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

Welcome to Brooks Macdonald's Full Year 2023 Results Presentation. I'm delighted to have with me here today our Chief Financial Officer, Andrea Montague, 6 weeks into the job, and I'm pleased to say, fully immersed in the role. With Andrea's arrival and that of Louis Petherick, our Chief Risk Officer last week, we now have a complete and strong executive team with a variety of experience to drive forward our ambitious growth strategy. The year to 30th of June 2023 was characterized by volatility in equity and bond markets with the war in Ukraine continuing throughout the period, inflation in developed economies driving interest rates quickly higher and extreme political uncertainty in the U.K. all contributing. In this context, I'm pleased with the solid results we've been able to deliver in line with expectations and maintaining a robust underlying profit margin. I'm particularly pleased with the net flow position, which has shown continued progress in prior years. The high-quality acquisitions we have made, which are already contributing both to the bottom line and strategically, and the progress we've made implementing new technology across the firm, all of which has given the Board the confidence to recommend an increased dividend for an 18th consecutive year. I'm also pleased to welcome the recently implemented consumer duty, increasing as it does our industry's focus on providing good outcomes for our clients, and thereby, I hope improving our collective reputation and encouraging potential clients to trust us to provide them with quality advice and investment management. Finally, I'd like to thank all of those at Brooks Macdonald for the effort they've put in to produce these results in such a challenging year. With which, I'll pass to Andrea to give the financial update.

Thank you, Andrew, and good morning. I'm proud and delighted to be here in what for me is day 32 as Chief Financial Officer of Brooks Macdonald. So why have I joined Brooks Macdonald? It's a strong business, serving a growing market with strong fundamentals, which meet a genuine need for society with the provision of wealth management and integrity of financial advice. It's easy for me to see why the business is resilient and has continued to thrive and prosper over several decades. What I've learned, even in the short time I've been here is that we genuinely put our clients at the forefront of our decision-making. I look forward to working with my colleagues to ensure that we continue to grow this business for the stakeholders over the long term. Over the next 10 minutes, I'm going to take you through the key points of our performance for full year 2023. Let's start with the headlines on Slide 6. We have said a year of solid performance, delivering full year '23 results in line with market expectations, despite a backdrop of challenging macroeconomic environment that saw average markets fall by 6% year-on-year. We have continued to make good progress on our strategy, achieving a year of positive net inflows and progressing our inorganic strategy by completing the acquisitions of Integrity and Adroit during the year. Revenue, including the impact of acquisitions and interest income, was up on last year to GBP 123.8 million. Underlying profit is down 12.2% to GBP 30.3 million, notwithstanding delivering a robust underlying profit margin of 24.5%. The balance sheet remains strong with net assets up 6% to GBP 157.3 million, with a healthy regulatory capital buffer in excess of the minimum requirement. As a result, we're pleased to announce a final dividend of 47p, giving a total dividend of 75p for the year, up 5.6% on last year, demonstrating the Board's continued confidence in the group's medium-term growth ambitions. Turning to Slide 7. I've included a summary of the key financials splitting out revenue and costs, which I will cover in more detail shortly. Looking at Slide 8. Overall, the group's total funds under management grew 7.5% over the year, closing the year at GBP 16.8 billion. The increase was driven by positive net flows and investment performance, which was ahead of the benchmark index. As disclosed in our Q4 update, pleasingly, net organic flows are up 5.2% and in line with the guidance given despite a softening industry backdrop. Underlying that, UKIM achieved GBP 934 million of net inflows in the year, driven by record MPS platform inflows of GBP 1.3 billion. representing a 65.6% organic growth rate. This was offset by outflows in BPS and custody MPS and also within funds in the international business. The details are included in the appendix to this pack. Whilst we have seen strong growth inflows, there has been a recent sector-wide trend of heightened