Quilter plc (QLT) Earnings Call Transcript & Summary

Good morning, all. Welcome back to Senator House. It's been 2 years since we've done an in-person results presentation. And it's good to be back, albeit in uncertain times. And our thoughts and hearts are very much with the Ukrainian people at a moment like this. Even so, we're pleased to be delivering a great set of results. And we're also pleased with the strategic reshaping of the business during 2021, some of which we covered at our Capital Markets Day, back in November. As with previous results presentations, I'll cover the strategy and say a few words on the individual business lines, and Mark will run through the financials, and then I'll come back to sum up before we move to Q&A. Let me start with a summary of the major strategic steps we took in 2021. The most notable event happened early in the New Year when we completed the migration onto our new platform. And we're already seeing the benefits of that through a sustained improvement in flows. And we'll continue to actively market the platform to new IFAs and do more with our existing partner firms throughout 2022. 2021 was also a year in which we took some tough decisions around our adviser base. Having completed the Platform Transformation Program, it's important to have an adviser force that's aligned to the Quilter proposition and more productive, and we've now achieved this. We'll be growing from here, and I'll say more on this shortly. We largely completed our optimization plans, delivering GBP 61 million of cost savings by the end of 2021, and will deliver another GBP 45 million of savings over the next 3 years through the simplification plans we set out at our Capital Markets Day. So good progress across the board. The other significant event was, of course, the sale of Quilter International at the end of November for GBP 481 million. Following the sale, we committed to return GBP 350 million to shareholders. Mark will set out the details of how we intend to do that later. With the disposal of Quilter International, we completed the restructuring needed to make Quilter a simpler, faster-growing, U.K. wealth manager. And to reflect that, we now report the business under 2 new segments: Affluent and High Net Worth. Separately, we completed our existing GBP 375 million share buyback in January this year, returning the surplus proceeds from the sale of Quilter Life Assurance. That means by the middle of this year, we'll have made special capital returns of around GBP 1 billion to shareholders on top of ordinary dividends since we listed. So a busy year and a strong one for Quilter. I hope you'll agree. And what I'm really pleased about is that, as well as being busy on the strategic front, we also delivered a strong financial performance last year. Both our segments, Affluent and High Net Worth, delivered 10% revenue growth, as you can see at the top here. And each of the main business units delivered revenue growth in excess of that, with the exception of our Advice businesses where we've been busy repositioning for future growth. So with total revenue growth of 10% and cost growth limited to 5%, we delivered a 28% increase in adjusted profit to GBP 138 million. We're clearly moving in the right direction. For me, one of the most important targets we set out at our Capital Markets Day was to more than double our profit by 2025 off the 2020 base. And as you can see on the bottom right, we're tracking well to meet that goal. Now before I turn to flows, a reminder of our business model. We've got GBP 112 billion of total assets, and we administer GBP 102 billion of client assets. That's the GBP 58 billion and the GBP 44 billion you can see on the slide. And then we managed GBP 54 billion of client assets, that's the GBP 10 billion and the GBP 44 billion. Most important, are the GBP 44 billion of client assets that are both managed and administered by us, the sweet spot, if you like, and it is the fastest growing part of our business. Now we attract those assets through 2 distribution channels, our advisers and independent financial advisers. So let me jump to where those flows come from. In the year, we saw GBP 2.4 billion of net inflows from our Quilter channel. That represented 15% of opening assets under Advice and with very healthy growth, up 50% year-on-year. We also attracted GBP 2 billion of net inflows from independent advisers, up from virtually 0 in 2020. I'm delighted we are seeing strong engagement from IFAs using our new platform. That meant total new inflows as a percentage of opening assets under management and administration were actually 5% last year. However, the drag from noncore operations reduced the overall level of net inflows to 4% of opening assets. That outflow is for money that Quilter Investors manages on behalf of the businesses we sold to ReAssure and Utmost. So let's turn to how flows have been trending over time. You can immediately see the substantial step-up in both gross and net flows by both segments in 2021. As a reminder, the reason we look at both net and gross is that, while growth flows are an important measure of franchise performance, it is, of course, net flows that pay the bills. The lines on each graph show you the gross and net flows as a percentage of opening balances, the difference between them being the outflows across the business. On the right, you can see that encouraging net pickup in flows from Q4 last year. We categorize outflows between controllable and uncontrollable. Uncontrollable outflows typically include, first, customers who are drawing income from their pension, their ISA or other wrappers. And second, the noncore business, which as you've seen, was about a percentage point drag on our net flow performance last year. Together, these represent about 2/3 of our outflows. The other 1/3 are controllable outflows, business we lose to competitors. Within these controllable outflows, 2 things are happening. First, the level of business we lose to other platforms is trending down, because our platform is much stronger, there is less need for IFAs to take their business elsewhere. But we're also seeing increasing consolidation in the adviser market. And when an adviser is acquired, they are generally incentivized to move their business to their new home. That will remain a headwind. So it's important to drive up gross inflows to hit our 6% target. I'll touch on the progress we're making towards this with the new platform in a moment. First, let's look at each of our segments, starting with Affluent. This is going to be an important source of our future profit growth. While the profit growth in 2021, up 6% may seem modest, there were 2 notable items constraining momentum. First, the Affluent segment contributed the majority of the tactical cost savings in 2020, and so normalization has been a headwind in 2021. Secondly, Affluent is where the majority of the stranded costs from Quilter International landed. The business is well set up for growth, and I expect to see that coming through this year. Advice is key to that. So let's look at what we've been doing with our Advice business. This time last