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

Welcome to Brooks Macdonald's Half Year 2024 Results Presentation. Joining me today is our CFO, Andrea Montague. Following the budget, which has taken place and the positive implications for U.K. companies of the launch of the albeit small British ISA, I'm pleased to be reporting a solid half year with regard to both our financial and operational performance. To kick off, I will discuss some of the highlights before handing over to Andrea, who will provide a more detailed update on the financial results. I will then talk more about the delivery of our strategy. Looking at the context around our financial performance in the 6 months to 31st December 2023, we saw markets that fluctuated throughout the period and improved towards the year-end, although uncertainty remained with high interest rates and inflation continuing to affect client behavior. Against this backdrop, I'm delighted that we delivered an 18% growth in profit before tax to GBP 17.1 million with a strong underlying profit margin of 26.9%, up 2.3 percentage points on the same period last year. Our funds under management grew to a record GBP 17.6 billion with significant inflows driven by strong growth within our fast-growing MPS service and pockets of growth within the specialized elements of our BPS proposition. Our centralized investment process delivered positive investment performance for the period, up over 5%, which contributed to the growth in FUM. In recognition of this solid corporate performance, the Board has announced its intention to pay an interim dividend of 29p, up from 28p, which reflects the Board's confidence in the group's prospects and our strong balance sheet. In parallel, we're working on making further operational improvements. Following our announcement in October, we've completed organizational changes, resulting in an approximate 10% reduction in head count, yielding an annualized cost savings of around GBP 4 million. We conducted the process with care for our employees, but recognize the importance of tackling hard decisions head on, in order to position the business strongly in the current market. We've made numerous improvements to our technology stack, including embedding adviser and client-facing processes benefiting our clients and improving our operational efficiency, implementing the first phase of our new client relationship management system, replacing multiple legacy systems and rolling out new software across the U.K. Advice business helping ensure the consistent implementation of a standard BM advice process. Each of these systems will help improve the service we provide to our clients and make Brooks Macdonald easier to do business with. Performance in our international operations has been below plan, and we've announced today a strategic review of the business. We've also recognized an impairment charge, which has impacted our statutory result. Importantly, it's not impacted the dividend increase that I just mentioned. Whilst we are well aligned to the principles of consumer duty, we continue to work hard to ensure we provide good client outcomes for all. MPS is well aligned to consumer duty, and we're confident that all our services offer good value for clients with BPS being the most appropriate solution for many. I'll now pass to Andrea to give the financial update.