outflows with increased interest rates seeing clients moving to cash holdings and debt repayment. We expect these headwinds will continue to impact outflows, resulting in negative net flows in Q1 for FY 2024, which Andrew will cover in the outlook later. Turning to yield on revenue on Slide 9. On an overall basis, the group's yield for full year '23 was 71.6 basis points, an increase of 1.2 basis points from the prior year, including interest income. As you can see in the bridge, nonfee income yield was up 6 basis points due to the increased interest rates seen across the period. As we previously communicated, we relaunched our Cornelian fund at the start of the year with a lower fee card, and that reduced the overall yield by 1.3 basis points. On product mix, the strong flows into platform, MPS have increased the proportion of average funds under management from 11% to 17% over the year, while BPS decreased from 55% to 51%. The MPS products have a lower yield, and this shift in product mix contributed to the overall yield reducing by 3.1 basis points. As usual, we have included the detailed yields table in the appendix. Looking at the revenue table. Fee income was down 10.1% to GBP 91.5 million due to the impact of the mix of flows that I just referred to. Transactional and foreign exchange trading revenue is down 9.5% to GBP 13.3 million due to lower trading volume in the year, reflecting greater investor caution. Financial planning revenue is up GBP 6.6 million with the initial contributions from the acquisitions during the period. As you are aware, we completed the purchase of 2 advice businesses during the year, Integrity and Adroit. I'm pleased that they are integrating well and teams are settling into the group with robust business plans in place. Together, the acquisitions contributed revenue of GBP 2.5 million and an underlying profit of GBP 0.5 million to our full year results, and we see growth potential and need to improve the group's profitability. Finally, on revenue, interest income was up significantly to GBP 12.4 million given the rise in the Bank of England base rates. Interest income is an important part of our business model, one we see as cyclical and [ access of all to fee income ]. We review the interest we pay our clients on a quarterly basis. We would expect full year '24 interest income to be slightly down on full year '23, reflecting lower average client cash deposits. We will continue to benchmark the rate pay to clients and ensure a fair and competitive rate. Turning to Slide 10 on costs. We've worked hard across the year to combat the inflationary pressures seen across the entire industry. The total cost base, including acquisitions, was up GBP 5.8 million, representing an increase of 6.6% in line with our guidance. Acquired costs accounted for GBP 2 million of additional costs in the year. Looking at the cost bridge. The key components are inflationary increases in staff costs of GBP 2.9 million to ensure we continue to retain and attract key talent and GBP 5.8 million net investment in the business. This included costs in respect of explored inorganic growth opportunities, which we did not proceed with as it did not meet our strict acquisition criteria as well as investment in our digital transformation with SS&C. As we communicated previously, we completed our migration to the SS&C platform at the start of full year '23 which saw an increase in run rate cost of GBP 3.2 million. In addition, we recognized transitional service credits of GBP 1.1 million, which we would not expect to repeat in full year '24. We therefore expect the gross annualized run rate of SS&C costs for full year '24 to be broadly in line with full year '23. Since the migration, we continue to embed the platform and processes into our business. Andrew will talk more about the strategic and operational benefits from the platform shortly. We welcomed the FSCS levy reduction. However, we expect the full year '24 levy to be in line with full year 2022 levels. Looking forward, efficiency will be a key focus for me in full year '24, and you can expect to hear more from me on this throughout the year. Turning to Slide 11. The group remains well capitalized with a surplus of GBP 15.2 million in excess of its minimum required capital. Finally, looking at our cash movement during the year on Slide 12. Overall, cash reduced by $7.9 million, which included $15.4 million spent in the year on completed acquisitions. We continue to see good cash generation and the group remains debt-free. I'm excited about the medium-term opportunities for Brooks Macdonald. With a unique culture, strong brand and broad client offerings, we are well placed to deliver growth. I'll now pass back to Andrew for our strategy and outlook.