year, I said we wanted to reposition our Advice teams to reduce risk, improve productivity and increase alignment. And that's exactly what we've been doing. With solid foundations now in place, we've set ourselves up for success in terms of ramping up our new RFP growth. Steve Gazard has hired a new recruitment and establishment director from a leading competitor, reporting directly into him. And we've increased our recruitment head count, as we said we would. And while the market remains competitive, we've seen adviser attrition rates level off to more normalized levels following the completion of the planned exits, which provides comfort on the outlook. What we're really pleased about, though, is what you can see at the bottom of the slide, a sharp improvement in productivity. Our platform is capturing over 80% of new flows from our advisers. And flows into our Quilter Cheviot solutions are also ahead of plan. Getting a productive adviser base who are aligned with both meeting client needs and delivering flows onto our platform and into our solutions is really important. And that's what we've done. I said earlier that driving up new gross flows onto our platform would be critical to deliver the group's 6% flow target. So how are we doing here? The left of this slide shows our market share of gross flows through the platform in green, against our 2 main listed competitors, all using data from Fundscape. You can see the pickup in our market share since the introduction of the new platform. And on the right, you can see our quarterly gross flows from both our advisers and IFAs for the last 2 years. That improving market share is reflected in the sharp improvement of our quarterly flows over the last year. And as we set out in November, we've got clear and detailed plans to deliver more here, by doing more through existing IFA relationships and by broadening our reach amongst IFAs who don't presently use our platform. The changes we've made to our adviser force have also contributed to the pickup in the flow we are seeing from our channel. As I said earlier, net flows from our advisers were up 50% on last year. And we've still got the back book opportunity that we talked about in November, which will also support increased flows from our advisers over time. Let me share a few words on Quilter Investors, where we know we can do better. We've been making some strategic changes to build for the future. As we said at the Capital Markets Day, the most notable initiative is the enhancement of our GBP 10 billion WealthSelect range. Earlier this week, this became the most comprehensive managed portfolio service in the U.K. with the launch of our new Responsible & Sustainable portfolio offering. And I'm delighted that Square Mile have awarded each of our new ESG solutions, their top ESG rating. This will help advisers deliver a more personalized service to a wider range of clients. We're catering for ESG preferences as well as risk appetite and preferred investment style. We've created the first joined up end-to-end ESG proposition in the entire market. We've also implemented an improved charging structure on the new portfolios, with an explicit discretionary management fee designed to help clients better understand what they're paying. That fee, when implemented across the full range, will also remove the noise from the quarterly rebalancing we saw last year. It will have an impact on the optics of our reported revenue margins for Quilter Investors, which Mark will talk to. But the actual economics and total revenues will be completely unchanged. Last year, we saw outflows of GBP 83 million from fund closures, which are unavoidable when you have noncore portfolios in runoff. As a heads up, we undertook a fund closure in January to GBP 69 million of assets, which will show up in Q1 flows, but there's nothing more planned here. Going forward, the main structural drag to Quilter Investors' flows should just be noncore rundown, the money we manage for the businesses we've sold. For this reason, I expect a substantially better flow performance from Quilter Investors this year. Right. Let me turn to our other segment. I'm delighted with the performance of our High Net Worth segment last year, flows up nearly fourfold, revenue up 10% and profit up 44%. Here, our Advice business moved into profit on a standalone basis, and we saw strong positive jaws from the segment. I'd also highlight the strong flows performance. Quilter Private Client Advisers, our high-end advice business, continues to make a great contribution to net inflows. And we also saw a strong improvement in IFA flows, which more than doubled. High Net Worth's overall net inflows are back to the best levels we've ever seen from this business. Our ESG innovations, which include integrated investment research and dedicated solutions, are being very well received. Recognizing the success some of our discretionary fund management competitors have had with managed portfolio services as a gateway product, last year, we launched our MPS as a more compelling proposition to target increased flows from independent adviser firms, and we're already seeing the benefit of this in our flows. What is particularly pleasing is that this segment finished the year strongly, both in terms of quarterly inflows and client engagement. So I'm expecting another good year in 2022. Now this slide summarizes what we said at our Capital Markets Day and compares it with the progress we've made in 2021. It's our report card, if you like. I'm not going to go through all the points on this slide, as Mark will pick up the key points in a moment. But I think we've made an excellent start. And while we know there is more work to be done, we remain confident in our ability to deliver. Right. Before I hand over to Mark, let me say a few words about the outlook and set out my main priorities for 2022. Now as this is a presentation about 2021 results, we don't want to get drawn into detail on current year trading. But given what's going on in Ukraine and with current volatility, I know that's front of mind for all of us. What I can tell you is that up to the end of February, our year-to-date net flows were running comfortably ahead of 2021 levels. While the current global uncertainty makes it hard to know how the tax year-end season and investor sentiment will play out this year, that's not a hedge, guys. We just don't know. None of us know. But the continued momentum across our business from last year into early this year absolutely gives me confidence that the refocused Quilter we've built is more than capable of delivering net inflows of 6%. Right. In terms of my 2022 priorities. First, while we've seen a good improvement in flows in 2021, we want to do better and get to our 6% flow target. Next, we want to get back to proper growth in our adviser numbers, while driving more flows into our solutions. We'll also deliver our simplification plans to take GBP 45 million of costs out of the business by end 2024 and drive the operating margin up to the targets we set out to you. And with that, let me hand over to Mark to present the detailed financial results. Mark?