Thank you, Andrew, and good morning, everyone. Over the next 10 minutes, I will take you through the financial performance of the group for 6 months ended 31st December '23, covering funds under management, revenue, costs and capital. To set this in context, we have 3 key business objectives of growth, core and capital. We have continued to focus on these in the last 6 months. Firstly, growth. We are working to obtain greater scale in our business and core markets. We are disciplined in our approach to maintain top quartile margins. Secondly, core. We are focused on the core business to improve productivity and client service while delivering high-quality investment returns. This will benefit growth in a number of areas, including better retention rates. Thirdly, capital, disciplined balance sheet management to maintain a strong capital base and ensure we are deploying our capital effectively. Turning to Slide 5. I'm pleased to report that we have made progress against all of these objectives. We closed the calendar year at a record funds under management of GBP 17.6 billion. Total revenue increased by 8% to GBP 63.6 million, and underlying profit grew by 18% to GBP 17.1 million, delivering an underlying profit margin of 26.9%. The Board has announced an interim dividend of 29p, up 3.6% on last year's interim dividend, demonstrating the Board's continued confidence in the business and ambition. Turning to Slide 6. We have delivered a record funds under management of GBP 17.6 billion as of 31st December, driven by strong investment performance and modest net outflows of GBP 168 million. This is all against a backdrop of wider industry outflows. We have delivered strong growth in platform MPS with 15.4% annualized flows. We see MPS as a compelling and material growth opportunity. As reported in detail in our RNS in January, our gross inflows remained strong, bringing in GBP 1.2 billion across the 6 months, half of which was in our MPS products. These robust growth inflows are built upon the established relationships with IFAs, client service and investment performance. We now have a broad network, reaching 750 firms by the end of December. Our BPS gross inflows also accounted for GBP 0.4 billion over the 6-month period, up by GBP 0.1 million from the comparative period, demonstrating the overall strength of our distribution function. You can see further analysis of our gross flows in the appendix. We continue to focus on client retention efforts and we have full oversight of the data behind the outflows, which, consistent with the trend in the industry are impacted by macroeconomic conditions. We have maintained solid investment returns and have outperformed the ARC benchmark in all risk categories in years 1, 5 and 10. We believe this will be a driver in attracting new clients and ensuring retention. Turning to Slide 7, increased revenue and improved efficiency, meaning we have a strong underlying profit before tax for the half year of GBP 17.1 million. Revenue has increased by 8% and total underlying costs increased by 4.7%, in line with guidance. Excluding acquisitions, total underlying costs are up just 1.6% demonstrating a disciplined approach to cost, which is vital given the inflationary environment we are operating in. Our overall profit margin improved by 2.3 percentage points from 24.6% to 26.9% in half 1. Turning to yield and revenue on Slide 8. Our total yield has reduced marginally from 70.3 basis points to 69.1 basis points. The principal driver has been an increase in volume in the half year platform MPS business, which attracts lower yields, but delivers higher profit margins. As a reminder, as disclosures vary across our sector, the fee yields we show by product on this slide are just that fee only and exclude interest turn and transactional income. As you can see in the bridge, taking it left to right, non-fee income yield was up 2.5 basis points driven by the continued higher interest rates along with increased transactional income. We have a 1.1 basis point reduction on fee rates as a result of fee pressures to retain and renew business, particularly in our BPS products. We have seen a change in book mix driven by strong flows in platform MPS. This has contributed to an overall yield reducing by 2.6 basis points. Looking at the table, group total revenue has increased by 8% on half year '23. Within that, financial planning revenue has increased by 70.8% as a result of the acquisitions of Integrity and Adroit which has delivered GBP 1.7 million in revenue to 31st December '23. Interest income has increased from half year '23. To remind ourselves, in calendar terms, that was 1 July to 31 December '22, where the Bank of England base rate was just 1.25% at the beginning of that period, whereas in H2, the rate has been 5.25%. A topical point in the industry is return on client cash. We hold the cash, which represents approximately 2% of the portfolio to meet client liquidity needs. It is instant access, and we take the liquidity needs. It is instant access, and we take the liquidity needs into account in how we in how we invest the assets. It is a transactional account typically for short duration. We review the interest paid frequently. And from first April '24, the return on this cash will be shared 50% with our clients. As a result, we are guiding that our reduction in interest income in H2 '24 compared to H1 '24. We expect H2 interest income to be circa GBP 5 million. As you can see on Slide 9, our strong financial discipline has resulted in total costs, excluding acquisitions, only rising by 1.6% to GBP 44.8 million. Productivity improvements remain important, we have a reduced head count by 10% in Q2 through a restructure. The organizational changes will give rise to annualized cost reductions of around GBP 4 million with the benefits of those starting to be realized already in half year '24. Efficiency will continue to remain a key focus. Turning to Slide 10. As Andrew has already mentioned, we have announced a strategic review of our international business. In addition, we've recognized an impairment charge in respect of the international business. This is the outcome of regular impairment reviews. The combination of recent performance and adopting updated assumptions for future growth has resulted in an estimated recoverable amount below the carrying value of goodwill held on the balance sheet. Therefore, the group has recognized an impairment charge of GBP 11.6 million. This has led to a small statutory loss before tax of GBP 0.8 million for the period. The impairment has no impact on cash or regulatory capital. The balance sheet remains strong with net assets of GBP 147.6 million and cash of GBP 59 million. Improvements to ICARA calculation and modeling and our internal risk tolerance meaning that we have further strengthened our capital position. The group's owned funds adequacy ratio at 31 December increased from 296% compared to 268% as of 31st December '22. We have a capital surplus of GBP 35.6 million. The Board has announced an interim dividend of 29p per share, in line with our progressive dividend policy. To conclude, I started this presentation by setting out our key objectives, and I'm pleased to say that we progressed all of them in half year '24. Gross, our group funds under management are at record level. We increased the number and depth of relationships with IFAs and delivered solid investment returns. We have delivered an increase in revenue of 8% and underlying PBT margin of 26.9% with results in line with guidance. Core, we have taken action to improve productivity and reduce costs at Q2, whilst maintaining a focus on strong distribution and investment management capabilities. Efficiency remains a key focus going forward. We've announced a strategic review of our International business, demonstrating our focus on performance for all aspects of the group. In terms of capital, we've strengthened our capital position and we will continue to have a strong focus on balance sheet efficiency. Finally, the Board has announced an interim dividend of 29p. Andrew will now take you through an update on the delivery of strategy and guidance.