Thanks, Andrea. I'll now provide an update on our strategic delivery. To kick off from Slide 14, I want to remind you briefly of the fundamental structural opportunity we have to grow our business and the reason we're so excited about the future for long-term savings and wealth management in the U.K. The incontrovertible truth is that we are living longer and therefore need larger pots of money to be able to fund our [ lengthened ] retirements. As opposed to yesteryear, when your company provided you with a final salary pension and we didn't need to worry about how we were going to look after ourselves, the onus is now very much on us to provide for ourselves and to plan for our futures and indeed for the next generation. The vast majority do not have the expertise or knowledge. For example, to make the most appropriate choices with regard to pension freedoms and need to take some advice. And as you can see in the top right chart, ever-increasing numbers are indeed doing just that with 2022 continuing the trend which has been in place for some years now. As such, the organic opportunity for our industry is significant and expanding, driving the growth of financial advisers, including our own. And in the continuation of another trend, IFAs expect to outsource more and more of the assets they advise upon across Bespoke, MPS and multi-asset funds with the consumer duty helping as RDR did a decade ago to drive the rationale for DFMs to partner with advisers to provide the best possible outcomes for clients. Inorganically, the opportunity remains to consolidate a fragmented investment management industry and even more so IFA community, as shown by the number of private equity-backed consolidators active in the market. which also underlines the strength of the market opportunity those private equity firms are seeing. Turning to Slide 15. This opportunity propels 2 of our 3 value drivers with organic and inorganic growth across advice and investment management key to future value accretion. As is the third driver, which complements the other 2, providing a constantly improving high-quality service and running an efficient and effective business model. Looking at all 3. As Andrea stated, you can see on Slide 16 that our gross flows have been extremely strong, up to over 19% of starting funds under management and I can confirm this is the highest level of gross flow we've seen at Brooks Macdonald. So I'm delighted to be able to say that the organic engine for growth is firing well. However, it is also the case that market conditions and, in particular, the extremely fast raising of interest rates is driving a higher natural rate of attrition than we would typically experience. When the cost of your personal debt has trebled, the reality is it can be good advice to reduce your payments and pay down some of that debt. We are in that part of the interest rate cycle where a greater proportion of assets will be used for this purpose or, in some cases, to meet the higher cost of living rather than invest for the long term. Now that is the short-term reality. But looking at the long term, as individuals, we must invest for our retirements. And we believe at Brooks Macdonald that we will capture those flows because of, firstly, our partnership culture, for example, with advisers through Brooks Macdonald investment solutions or with bodies such as the Professional Cricketers Association, where we provide financial well-being initiatives. Secondly, our propositions, including for both accumulation and decumulation; thirdly, the power of our distribution; and fourth, the focus on the experience for both clients and their advisers; and fifth, the robustness of our investment process delivering consistently strong results for clients. For these reasons and more, I haven't even begun talking about the quality of our people, we're confident we will deliver strong organic growth over the long term. Looking at Slide 17, a brief reminder that Platform MPS is the main driver of flows with the annual growth rate up to 70% in FY '23. Clearly, we do not expect this pace of growth to continue in perpetuity, but this is the high-growth sector of the industry. Why? Because it meets the IFA's need for investment solutions, which are easy for clients to understand, easy to ensure they're suitable for the client and easy to buy on their platform of choice. Our platform MPS meets that demand. And what I'm particularly pleased about is that we continue to win market share, and we will go further. Our aim over the coming years is to more than double towards a 5% share of this growing market. As I said earlier, we have a focus on the experience of our clients and their advisers, and we're making good progress here. On Slide 18, we talk to the partnership we have with SS&C where we've now been live on their platform for over a year. We have achieved much moving to SS&C systems or processes in the front, middle and back office for both funds and portfolios, and I should once again pay tribute to our people for making this happen. Our aim is to be as easy to do business with as possible, whilst also making our business efficient and effective. There are significant benefits yet to be won from operating on this platform. And I know securing those efficiencies is a priority for Andrea and for all the executives as we move to a fully scalable model, which delivers operational leverage as we grow. I should say at this point that the partnership with SS&C is 1 prong of the advances we are making with our investment in technology. We had our advice business moving on to Intelliflo during the year and the move of our CRMs to Salesforce began this summer, all of which gives us a great foundation on which to become more efficient and effective. On Slide 19, you can see our third value driver is M&A, and I'm delighted with the progress we've made this year with the arrival of Integrity Wealth Solutions and Adroit Financial Planning both joining the business in the first half. I see tremendous opportunity in the advice space with high-caliber advisers bringing direct client relationships and enabling us when it is the right solution for the client to add funds under management through our investment management business, which will help to drive further operational gearing. Our intention is to identify further acquisitions to build our private client practice. We maintain a strict criteria around M&A, and we turned down a lot of opportunities. Sometimes that can be at a cost. but we believe that is a price well worth paying compared to years of lost focus in remediation. It's true to say history has taught us that many acquisitions do not add value and our criteria are designed in part to ensure that each of them does do just that. As such, we buy businesses which are high quality. We are not in the business of sorting out fixer uppers. We buy businesses which add strategic value to the group. For example, in Integrity, 3 of the senior individuals have all taken up leadership positions in the wider business. We must see real economic benefit from any acquisition. For example, the price must be right for both parties that provide accretion for us. And finally and critically, we must feel that there is a cultural alignment between the firms. For example, this could take the form of whether clients are their #1 priority, how they look after staff or their attitude to regulatory risk. With culture in mind, we welcome the arrival of the consumer duty. Our guiding principles on Slide 20 are the foundation of our culture and, I believe, align the business with what consumer duty is trying to achieve, that being good outcomes for all clients. It would be fair to say that it has been a very significant piece of work, and this work continues with ensuring the duty is embedded in the business. To close with 2 slides on outlook, we are seeing gross flows remaining strong in the first few months of FY '24. Indeed, July and August saw inflows ahead of the same months in 2022. And this points to the fundamental health and strength of our business. As I mentioned, due to where we are in the economic cycle, we are, however, also seeing higher-than-normal outflows. Taken together, we do believe it will be tough for net flows and expect a net outflow in the first quarter. Though our strong pipeline gives us confidence that we'll be in positive territory for the year overall. The main source of flows will continue to be MPS on platforms, and therefore, we do anticipate a continuation of the change in mix to impact revenue yields in FY '24 with interest turn marginally lower than FY '23 levels. On costs, we do still see the continuing high levels of inflation affecting our business and project costs rising in mid-single digits. Turning the page. Over the medium term, we believe in our ability to continue to deliver a top quartile underlying profit margin. And when the cycle turns and rates subside also deliver 8% to 10% net flows, which allied to sensible acquisitions will drive our ability to reach our goal of a top 5 wealth manager. The opportunity, to my mind, is not in doubt. There is a need for our services, both from advisers and from private clients, and we have the model to be able to take advantage of it, both as a service provider and an adviser in our own right. We are growth-focused and look forward to realizing the ambitions and securing the futures of a fast increasing number of clients. Thank you.