Thanks, Paul, and good morning to you all. Let's start with a refreshed version of a slide I used at the Capital Markets Day, which shows the shape of our P&L. And in terms of headline numbers, you can see that we generated GBP 138 million of adjusted profit on a continuing basis, up 28%. And as Paul said, we're on track to deliver our target of doubling profits by end 2025 off the 2020 base. Back in 2020, the cost of running our head office was about the same as the contribution from the High Net Worth segment. And over 2021, we have grown the High Net Worth business substantially while reducing the costs of running the company. We've also grown the Affluent segment, and that's despite it absorbing stranded costs from the sale of Quilter International, as well as a meaningful amount of the tactical cost saves we made in 2020, reversing during the year. Overall, we now have a much better balance to our business. Now let me take you through my usual discussion of the moving parts. We achieved net flows of GBP 4 billion, up from GBP 1.5 billion in 2020. So when combined with positive market movements, we enjoyed a 17% increase in average assets under management and administration. We increased revenues by 10%, while containing the overall revenue margin decline to a single basis point. And I've put the detailed business margin slide in the appendix, where you'll see it's been a very stable year overall. And we contained the cost increase to 5%, and I'll get into the detail of costs a little later. That led to a 3 percentage point improvement in the operating margin and an increase in adjusted profits to GBP 138 million. So after the transitory benefits from a deferred tax credit in the first half that I explained at the interims, we delivered a 42% increase in adjusted diluted EPS to 7.4p per share. Without the deferred tax credits, that increase would have been more in line with the profit increase. Let me now turn to how we stack up against the targets we set out at the Capital Markets Day. First, operating margin. As you know, we are aiming to deliver operating margins of at least 25% by 2023 and more than 30% by 2025. We achieved an outcome of 22% in 2021, which was an overachievement against our expectations. Given the current environment, we currently aim for a broadly stable operating margin this year without obviously been market dependent, and I'll get into the cost moving part shortly. Next, in terms of EPS, we target a compound growth rate in the mid-teens by 2025 off the 2020 base. The dotted line on the lower graph shows an assumed steady 15% compound growth rate. And again, as you can see, we are ahead of where we need to be, and that would have been the case even without the deferred tax credit. Turning now to costs. I'm pleased to report that total costs of GBP 480 million came in below our GBP 500 million target, helped by the full amount of 2020's tactical cost savings, not fully reversing, and an expected supplemental FSCS levy that did not materialize. On the left here, I have shown you the cost breakdown along the lines we set out at the Capital Markets Day. You can see the trend in various cost lines as a percentage of revenues is broadly in line with the guidance we set out in November. The waterfall on the right summarizes the main changes in the expense base in 2021. First, inflation and higher FSCS levies added around GBP 13 million. Then we absorbed GBP 10 million of stranded costs from the sale of Quilter International. And we experienced anticipated cost increases of GBP 28 million arising from the reversal of last year's GBP 42 million of tactical cost savings. And finally, in your optimization benefits and the lack of dual-running property costs generated savings of GBP 27 million. Now let me turn to the cost outlook. And I'm not going to give you a specific cost guidance this year. Our guidance on operating margin expectation shouldn't enable you to populate your models. But you should factor in, first, inflation. And here I'm expecting around a 4% uplift in staff and general costs this year. Secondly, higher FSCS levies; Third, tactical cost savings normalizing further, and there's about GBP 6 million more to reverse as a consequence of the normalizing of the COVID environment. Fourthly, factoring business-related growth. And of course, finally, there will be savings from our simplification program, although do bear in mind that most of these will be weighted towards the back end of the program once the Utmost TSA comes to an end. Now let me comment on a few notable below-the-line items. We spent GBP 22 million in respect of our optimization program during the year, which took the total spend to GBP 81 million, leaving GBP 10 million of costs related to that program still to come. There was the final GBP 2 million of spend from the managed separation costs, which we flagged back when we listed that related to the rebranding of the U.K. platform once the migrations were complete. And the total cost of the platform transformation project came in at GBP 202 million, in line with budget. Finally, we took additional provisions of GBP 7 million in respect of DB to DC transfers, and we have begun making payments to customers. We are making good progress on remediation activity, and that program remains ongoing. Looking into 2022 through to 2024, we said that we expect our simplification-related expense to be around GBP 55 million and the spend on revenue enhancement initiatives to come in at around GBP 35 million, with