Thank you, Andrea. Before we look at the outlook and specific guidance, I'm going to provide a reminder of our propositions, strategy and value drivers and how we are currently positioned against these. Underlying our strategy is a broad proposition set, which, as we show on the next slide, enables us to offer something to clients throughout their investment life cycle. For regulars to this presentation, this is a new slide. It's good to shake things up a bit, I think, and I hope it helps you understand how we think about our target market. So on Slide 12, the services we offer mean that we can meet our clients' needs from starting out and accumulating wealth, most probably with an MPS or multi-asset fund solution dependent on the tax position, before potentially moving to our core or specialist bespoke services as portfolios and/or needs grow and change. As MPS products have grown in popularity, accessibility and size, the future of BPS does look different. I believe it will offer a truly bespoke solution for those who genuinely need it. It will be a premium service for the ultra and high net worth. And for those who have specific investment needs, particularly those with income requirements. As Andrea stated, MPS itself is growing quickly despite the market environment, which is affecting all solutions and is well set at the default investment vehicle for advisers, but other solutions are required to solve more complex problems and straightforward accumulation. Having a diversified offering means we're able to provide the most appropriate service and therefore, the best outcome for our clients and advisers throughout their lifetimes. As our clients' needs evolve, we can offer different services from our proposition suite. For example, in retirement, we have a specific decumulation service, which helps clients achieve their goals and reduce the risk of this transition as they switch from saving to spending. We're nimble enough to evolve too. And as markets change, we continually adapt. For example, with our Gilts product where we saw especially strong growth towards the end of the last calendar year. We can also support families with succession and IHT planning as well as continuing to provide relevant advice to future generations. Underpinning all of our investment solutions is our centralized investment process, which continues to deliver robust returns over investment time horizons. So moving on to our strategy. on Slide 13. We have a clear strategy, which would increase the value we create for our stakeholders. To achieve this, we aim to deliver our 3 value drivers: market-leading organic growth, service and operational excellence and selective high-quality acquisitions. We've discussed for a number of years that we have a fundamental structural opportunity to grow our business. This opportunity remains. We are living longer, we need larger pots of money, and we have longer investment horizons. On the previous slide, I discussed how Brooks Macdonald can help clients at any stage of this horizon, so we have the propositions. To maximize our ability to profit from this opportunity, we are increasing the group's focus around 2 distribution channels, intermediated and direct. In our intermediated business, Advisor Solutions, the proposition is outsourced discretionary investment management for advisers and indirect, which we're calling wealth, it's advice-led integrated wealth management. We believe this will better enable us to target clients through a deeper understanding of their needs to leverage our core capabilities and relationships to collaborate across our business and ultimately, to grow our group's footprint. The organic opportunity for our industry continues to grow and focusing our approach will enable a more tailored product and service for our clients. We will also provide operational efficiency benefits and therefore, profitable growth for our shareholders. Adviser-led outsourced investment management is growing in popularity for its scalability and cost effectiveness, and we see significant opportunity to grow the number of intermediaries we have relationships with and to extend the relationships we already have. IFAs are outsourcing more of the assets they advise upon, encouraged by consumer duty to ensure the best possible outcomes for clients. IFAs are attractive to us because of our broad offering across BPS, MPS and multi-asset funds and knowledge of their marketplace and possibly the future possibility of being part of the group. In addition, the increasing importance of advice, given the onus is now on individuals to prepare for their retirements and to ensure they are invested appropriately is leading to a growing importance for integrated wealth management solutions. Providing this dedicated focus across intermediary and direct distribution with both utilizing the total breadth of our investment proposition, underpinned by our successful centralized investment process means that we are exceptionally well positioned for growth. Our second value driver is service and operational excellence. We're committed to providing excellent service to our clients, both IFAs and individuals to make Brooks Macdonald easier to do business with and to providing a best-in-class experience. A large part of enabling and improving this service depends on our technology. And once again, we've made significant improvements to our technology stack over the past 6 months, including systems and processes to improve our client relationship management, our financial planning service and our overall client service. During the period, we