Good morning all. Thank you for attending this Q&A session for our full year 2023 results from Brooks. You've got myself, Andrew Shepherd, CEO; and Andrea Montague, CFO. Hopefully, you've all had an opportunity to watch the presentation that was sent to you this morning and have a nice range of questions for Andrea and I to get our teeth into, with which I think I will hand back to Alice, and we'll go straight to Q&A.

[Operator Instructions] Our first question comes from the line of Ben Bathurst, RBC.

I've got 3, if you don't mind. Firstly, on the near-term outlook for flows, you've been clear that you expect MPS, I think, to continue to deliver strong growth. But I wondered if you could just talk about which parts of the business you're expecting to struggle most in Q1 in terms of those elevated outflows. Secondly, on the MPS market, you mentioned in the presentation an aspiration to reach 5% market share. I wondered can you elaborate on some of the levers you're seeing getting there? And do you have any plans to further reduce charges to drive up new business in MPS? And then thirdly, on financial planning, I wondered if you could provide a pro forma revenue and cost number for the 12 months for Adroit and Integrity. And also on financial planning, just wondering how much of that income is going to be linked to AUM looking forward following those acquisitions?

Great stuff, Ben. Lots to talk about there. So -- let me -- before I kick off with the near-term flows, and then I'll talk to the MPS growth ambitions. You talked about the pro forma piece and then I talk about the income linked AUM piece [indiscernible]. Well, we're organized. So we'll move right on that. In terms of near-term flows, yes, I think what I'll take you back to is the macro picture here. So the reality that more asset is going to be used to pay down debt and to go into cash and money market funds now that they're yielding 5% plus or so. That kind of means that all of these different services will be affected. So whether that's in BPS, and if we're honest, the wealthier you are, the less this is probably an issue. So when you're in that GBP 500 to GBP 1 million bracket, then you're more likely to use funds for debt repayment or maybe into cash than you are if you got GBP 10 million. So yes in BPS. Yes, we're definitely seeing in MPS whether that's in custody or on platform, there are more outflows than there were. But clearly, still in positive territory in terms of flows, but assets are being used in a slightly different shape, and that's true of multi-asset funds as well. So I wouldn't say it's what -- which is struggling more than others. I think everything, it's a macro theme. Everything is being affected. And that's -- I genuinely believe that's a cyclical thing that we're seeing with rates being at the levels that they're currently at. And as that subsides, I think that higher natural attrition I talk about will start to abate. In terms of MPS on platform and aiming for this 5% market share, the key to me here is about building long-term partnerships. So -- and long-term partnerships being as easy to use as possible. And I think platform MPS works really well for advisers because it is very easy to use, and it's very easy to link to the client and the client's suitability. So I think there's further to go for that as a medium in terms of platform MPS. So I think the growth of that market will continue for quite a period of time now. But how we get more of it is about these partnerships and about how we make their lives easier in general. So we've been working on partnerships since we've really started aiming at advisers in 2005. And our investment solutions which is where we go into IFA firms at a point in time where they're looking to make decisions relevant to the future of their business and work with them to drive out how they are going to meet their ambitions and how we're going to meet collectively the ambitions of their clients. That's how I think we gain market share. There's -- we've got peers out there who are good in this space. But it's -- I think it's a relatively limited field. And I think those of us who really focus on the adviser and on the client will continue to be successful. And the last 2 years we've gone from 1.5 to 1.8 to 2.1 of a fast-growing sector. I see no reason for that to change. And the pipeline that we're seeing in that space. And actually, probably talk a bit more about pipeline full stock, pipeline we're seeing across the board to BPS and through the relationships and platform MPS are all looking really good, actually. I mean from a BPS perspective, June, July and August were some of the highest levels of proposals we've written in a very long time. So there are promising signs across the board there. In terms of the pro forma for Adroit and Integrity.

So firstly, thank you for your question. And we -- so we haven't disclosed the pro forma. What I can say and we disclosed in the RNS so GBP 0.5 million profit in the year in 2023 going forward. I would say this is an important part of our business with the acquisition of Integrity and Adroit. Thanking to their business plans similar -- I would expect similar revenues in the year. But actually, when we take a step back, that's slightly higher margins. So I would say mid-20s in terms of margins. So -- and then I think, importantly, the other point to like is that it is access to the rest of the business and the propositions that are provided across the piece with Brooks. And therefore, clearly through that to deliver further revenue through our product range.

I think that's an excellent set to the last part of the question, which is we do expect to see more assets move into our investment solutions from firms that we acquire. So to give you some stats around that, our internal financial planning business, which has been going since 1991 is around about 80% invested through Brooks Macdonald Investment Solutions, 20% of the time it will go to somebody else because they've got a particular requirement that isn't something that we naturally serve. Adroit is around about or -- arrived with around about 50% of their assets already managed by Brooks. Adroit is particular because it is quarter protection, it's vulnerable clients, personal injury, you're dealing with deputies. They do need to be absolutely straight down the line independent. Our duty as a business is to make sure that they've got an investment service which is the best so that they can go out and offer it to the -- or recommend it to the deputies. So that 50%, I would anticipate should go up because we should be the best providing investment solutions to that sector. We've got the inside knowledge. Integrity arrived with 30% of the assets already managed by Brooks. That is a very similar business to our financial planning business. I see very little reason why that won't move from 30% to 40% to 50% to 60% to 70% over a period of time. So I think there's definitely -- to answer your question directly, Ben, definitely the opportunity to see more AUM-linked income deriving from that particular acquisition, and that is the sort of acquisition we expect to continue to make.