both of these likely to be weighted towards the back end of that 3-year program. Let me now turn to capital and cash. First, on solvency. We began the year with a ratio of 217% and we finished at 275%. The sale of Quilter International was the most significant contributor to the increase. Once the special capital return is completed, we expect the overall capital ratio to be back around the 220% level. You will also see that I have called out the proportion of our capital that relates to the Tier 2 subordinated bond and I've done this because we have a call option on that bond around this time next year. We've yet to make a decision on what we will do about that, but one option could be to call it and replace it with the cheapest senior debt instrument. And so I wanted to flag well in advance what the capital impact would be from doing that. Next, cash. And again, you can see the big uplift in cash as a result of the Quilter International disposal as well as the cash outflows from buybacks and dividend payments. What is also pleasing is the net GBP 130 million received from subsidiaries after capital contributions. We finished the year with GBP 750 million of cash on the balance sheet with around GBP 500 million earmarked for capital return and dividend as well as the planned expenditures that we talked about at the Capital Markets Day. The residual cash of around GBP 250 million is broadly in line with our long-term risk appetite. Now let me turn to capital returns and the dividend. First, as you will have seen, we completed our GBP 375 million share buyback from Quilter Life Assurance proceeds in January of this year. And that reduced our share count by around 14% to offset the dilution from that disposal. Next, the Board is recommending a final dividend of 3.9p per share to take the total dividend for the year to 5.6p. As we indicated previously, we're treating the share of Quilter International's contribution to the total group full year earnings as a distribution pro rata to its share of the dividend. And that's because the Quilter International sale was structured as a locked-box transaction. That equates to a GBP 25 million distribution or 1.6p of the total dividend. So the annual increase in the overall dividend is 22% on 2020, and the continuing business dividend has increased from 2.9p per share in 2020 to 4p in 2021, an increase of 38%. As Paul said, we are also moving ahead with the capital return from the sale of Quilter International. The Board intends to distribute GBP 328 million in this fashion through a B share scheme, subject to shareholder approval. Let me walk you through the detail of how that will work. At the completion of the Quilter Life Assurance buyback, we had 1.64 billion shares in issue. We intend to issue a B share to all shareholders on a one-for-one basis once the scheme is formally approved at a General Meeting. Once issued, the B shares will be redeemed on the same day or the following day for 20p per B share, they will not trade or be listed. At the same time, we will do an ordinary share consolidation to adjust for the impact of the distribution. The consolidation ratio will be set immediately prior to the publication of the shareholder circular, which I expect to be at the end of March. Full details of the B share scheme with an explanatory letter from our chair will be posted to shareholders shortly. You'll recognize this as our usual targets and outlook slide that we refreshed at the Capital Markets Day. There are a couple of minor things I'd call out. As I said earlier, we are aiming for a broadly stable operating margin this year before reaching our 25% goal in 2023 as ever subject to market levels. The other thing I wanted to pick up on was Paul's comment on our flagship WealthSelect solution. When the updates are implemented on the existing range, we will earn a modest fee on around an additional GBP 2 billion of assets in our Affluent segment that sit on our platform, but are not presently managed in Quilter Investor Funds. And so Quilter Investors' assets will rise by this amount. However, as these are largely cash-based funds, the management fee margin is very small. So while there will be a small amount of additional revenues, the inclusion of an additional GBP 2 billion of assets in Quilter Investors will have a negative impact on the revenue margin we report for Quilter Investors in the Affluent segment. And that's just the math. Roughly speaking, assets will be up around 10%, but revenue only up modestly. So you can expect around 4 to 5 basis point decline in reported margin for Quilter Investors. However, this is clearly just optics without any impact on the business economics. We expect the updates to the existing range to be implemented around the midyear. And so you'll see around half that margin impact in the second half of the year and the full impact in 2023. But just to emphasize again, this is pure optics and does not have any impact on our expected revenue trajectory. And of course, the overall group AUMA and group revenue margins weren't change. So in summary, I'm very happy with our financial performance in 2021. We delivered strong operating leverage as well as excellent profit and EPS growth. On expenses, we met or exceeded all our financial targets. And our balance sheet remains highly liquid and prudently capitalized. In 2022, we will maintain a firm control of costs and continue to drive growth and improve efficiency. And with that, let me hand back to Paul to conclude.