went through the first phase of the Salesforce client relationship management implementation focused on advisers. We're now moving on to the second phase addressing private clients. We expect the rollout of Salesforce to enable us to target the market more effectively, making sure that we bring all of our propositions to as many advisers and clients that could benefit from them. We have unified our advice businesses on Intelliflo and showing a consistent approach to advice across our U.K. business. And we've embedded SS&C systems and processes into the business, meaning we are progressing to deliver the full efficiency benefits and to secure operational leverage as we grow. We recognize that there is always more to be done, and we will continue to drive forward digital transformation in order to deliver excellent client service, including systematic upgrades and enhancements to our investment management financial planning and CRM systems. As well as improving the service we provide to our clients, our investment in technologies also focused on unlocking operating efficiencies to enhance our margin and therefore, the returns we provide to shareholders. Part of achieving these efficiencies will be seen through the annual GBP 4 million cost saving that will result from the organizational changes we announced last October. We have reorganized the business and aligned it to the distribution channels that will together enable profitable growth. I'm very pleased with the margin we delivered this half year, and these changes reflect our continuing commitment to achieve top quartile underlying profit margin. The third driver of our strategy is M&A. Acquisitions are an important part of our strategy and are, in fact, necessary to achieve our ambition of being a top 5 wealth manager in the U.K. Scale matters in our sector, and we do need to grow. To achieve our ambition, we will demand acquisitions, including some over time that are at or close to our own scale. But this is the level of challenge we have set ourselves. We've not made any acquisitions in the last 6 months, but I am delighted with the integration of the Advice businesses, Adroit and Integrity that have now been with us for over a year. As a reminder, we have 4 strict criteria for acquisitions. Firstly, that the target must be a good business in its own right. We're not looking for businesses that need to be fixed. Secondly, there must be clear strategic logic to the combination. We don't want to be a holding company. We will only consider businesses that are the right fit. Thirdly, it must be a good cultural fit with Brooks Macdonald. Our culture is strong and a differentiator, and it's critical to the success of any deal that we stayed true to this. And fourthly, the economics of the transaction must be compelling. This is essential for shareholder support and earnings accretion is vital in any deal. Consolidation in the fragmented Wealth Management industry remains at an elevated level, across both advice and investment management and we've reviewed numerous targets over the period, but did not find an opportunity that meets our criteria. We continue to see a steady pipeline across both investment managers and advisers and will remain disciplined in our approach. Turning to Slide 16. To summarize then, a solid half year is how we've described it. Our gross flows remained strong, reflecting good take-up in our target markets for our constantly improving proposition. Against a difficult external backdrop, we've increased our underlying profit margin, underlining our strong cost discipline. Our confidence in the group's future is underlined by yet again, increasing the interim dividend. And we've maintained our discipline on our acquisition criteria. We're confident in our strategy, and we're well positioned to take advantage of the opportunities coming our way. So full year '24 guidance on Slide 17. Looking out at the rest of this financial year, we're not making any change to our bottom line guidance. We have strong momentum in Platform MPS, in [ BMS ] and in our specialized Decumulation and Gilts products within BPS, and we expect this to continue. Macroeconomic conditions will, however, always affect how our clients behave and will impact the level of outflows in our business. Interest rates remain high, and therefore, natural attrition of funds is also higher than in recent history, something we now expect to continue for the rest of this financial year. At the group level, we're now expecting net outflows for the full year. This is the cycle we are currently in, but it does not detract from the long-term opportunity. We're focused on what we can control, providing our clients with excellent service, increasing our operational efficiency and positioning our business for long-term growth. We do expect a continuation of the product mix effect on yields given the relatively stronger growth in MPS and the effect of consumer duty on adviser decisions. As we've previously said, costs are expected to grow mid-single digits as we remain disciplined. And going forward, we will see the benefit of the circa GBP 4 million of annual cost savings from the reorganization. We recently reviewed the interest we pay on the cash and client portfolios and in line with consumer duty have increased the amount we pay. Interest turn will therefore reduce in the second half to around GBP 5 million. Our business is well set to successfully navigate the transformation our sector is undergoing and we look forward to the future with anticipation and excitement. With that, I'll hand over for Q&A.