Our next question comes from the line of Paul Bryant with Equity Development.

Andrew and Andrea, thanks for the presentation earlier. One for Andrew, one for Andrea, please, if I could. Andrew, on the international business, you made a few senior appointments earlier in the year, which you emphasized were looking to grow the international side. Could you give us an update on the sort of impact of those and the outlook for international? And one additional one on the international. The comment you made about clients [indiscernible] cash paying down debt. Any differences in the international client base compared to U.K.? That would be good to hear. And then for Andrea, you mentioned in the presentation you picked up on a few opportunities, efficiency opportunities? Is anything -- sort of more detail you could share with us on where those might lie?

Thanks, Paul. So on the international business, we have made some -- we did make some appointments earlier in the year. It's all part of the reorganization of the strategy there. And we've got talent within the business, though we're [indiscernible] the talent in slightly different directions. When we bought the Lloyd's business, the Funds and Wealth business a couple of years ago, 3 years ago now, I suppose it was 2020. That really started a move towards private clients in the international business. And now that is about 2/3 private clients, the vast majority of which are on [indiscernible] country. And we do believe that there is a big opportunity in the Channel Islands in particular, for someone to take the step of being the leader with regards to private client. When I say private client, I mean, financial planning and investment solutions for that group. It's incredibly fragmented, and there is no leadership there. So we've been focusing on building out that capability, whilst at the same time, we are experts in the advice -- with regard to working with advisers. We are very picky about the jurisdictions in which we're happy to work, but we do have great expertise there. So we promoted a talent called Matthew Wintour , for example, to take on responsibility to that. He is a fantastic technician around advisers, platforms and how we should work in that environment. We've also asked him to look after the trustee side of that business as well. So I think we've made the right changes, it's been another tough year for international. So we felt that we did have to make changes, and we look forward to seeing the positive results which come out. The macro themes that we're seeing in the U.K. apply everywhere. So that's no different in the international business. The -- what we've done in the U.K. And we've now replicated internationally is providing a service for investment in gilts. So that's been very popular in the U.K., and that is actually proving to be popular in the international business as well, which tells you that the fact that rates are higher, wherever you are, that is an attractive option compared to your standard multi-asset portfolio at this point in time. As ever, we're having to evolve to react to different market conditions, but with success. Andrea?

Thanks, Paul, for the question. So I've guided cost growth in the outlook to be mid-single digits. In terms of the component parts of our -- we will continue to have very disciplined cost focus. From my perspective, I will be looking at efficiencies across the group. One part of that is SS&C. That is a [ foiled ] inflation and also when flows do increase through that -- through our business, we will see an operational leverage. But at this stage, just a month then what I'm committing to taking a step back and looking more widely at efficiency, but at this stage, that's within our guidance still of mid-single digits for full year '24.

Our next question comes from the line of Kim Bergoe with Numis.

I've got 3 questions, if I may, at a slightly higher level. One is about consumer duty. Obviously, that's a big thing across much of the financial industry interested in hearing your thoughts about that and how that may or may not impact Brooks. And tied into that and to sort of the margin picture going forward, how do you see sort of competition in the industry? And how is that likely to evolve? And then my final question -- in terms of -- could there ever -- down the line, could there be a scaling issue in terms of your offering to IFA? I -- might, at some point, is -- is your current scale, is that an attraction? Or how is that -- how could that evolve as you grow that bit? Might you, at some point, become too big for some of them? Or how should we be looking at that?