Thanks, Mark. Right. Before we go to Q&A, let me wrap up. 2021 was a great year, and we're now focused on driving our business forward to deliver the targets we set out to you at our Capital Markets Day in November. We've got clear plans to support those goals. In our Affluent business, we'll continue to improve productivity and grow adviser numbers. And we'll grow our base of independent advisers as well. We'll also continue to innovate to meet evolving client needs like we've done with our relaunched WealthSelect, a better ESG enabled proposition for both our advisers and IFAs. And we'll leverage the capability of our platform further and pilot our hybrid advice proposition. In our High Net Worth segment, we'll continue to build out our integrated advice and investment management offering and grow the number of client-facing individuals. And we're going to open up our High Net Worth propositions to over 6,000 independent advisers by marketing our propositions to IFAs who only use platforms like ours. And we'll continue to drive growth and deliver efficiencies to enhance operating leverage, and that will create value for all our stakeholders. So in summary, what we are aiming to deliver in 2022 is: good revenue growth, supported by growing assets managed on our platform and in our solutions; and improving operating margin, trending towards the targets we've set out, helped by our simplification plans and, of course, we'll continue to deliver attractive returns to shareholders, both from Quilter International special return and from an improving dividend payout ratio over time. Of course, as I stand here today, what I can't control is the market and customer response to geopolitical factors and the awful events unfolding in Ukraine. But what I can say is we've built a strong plan for growth ahead. And with that, let's open up for questions. We'll start in the room first. David?