The first question is from Karim Rahim, Investec.

Two questions, if I may. First is just on the international review, I understand the rationale behind it. I was just hoping that you could give us some color on how you're looking to maintain operations and moral amongst staff. I guess it's a difficult time for them -- and so any indications or color you can flow on that would be useful. The slides on the strategy, again, also quite helpful. On M&A, in particular, I was just wondering how the current regulatory environment was impacting the pace at which you can do deals, the pace at which deals are becoming available to you and whether there's anything else that is slowing the pace at which you'd like to lose?

Cool. Thanks, Karim. It's Andrew here. Just first up, -- so as you're aware, at 10:00, there's an alarm in this building. We've tried to turn it off, but we can't. When it goes, we will press mute, we will be back. But unfortunately, that's just something we're going to have to deal with today. So apologies for that. Your 2 questions very, very valid. So with regards to the international review, people are absolutely key through any of this sort of uncertainty, and that's what it is. So -- so first of all, let's make sure that we get through this with up pace, we can't leave these people in an uncertain environment for too long. And then the second point is that you need to make sure that you retain them through it. And there's value, they hold a reasonable chunk of the value in terms of the relationships that they have with the clients and the actual running of the business. So we have -- we are putting in place retention for all staff within the business. In particular, clearly, the relationship holders and the people who are running the operational on a day-to-day basis, but there is something there for everybody. So it's on international. In terms of M&A and the regulatory environment, there's a few points around this. The pipeline of opportunities, I don't think has -- So in terms of M&A, we're not seeing any slowdown in the pace of opportunities coming to us. In 2023, we did not undertake any acquisitions. But it's not because we weren't looking at acquisitions. We looked at a long pipeline as we went through the year. But as I just said on the presentation. And we've got a pretty strict criteria. And if they don't fit the criteria, we won't go ahead with them. And it's easy to destruct value through a bad acquisition. And what we need to do is create value through good acquisitions. So the pipeline is still strong. We're still having the right conversations. I'm very hopeful that there will be some good news over the next few months. But I haven't seen, to your point, around the regulatory environment that reducing the pipeline. There is a piece around the due diligence and what you're looking at. I mean, we look at advisers and investment managers and in advisers, clearly, whether they have undertaken annual reviews or reviews for their clients going back towards 2018 is something that is a question that we'll be asking. Thank you for the 2 questions, Karim. We, 3 if [indiscernible].

The next question is from Ben Wiggins, Hannam & Partners.

Yes, a couple of questions after the [ nuisance ] now. So 1 is, I mean, standing back a bit, what would your cost base be? If organically, you got to GBP 25 billion of FUM. I mean just thinking about SS&C in the background, you've got tremendous operating leverage. So assuming there's some mix of the business. First question would be what would your cost base be at EUR 25 billion. And then secondly, what you said in terms of addressing advisers, I mean, you give us the firm numbers. But what growth and end financial advisers have you achieved over the last 3 years? And what would you target over the next 3 years, please?

Can I just clarify on the second question, Ben, I didn't quite catch all of that, but do you mind?

Sorry, I'm just -- I'm thinking about end financial advisers. So under you speak about financial advice firms with customers. But in terms of end advisers, what sort of growth have you achieved in the last 3 years? And what would you target organically in the next 3 years?

Okay. Cool. Well, I mean I'll kick off on the cost base and then Andrea will dive in. I mean if we expand to GBP 25 billion from where we are at the moment, it really depends where the asset comes. So for example, at the moment, most of the growth is in platform MPS, we added another 7.4, whatever the number is and GBP 0.4 billion in platform MPS, we'd be adding virtually no cost to the cost base. So that would -- [ mix ] of the revenue and admittedly, the revenue yield is much lower, but it would pull through to profit. If they all came through into custody BPS or custody MPS for that matter. Then clearly, if you get into the areas that you touched upon there, the contract with SS&C would come into play that would reduce our overall cost, and we get a much higher revenue yield from those assets. So that would be very profitable. I think the message that I'm trying to put over is that we set the business up that wherever we get this asset, it's an efficient business model, and we'll be adding to the bottom line. Andrea?