Thanks, Kim. I'll take them and dive in as and when you want. So consumer duty is -- that's an interesting one, and it's -- reading an article yesterday, which is creating some tensions around mental health of advisers. And it's -- some interesting ramifications coming out, which I had not spotted, I'll be honest. My own view on consumer duty is that it's a good thing. It's a next step towards allowing the British public to really trust the financial advice sector. I think the RDR was a massive step forward in terms of effectively moving on from product sales to being paid to give advice and make and professionalizing the industry. And a decade on, this is step #2 -- step #3, Financial Services Act 1986 probably the first step. But consumer duty and the ideal, the principle that all clients should get good outcomes, we're absolutely welcome. The -- from our perspective and the impact on us, the -- it's a big project going through creating value assessments, going through the business and making sure that we're aligned to it. There's a big piece of work. But the guiding principles that we've got, I mean, you've seen in the presentation, I'm -- I think the consumer duty plays very much to who we are as a business naturally. And the clients come first at all times and that's hugely, hugely important, I think, from a cultural perspective. So getting clients great outcomes, that's what we do. That's the job. Financially, we don't see it making any impact, the value assessments that we've done show that we are providing value to our clients across the board. So I don't have a concern there. And the cost to us of doing the project is just BAU. There'll be a regulatory project every year that we have to pay for. So there's lots of information on our website if you want to go and have a look about where we are on consumer duty, and I think it's a good step forward for us as an industry. In terms of the evolution of competition, the -- I think we've seen a lot of that in terms of direction of travel, there are -- there have been businesses try to come into the sector and haven't succeeded. There's been a lot of investment in fintech, which is great, and we're benefiting from some of that and taking the industry on in our individual businesses. But they haven't taken huge amounts of client base. And so when I look at Nutmeg for example, on the one side, and then when I look at people coming into the financial planning side of the business and then dropping out again. And for some reason, I've forgotten the name of the company, you might remember [indiscernible]. But the -- it's clearly -- financial planning is not an easy market to get into, even with very low pricing. Vanguard is what I am thinking of. They came into the market, very low pricing, very low price investment solutions and just couldn't get enough traction to make enough money to be able to carry on in the industry. So I think it is suited to incumbents, and I think it's suited to personalization because people trust people more than they just trust the computer. And when you look at the Fintech side of it, that seems to be running through as well. I remember, a company in the U.S. called [ Betterment ] it started off with just a piece of fintech and then that turned to fintech plus a call once a year, and then it went, okay, you can have 1 call, 2 call, 3 call, 4 call through the year with information provided online, which essentially is where we're trying to get to. So it's -- I think from a competition perspective, it's evolving all the time. There's disruption over time and we can use that disruption to improve what we do, but we don't have to be the disruptor. So that's from a competition perspective. From a scale perspective in offering to IFA, there's an attraction to scale because it comes with stability and security and breadth of product range and breadth of relationship. We can help them with a number of different things. We can go in and talk to them about compliance. We can talk to them about marketing. We can talk to them about their business and how it's working and whilst not become consultants, we can certainly help guide in those areas. And I think there's basically smaller people as well. I think there always will be. It's kind of who our industry is and I look at advisers, the FCA would love for there to be 5 or 6 of us and they regulate the 5 or 6, and that's it. But it's not like that. It's incredibly entrepreneurial. And you've got all of this consolidation going on. And then at the same time, you've got a whole lot of new firms coming up every month of the year. And I love the entrepreneurial spirit that we've got in this sector. So I think scale is attractive. I think where we aim in that sort of 4 to 20 ROI range where they're not really small, but they're not really big, I think that's a real sweet spot for us where our scale is attractive.

The next question comes from the line of Stuart Duncan with Peel Hunt.

I've got 3 questions as well, if that's okay. The first one on this is just going back to Ben's question on MPS actually. If you can just sort of comment about how you see pricing or margins in that evolving over the sort of medium to longer term as you grow into what is obviously a big market? Secondly, you sort of touched on the pipeline, Andrew. Just on BMIS as well, if there's anything there that's worth commenting on whether the sort of discussions at an advanced stage of advisers on big books of business to transfer? And then lastly, just on sort of M&A ambitions for the -- I suppose the question is actually is pricing issue here just now and have vendors price expectations adapted to current market -- the current market environment?

Good questions all. Thank you, Stuart. We just wrote that down vendors price ambitions being the OTT. I think probably a positive answer there. And so let's start at the top, though with regard to MPS pricing and margins. Basically, I'm not seeing huge pricing pressure with regards to MPS. You all have noted, when you look at the revenue yield, we went from -- think we went -- and I'm going to get this slightly wrong, we worked from 18.8% to 19.2% at the half year, back to 18.8% now something like that. And that really is driven not by pricing pressure down, but by the scale of deals that we do. So we had a big spike in flows in Q1 calendar Q3 of the year. And that spike came from 1 main company through BMIS who put GBP 200 million into platform MPS with us -- actually to be fair, put money into [indiscernible] from BPS as well, but with GBP 200 million negative discount. So on average, that brings the yield down. So not pricing pressure, but signs of opportunity. And from a margin perspective, on this MPS stuff, margin just goes up, the more we do essentially because we're not bringing on new investment managers. We've got an investment management team that looks after this and that we don't need to expand it. If we go on many, many more platforms with many more different types of portfolios, then you need a bit more administration and implementation resources. But it's you're not adding a lot of expense -- so most, we reckon I'll get shot for putting a number to it, but between 70% to 80% gets to the bottom line when we bring new money into MPS. So margins are great. long-term in that business. In terms of BMISs, the GBP 200 million one that we did in Q3, that's a biggie. So there isn't another one of them sitting out there, but there's lots of discussions in the sort of GBP 30 million, GBP 50 million, GBP 80 million, GBP 100 million range. And we think the pipeline looks pretty good there. So we'd expect some of those because they're all competitive really, some of these to come through as the year goes on. So we're pretty confident of the pipeline in that space. And then in terms of M&A ambitions and price ambitions, the -- the people that we talk to in the financial planning space are typically people who want to become part of Brooks Macdonald and their aim not to get the highest price out of us. They want a fair price. They want the highest price, they'll follow [indiscernible] and go and talk through potential. So it's a -- I do feel that -- that we're likely to see price ambitions come down a bit. I think they're quite high across the industry. But in our space, if they want to come and join us, we're finding the price which is right for both parties, it's got to be accretive for us. but it's going to be good for them as well. And I think the conversations we have are quite good. On the investment management side, I think the -- the numbers that are being paid by the private sector are relatively chunky. And all the time that they are showing a real interest, and we'd have to come up with some fairly big numbers. But then we would have synergies which they don't have and that might be okay.