David McCann from Numis. Just one from me. Just on that operating margin guidance you've given us sort of flat, I guess, 22 percentage points of -- or 22% rather -- correct -- whilst last year. Can you give us a sense as to how much -- I guess, if we were extrapolating it linearly towards the target, we might have expected 1, 2 percentage point increase this year. So can you give us some color on so how much has that been stable rather than increasing a bit, is just because you're marking to market where markets are now? And have you assumed any kind of tactical cost saves in there like you did in 2020 to get to that 22%? Or is that a lever you could pull in addition.

Mark, do you want to take that?

It's a lever we can, Paul. I mean, obviously, we've done it before. But a large part of our cost base can't adjust as fast as what's going on within revenues, right? So it's impractical given the kind of cost base we've got. And we also want to continue investing in the business to create longer term value -- shareholder value enhancement. So it's a bit of a balancing act. Look, if I was -- if we were doing this presentation 3 weeks ago, I would probably have said a slight improvement in operating margin compared to where we are at the moment. It's quite a moving sort of feast that's worth trouble sharing, so you can appreciate. And so there's probably a component of market adjustment in there, but I probably compared to where markets were yesterday, and factoring everything has happened in the last few days is probably what I'd say to that.

Enrico Bolzoni, JPMorgan. Couple of questions from me. So the first one, clearly, positive feedback year-to-date as at the end of February. I was just keen to know if -- what the advisers have been telling you? Is it customers are -- they got a bit scared and so they are looking for advice and putting more money? Or is it something else? I was just curious to get some color there. Then the second question was in terms of, clearly, market impact in terms of the platform margins, what should we expect going forward? Is it still roughly 1 basis point decline per year or something different? And then finally, on the 6% target that you say you are confident that you can achieve, how much of the current scenario is factoring in that statement. So shall we see a bounce back to 2% to 6% or something else?

Quilter Advisers telling us, 2 things. First of all, clients want to know how their existing investments are doing, their existing portfolios and what we should be doing? So our portfolio managers and advisers are working hand in glove -- our investment managers, our portfolio managers and our advisers. Two, quite frankly at this time, this is where you see the real benefit of an advice-led wealth management model. People aren't left to their own devices. The first thing is helping give people peace of mind that they're in globally diversified, well-managed portfolios. So that's the first thing. The second thing, clearly, people are saying, should we invest now, shouldn't we invest now? Advisers are really advising, let's -- as opposed to dump it into -- let's keep it in money cost averaging at the moment. So -- but Steve, Steve's Head of our Advice business.

Yes. No, I mean I think exactly to Paul's point -- sorry, exactly to Paul's point, that it is times like this that clients reach out to their advisers and that kind of reassuring arm around the shoulder to kind of provide some of our commitment that we're in it for the long-term financial plan, that we're achieving their goals, their ambitions, their dreams as it were, and making sure that we're aligned with that. And then being clear that they're in diversified portfolios. We'll inevitably see some kind of ebb and flow through that. But at the moment, the advisers are saying they're being reached out to more than ever at the moment.