Ben, we've modeled that, as you would expect, over the next 5 years, I'm not going to get into the precise details of our 5-year plan, but I absolutely agree that the SS&C contract will help us leverage our BPS business. MPS is no very, very marginal cost with every kind that's added -- it's -- we do not add headcount. In fact, we have not added any headcount for the additional flow this year, and 1 last year, so that is a material addition. And clearly, we take into account cost of salary rises, but those would generically across the industry. So I would say we're largely a fixed cost base. I think the only additional piece, I would say, in financial planning. That's a people driven business. We clearly want to invest in the best people, [ we can ] to take the best trusted advice. But overall, we're well placed for the future and haven't taken already the steps to reduce our head count by 10%. I think that puts us in a really good pace to grow from here.

Yes, indeed. And the adviser point Andrea makes plays to the second question, Ben. And we are looking to grow the adviser base within the business, both organically and inorganically. So there are acquisitions that we would like to make in that space, which will give us more capability. It will give us better geographical spread. But we also want to build inorganically as well. And so that's bringing in some high-quality individuals. And we haven't set a target in terms of how many individuals we want to bring in through the door, but we want to bring in some high-quality individuals with some book, but we also want to bring in people as graduate trainees and as junior financial planners to build and build. And to be honest, from a -- this isn't a gender equality point, but to bring in different people to deal with different segments of the market, we need to bring in different types of advisers, whether that's gender or whether that's just as a team. And that is a lot easier to do when you bring them in as trainees and build them up and improve them with the culture and the ethos of Brooks Macdonald and all's that good stuff as well. So no numbers, but certainly our intent to continue growing that.

The next question is from Raja Vivek, Shore Capital.

Just 1 question. So I just wondered if you could talk a little bit about the staff cost reduction, the 10% reduction, where you've done that? And yes, please?

Sure. Thanks, Vivek. So yes, we announced the 10% FTE reduction in actually, at the end of November, it was end of October and our [indiscernible] individuals in December. We've largely focused on operations back office. We've obviously ensured that all the front office and distribution teams remain resilient and in fact, continue to invest in technology to support them. So this is off the back of having invested in SS&C. We're able to realize quite significant cost reductions. And I would say, although that was a one-off production, we continue to be focused on efficiency throughout the organization, an efficiency more broadly on how we do things and [ mostly ] invest in technology and grow the business to scale back to the previous question.

The only thing I'd add to that is that we're an ambitious business with a massive opportunity out there, and we needed to reorganize ourselves to make sure that we're ready for the next stage in our growth. And I think -- I think we've done that, and it's a tough thing to go through, but we're at the other side of it now, and I think people are ready to really get excited for the future.

Appreciating that must have been tough across the business. And I sort of got the sense that you've hinted their maybe scope to do more. And I just wondered if that is the case, where else you might look to reduce costs in the business?

So where I was, I think, more than [indiscernible] is -- hopefully, is that we will look at how we grow efficiencies to scale up the business, invest in our talent, investing in our systems as we've done in a very measured way. So for me, efficiency is a continued part of our DNA, and we'll look to keep delivering on that. People are best asset, we'll continue invest in them, I think, technology going forward is the biggest enabler for this business in terms of scale, and that's what we're focusing on doing. And you've seen some very practical examples of that. So efficiencies is behind us, we've done that. We've now invested in Intelliflo and some other CRM systems, Salesforce particular to really support the distribution team. That's all by efficiency. So in brief not adding any head count as we scale. We won't be able to do that forever clearly, but this is now reflecting about marginal improvements every day that we can make.

[Operator Instructions] We have a question from Andrew Watson, Singer Capital Markets.

Two questions, 1 for you, Andrew, just around engagement with the end users of BPS and MPS amongst the adviser base. Can you just give us a little bit of color about the levers that you are applying forward to improve engagement from existing advisers and as well how you're going out to greenfield opportunities to bring new advisers into the proposition. And just really how you're focusing that between kind of specialists individual products against the backdrop of clearly a very comprehensive suite of solutions. And then the second question just around capital. If you could just give us a little bit of color into the ICARA calculation and how that's managed to open up some additional capital headroom, that would be really helpful.