[Operator Instructions] The next question comes from the line of Rahim Karim with Investec.

Thanks for the chance to ask a couple of questions. The first was just regarding your earlier comments, Andrew, around kind of the impact of higher rates on people's uses of capital. Just trying to get a sense of whether you think until rates come down that habit? Although that, that use will change or whether it's just an improvement in sentiment will kind of support that? And the reason I'm making, I guess, is to really get a sense of when you think that 8% to 10% is realistic? Because I guess those 2 things go hand in hand. The second question was just around SS&C. That relationship is -- it looks like it's working very well. Just trying to get a sense of whether there has been any discussions on their end around pricing? Because it seems like you've got a very good deal when you signed this long-term contract and the world has changed a lot. So just trying to make sure that there are -- there's nothing that might change there that would impact that. And then the third thing was just to go back to the question of M&A. I mean, I guess there has been a lot of change around the top table to get a sense of whether now that, that has kind of resolved itself and it's great to have the team now fully in place, whether now is the right time for that level of M&A perhaps to pick up? Or was it those 2 things perhaps not related?

Great question. So we -- at the start of this, did we say that people will ask 3 questions. Okay. So I'll pick up the generic first one around -- and then I'll pass to Andrea. For full flows to come back, I don't think it does need a change in rates. I think what it needs -- I think people need to be able to see some certainty that rates are going to come down in the future. Apologies, at 10 o'clock on a Thursday, let's say, a far along tester.

You're saved by the bell.

Yes. No, I love your question. They are really good. So yes, as I was starting to say, I don't think it does take for rates to come down. I think people need to have some certainty on the one side that rates are going to be coming down. But then I think it's also -- there's only a certain amount of debt, people are thinking, right, I want to reorganize my affairs. I want to change the balance in a little bit. So we'll see, but I see this as being a relatively quick okay right now, we've got -- we want to reorganize our affairs, take a little bit of debt off the table do that now and then we'll get back to investing because the reality is long term, people need to invest for their retirement. So I think that probably is a bit of a change in sentiment, to use the words that you did. But I don't know what the timing is around that. I mean it helps -- GDP figures yesterday will help to solidify fact that we're coming towards the peak of the cycle and that should start to turn in a not too distant future. So that will be positive. But we can only say what we're seeing now. And at the end of Q4 and the start of Q1 have definitely seen people putting assets to different uses. In terms of the 8% to 10%, this -- spend time on this, goes on for, but the aim is to get to 8% to 10%. We think we can achieve that. We think that we've got the distribution model, the proposition model and the culture to be able to drive those sorts of numbers. But you get points in the economic cycle. Well that's not realistic, and that's where we are today. So I would say -- I mean, I've talked about getting to 7% to 8% this year and 8% to 10% in FY '25, I think you'll probably need to push that back a year would be my initial ingoing. SS&C Andrea, do you want to talk about?

Yes. Rahim, thank you again. So SS&C if we take a step back, we've been relatively new to this business, I think it's an important part of our operating model going forward, clearly, and I know Shep talked about it in the video. But effectively, having now made [indiscernible] I see this as a huge benefit for us going forward, both in terms of scale and capabilities to better service to our end clients. And costs I've guided overall on cost in terms of mid-single digits. The mean contract is fixed. So that is on a volume basis. And that, as you would imagine, in the current climate is a good place to be because it protects us. It avoids inflation. So I think we will -- we should be more positive about SS&C. I think migrations are hard. And we've done it in a relatively short time frame for a relatively low cost in my mind. And I think it's something that is a huge asset to us going forward.

Agreed. Yes, absolutely. They may feel that a bit more.

But that's a different conversation.

Isn't it? I've got a 10-year contract there guys, I'm lucky. But -- so from an M&A perspective, certainly, as we've gone through this year, the lack of the CFO and the lack of the CRO has caused us to be more cautious. Bandwidth is definitely a thing in senior management and when you're on to taking M&A, so now that we've got a full team, I think it would be fair to allow Andrea and Louis to at least let their feet touch the ground, but I would certainly be intending to look to be more active in the M&A space over the full year. Whether we will or not is another thing because we've got strict criteria. And if they don't hit this criteria, we won't do it.

The next question comes from the line of Andrew Watson with Singer Capital Markets.

I've got 2 questions, just to be different. So first of all, I mean taking on board everything you've said about the gross outflows and use of capital to pay down debt. On the other side of the equation, gross inflows look to have developed quite nicely. Could you just give me a little bit of color as to how much of that acceleration is due to more one-off factors? I know you've talked about people putting money in money market funds. That might not be a sustained trend. And actually, how much of it is due to the kind of building presence in the adviser community due to increased distribution, increased breadth? And in other words, how much of that we might see sustained in the subsequent periods? My second question is just around MPS flows. How -- can you characterize how much of your flow profile is coming from firms that have used BPS historically and are now adopting MPS for their smaller clients? And how much of those flows are actually coming from firms either dedicated to MPS or are outright new to Brooks to use MPS, please?