Good. Platform margins, I think we've guided to an average 1 basis point decline. Steve, is that right?

Yes. 1 basis point decline.

Yes. Okay. And on the 6% target, look, I think I've given you probably more guidance than I've done in previous years. I've given you a bit of a guidance as to how we started the year up until the end of February, early March. And I've also said, I don't know where it goes fundamentally from here in terms of our -- clearly, we want to hit our 6% target. But we have to wait and see how this thing unfolds. What I have said, though, is we've built a business, and we've seen that already early in the New Year, which is more than capable of hitting our 6% target. So -- and that's what we're focused on, Enrico. Andy?

It’s Andy Sinclair from Bank of America. 3 from me, if that's okay, as usual. 2 on advisers and one on Quilter Investors. So firstly, just on adviser headcount expectations for 2022. I think previously said that 2022 might be a little bit lower for growth. Just wondered we've had a few more transactions since then, just wondered kind of what the outlook is for 2022? Should that just be the same kind of mid-single-digit as the coming years? Secondly, just an update on the Financial Adviser School. Just if you could give us an update of where we are now? Kind of what we've seen in terms of graduates and how much of recruitment is expected to be coming from the adviser school? And thirdly, just on Quilter Investors, just with lots of fund-to-fund and managed portfolio solutions being launched in the wider market. Can you just remind us how much of Quilter Investors AUM is actually on other platforms as opposed to coming through your own platform today?

Thanks Andy. Well, I'm going to obviously hand over to Steve and Steven for these, but I'll just say a couple of things. Adviser headcount expectation for 2022, we did guide to sort of low single-digit percentage growth this year, moving to mid-percentage digit growth next year. And I think that's what we're expecting. But Steve, is that -- flavor on that?

Yes, 100%. So I guess, Andy, on that, we've been clear in our kind of conversations on this that ultimately, as we realigned our business and led to a more focused business, we would actively support the exit of advisers that weren't aligned with that. Having completed that, what I'm really pleased about is we've seen our attrition levels normalize in line with plan now. So from that perspective, absolutely, along with that. Paul has already referred to the fact that we've added into recruitment and including the joining of a recruitment director from one of our leading competition. So that's driving our organic recruitment. So as I sit here today or stand here today, ultimately, I'm confident that our plans are being delivered on that. So mid-single-digit still seems entirely where I would expect us to be. If I take Financial Adviser School within that, then ultimately, absolutely adviser school remains core to that growth plan. Ultimately, we expect around 100 graduates as per normal from there with more of those landing with us, within Quilter, versus the third-party external market like it used to. So again, we remain on plan to deliver those.

Great. And then Quilter Investors, I think very little is on -- well, there's some, so Steven, go for that.

So Andy, there's GBP 26 billion assets under management in Quilter and GBP 16 billion of those are on our platform sits in there, as shown in the deck GBP 10 billion is on other platforms. A large chunk of that is on Aegon, but then that includes the amount of money that we've identified as noncore, which is on Utmost and the ReAssure platform and then some sort of assets spread across the rest of the platforms in the industry.

So I think about GBP 2.6 billion, GBP 2.7 billion is in what we call noncore. So in other words, with the businesses that we've sold. So as Steven says, with ReAssure and Utmost and the rest is on other platforms. The majority of that is on one platform. Further questions?

There is one on the phone, should we take that one first?

[Operator Instructions] Our first question comes from Nicholas Herman with Citi.