Cool. Thanks, Andrew. As you have suggested, I will take the first, and Andrea will take the second. I mean look, from the perspective of engaging with IFAs around the product set, this is -- we've got a lot of experience here. There's the -- you talk about existing and new -- and let me touch on new first. We use a lot of data to identify the advisers who are using BPS, who are using MPS at the moment. So we know which share, which wants to go in plans to go and target through various data systems. And that will be helped by our use of Salesforce as we go forward. So that exciting on the 1 side, we're also deliberately targeting advisers who look after the money themselves at this point in time. That's where persons or Investment Solutions comes in. This is advisers who we think or we try and engage to enter the discussion about moving away from providing investment advice themselves through outsourcing and consumer duty really helps with that because it does drive forward that conversation. They don't really want to be taking the additional risk of getting clients poor outcomes on their watches. So there's 2 different areas from that perspective. With regards to BPS and MPS with those who we're working with at the moment. Clearly, they're going through a discussion internally and then with their clients about what is the right service for those clients. And we're really trying to help them through that conversation by showing them what the benefits of BPS and MPS, but BPS are by -- having these different specialisms within it. The old core BPS, which was -- back in the day, it was the default for advisers, includes some clients who would be better off in MPS. So there's a gradual over a period of time, movement of assets from 1 to the other. Not big. We're not seeing huge numbers moving, but it is -- the regulator is requiring that conversation to be had. So we need to make sure that we're involved in that conversation that we've got the right solution for the client. So the money doesn't leave Brooks Macdonald. That's clearly a priority of us. And then from a BPS perspective, it's, okay, well, what clients are suitable for BPS. So we have these specialist services, and it also applies for any clients who have complexity and specialist requirements, which might just be that they're big enough that they have tax requirements that you need to keep into account. It might just be that they're sophisticated. They want to speak to an investment manager on a regular basis. And when you put that together, together with -- there's quite a few clients out there who are just quite happy to spend the extra money because they like the conversation -- they like the arm around the shoulders. So you have all of that. There's lots of justifications there to use BPS, and there are some clients that should in MPS, so we worked through that with the IFA, which builds the relationship with that IFA against the right clients and the right services, but it also makes it really clear what they should be using going forward. And that building of the relationship means that we get a greater amount of the IFAs wallet if you want going forward. Hopefully, that helps.

Your second question then, Andrew, thank you for asking about capital. I think it's -- what capital does clearly is give us strategic optionality. So I could go into the detail of the ICARA, but I'll keep it short. So essentially, -- and 6 months ago, so when I write capital, we were in a really strong face already, but the arrival of the new CFO and new CRO, both of us really had a focus on the modeling behind it and testing the right prudential capital side in line with the ICARA rules, which are detailed and also looking into the model and behind and ensuring that we were well placed for the future. So effectively, the -- all the work that went in was refining the assumptions, refining the calculations and improving them and in particular, looking at the operational risk, which has we've taken material steps to mitigate that. And therefore, we were able to improve our surplus to GBP 35.6 million. And that, combined with a strong cash surplus, I think gives us -- puts us in a good place for the future.

That's really helpful. And -- thank you for keeping a nicer view of the [ friendly ] as well. A quick follow-up. You mentioned BMS in terms of targeting advisers who currently manage their own money. I mean I appreciate that's quite a big process for the adviser and kind of takes a little bit of time. Are you able to give us any color on the pipeline of opportunities there. Clearly, without any specificity, but do you have a good line of sight on potential opportunities for the next 6 to 12 months?

Yes. And it's good for that sort of time line actually, Andrew, because there's no specific. It's different every single time. You might get into the conversation where they've already made the decision, right, we got to stop doing this, and they're looking for the answer. And you may get into a conversation where they think they are absolutely brilliant running investment portfolios and they gradually get there. And that actually, to be fair, you can bang your head against that wall for years. They eventually come around, it can take a while. So we have a really good view on pipeline. It's not so easy to get a view on exactly when these things come through, and they are competitive processes. And it's very rare that you give an IFA who just goes over there it is -- his GBP 50 million. It is normally us and 2 or 3 others, and we're going through a pitch process. But we're involved in quite a few pitches to we're positive over the next few months that we will have -- will have some success there. I can't be any more specific than that, but that will clearly benefit flows at a time, as you heard me say in the presentation, when [indiscernible] at the start of this year and for all the reasons, which we have discussed before.

[Operator Instructions] There are no more questions at this time. I would like to turn the conference back over to Andrew Shepherd.

Thanks very much, and thank you all of you for joining us this morning. We really appreciate it. Andrea and I love talking about the business. So don't be strangers, feel free to give us a call and we'd happily flesh out anything for you. So have a good day.