are your financial criteria for acquisitions?

Okay. In terms of financial criteria, as I said in the presentation, it's about paying a fair price. Again, it comes back to culture a little bit, to be honest, you need the seller to feel that they've done okay. And you need -- we obviously need that we've done okay. We want to see good ROCE and/or good EPS accretion.

Yes. I mean it depends on the size of the deal. But I mean, if we look back at the Cornelian and Lloyds deal, we were looking for 10% EPS accretion, which -- or given the size of those deals was actually amazing something that I can take it to wealth, a bolt-on in device, you're looking probably more like 1% or 2%. In terms of return on capital employed, we'd always be looking to get somewhere close to 15%. Not every deal is going to hit those metrics. But with the SS&C platform for the investment management type synergy that does, we'd expect to be at the top end of those metrics.

Yes. And it also depends what is the strategic value that you're gaining from the deal because it might be about, okay, this is really going to boost our short, medium and long-term inflows. So it does depend. But in general, we're looking for good ROCE and good EPS accretion.

The final question on the web is Rahim Karim from Investec. He has two questions. Firstly, do you believe that the strong market share gains in MPS have been affected or helped by the upheaval of dividends? And his second question, where we have strong PE interest in U.K. wealth markets and the impact on valuations. Can you talk to the competitive dynamics for assets within the international business and whether this helps reinforce the decision to broaden the opportunity set?

I think on MPS, I think we would like to put it down to all our own hard work actually rather than somebody else's issues. The MPS proposition we have and -- combined with the distribution capability we've got and our culture is resonating very well at the moment, and we've been very successful. Combining that with the investment solutions delivery mechanism of our MPS platform. We believe stat that's the strength. So I think it's all of our own making really.

In terms of competitive dynamics for assets internationally, is in a different space. And I would say that the U.K. is more competitive from that perspective, particularly when you look at, for example, PE adviser firms in the U.K. I think there's something like 30 PE backed consolidators in the U.K. That doesn't exist in that way in the international space. And though I'll try enter the Crown Dependencies space, that's not -- that doesn't really exist and internationally. Whilst we're not looking at the international acquisitions, I'm not seeing it there either. So when we do want to undertake an acquisition internationally, again, it's more about culture. It's more about the two businesses, how they'll work together rather than us sitting in a competitive bidding process with half a dozen other people.

Thank you. That completes the web questions. Back to France for any last telephone questions.

There are no further questions from the line. This concludes the question-and-answer session, and I would like to turn the conference over to Andrew Shepherd for any closing comments.

Brilliant. Thank you very much. Thank you all of you for your time this morning and for your questions. And clearly, I hope you know, Ben and I are available for questions as and when they come up as well. So we look forward to speaking to you in the not-too-distant future.

Thank you.

Thanks very much.