Great. Thanks, Andrew. Okay. So dealing with those 2 in order. Inflows are developing, I see -- you're absolutely right. There's the odd one-off such as the one that I mentioned in Q3 of the year. But even without that, the percentage increase in inflows is impressive. And it is down to what I touched on earlier about building partnerships with firms. And Andrew, I might just take a quick move on to the second question because those inflows what we're seeing is month on month on month is inflows building in MPS platform because it's not all about back books being transferred. It's about the business that they're writing on a day-to-day basis. And so seeing that regular inflow that comes in every month developing and developing up through the tens of millions is -- that gives us great cause for confidence in the future of our flows. So that's really positive in terms of the inflows developing. Our distribution has been in place for a long time now. We've been around the country for quite a long time. We have built strong relationships. I think the difference now is that we're being more scientific about how we go and find the advisers of tomorrow who are going to introduce business to us, whether that's identifying firms that are currently running their own models on an advisory basis and, therefore, might be open to a conversation to move to discretionary or firms who are acquisitive and building up their FUM and have got an opportunity to move money into their central process, which if that happens to have us at the core of it, clearly we'll be big beneficiaries of that. So being more scientific about who we're actually targeting and spending time with, I think, has been a real step forward. And Gary Stirrup has been with us a few years now, but Sarah Ackland joining almost exactly a year ago, actually, is definitely made a difference there. The money market funds point is a good one. I do see money market funds at, what are they offering, 4% to 5% at the moment as being short term attractive. But inflation is running at 7%, and therefore, you're guaranteeing losing money. All right, equities aren't necessarily giving you all the return that you take for, but at least you have a chance of getting more than inflation. So I -- there's a place for money market funds and then a portfolio is a place for low risk. But you do need to have some access to high risk if you're going to actually grow your assets. And then final around the type of firms that we're seeing coming into MPS. There are -- there are people in there who have historically used BPS now use MPS as the default. That is a thing. That has been happening for 2 or 3, probably more years but more actively in the last 2 or 3 years. And then you've got firms who are mentioning there who have been running money on an advisory basis for a long time. And finally -- and gradually, they are saying enough is enough. Our focus needs to be on what we actually do on a day-to-day basis, which is currency financial planning. We're going to take the risk of investment management away from us as we can actually focus on providing added value to their clients. Then there were some stats out the other day. And again, these might not be exact, but it read like 34% of assets under advice are still being run on an advisory basis, which is incredibly inefficient and riskier and ensures that every client gets a different outcome. So I think consumer duty is good for this. I think advisers have gradually since RDR have been moving towards this outsourced model, and I think that will continue. Hopefully, that's helped.

[Operator Instructions].

Should we move on to the webcast?

We can do that. We have 1 question or more, precisely 2 questions on the webcast, both from Robin Savage at Zeus Capital. Robin's questions are, is MPS managed as a separate business unit with separate operational teams? And secondly, what are the variable costs, which are directly related to the MPS revenues?

Yes. Thank you, [indiscernible]. So to answer the first one, so we run 1 central investment process and it is run by the investment team, which Ed Park, our CIO has control of, out of that falls the BPS allocation, the [indiscernible] our MPS allocation and portfolios and the same for our multi-asset funds. So the actual investment process is managed centrally. Then within, MPS itself, you have the implementation of portfolios onto the various platforms and then the administration of portfolios and their clients where we have custody of the MPS as well. In terms of the variable costs within MPS, there are very few, to be honest. It's people, and as I said earlier, I don't think we don't need them anymore to run twice or 3x the amount of money. Anything else?

No, you've summarized it well.

Nice to hear from you Robin, it's been a while.

So there are no more questions on the webcast. Alice, just to confirm if you have any further questions on the conference call?

We do. We have a question coming from the line of Rae Maile with Panmure Gordon.

Just a quick one. Given the guidance you've offered around the outlook for the current year, is there anything you said this very, very early stage about dividend policy?

I'm happy to take that one. So thank you again for the question. So dividend. We're committed to a progressive dividend policy. We recognize the importance of this to many of our shareholders and I think it's now 18 consecutive periods of dividend increase, and we have a coverage ratio of 2.1. So I'm having the Board approve this year's dividend with that context -- and I would -- that's what we've committed to currently.

There are no more questions at this time. I would like to turn the conference back over to Andrew Shepherd for any closing remarks.

Great. Thank you, Alice. Thank you all for attending. And for lots of questions, sometimes it's a very quick conversation, but that was great and some really interesting questions, too. So as ever, as you're aware, Andrea and I are available for follow-ups. So just give Kersey a call or an e-mail, and we look forward to speaking to you as we go through the year. Thanks again.