Just a couple for me on costs, please. Costs were -- firstly, on -- firstly just sort of clarifying on 2021 costs, which were -- well, mostly below the original guidance and then you took down that guidance at the first half results to less than GBP 500 million, and you've even beaten that. So I think you flagged in the first half there was discretionary spend that you could flat. I just wanted to clarify which discretionary spend was flat at the 2021 costs when we looked at the cost that you can provide? Secondly, you've mentioned also the first half results that you would be impacted by -- you could be impacted by inflation in that turned up higher than you expected. Could you just remind us the sensitivity of what level of inflation is embedded in your costs -- in your targets. And kind of if we ended up seeing inflation, it seem up by a couple of percentage points, how that would affect your plan? And then finally, we saw that -- I mean, a competitor of yours, Hargreaves Lansdown, they certainly want to invest a lot more in technology, in hybrid advice given the scale of the opportunity. Given how fast the pace of technology, and how fast the competitive environment is moving, is there -- do you see a need -- do you see a potential to -- I guess, do you see potential to -- are you are investing enough to kind of meet your targets and therefore -- or are you comfortable that your technology spend is enough to kind of ensure that your offering is -- remains cutting edge.

Okay. Well, I'm going to ask Mark to take the first 2 in terms of which discretionary spend was less that we could. And…

So I hope I got all that, Nicholas. The line wasn't that fantastic. But just in terms of sort of the areas that probably didn't materialize in as much cost last year as we're expecting. That was mainly around the continuation of being in a COIVD type environment for a large part of the second half, which hadn't sort of been fully factored in. I've referenced the GBP 6 million of sort of tactical spend that still needs to reverse from the savings that we benefited from in 2020. That may need a small bit of development in that, but predominantly travel, entertainment, marketing, client and adviser events, those sorts of things were the main factors driving that. In addition, I also called out in the presentation, obviously, the FCA levies -- the FSCS levy twice a year. We normally get a good sighting shot of that normally sort of towards the end of the first quarter, start of the second, which is when most of it is booked. So we tend to have a much higher bill for FSCS levies in the first half of the year. And then they do all the detailed calculations, and then we normally get a supplemental levy that comes through towards the back end of Q3, which is also what I was expecting last year. Last year, they actually waived or they didn't impose a supplemental levy for FSCS in the second half, which is actually unusual, they normally would. So we got the benefit of that coming through then, too, which I had been anticipating was going to cost us more, and it ended up not costing us more. In terms of the question around inflation and the sensitivity of our targets, as I said at the Capital Markets Day, I've been -- embedded within our targets, is a higher inflation rate for a period of time. Now in my own planning on that, I've assumed that for this year, and I've reiterated it again today, that we'd have inflation of around about 4%. And that's a big chunk of our costs, obviously, staff and then also sort of IT contracts, which tend to be sort of CPI linked. So not always every year, but I won't get into complications of that, but it's around 4% of the cost increase from inflation this year. And then I'm expecting a normalization back down to the Bank of England long-term rate in about 2024. So it's sort of -- it's a shift down. Of course, if that doesn't happen, or if inflation runs higher for a period of time, which means it then gets baked into later years. It's -- we'll need to see the impact of that in the broader context of business performance, market and everything else. And then in fact that, that might have on targets. So Paul, I don't know if you want to talk about the GBP 35 million investment we've got.

Yes. So -- in terms of are we investing enough in technology? We've invested an awful lot in technology. We put GBP 202 million putting our brand-new platform and that is just latest state-of-the-art wealth platform technology. We've done it now. Many of our competitors have still got to go through that. So we've also mentioned that we're holding back GBP 90 million from the sale of Quilter International to help us first with our simplification plans, but also to invest further, predominantly in technology for our hybrid -- particularly for our hybrid advice service. But don't forget, we're reducing a lot of the cost of our IT estate by getting rid of old legacy IT estates, which is bringing our cost base down. And we're investing now, but it's more a plug-in to our platform. It's a much simpler -- I'm not saying it's simple or easy, but it's a much simpler process than what we've been through. And again, advice is in our DNA here at Quilter. This is what we do. Okay? This is what we do. We're not entering a new type of business line. We're simply plugging in effectively a more video-based type technology into our existing platform with advisers who are not peripatetic. So it's man-with machine, not man versus machine. It's the stuff that we do. But Steven, do you want to add anything to that?

Good.

Good. Okay. I got it right. Great.

Our next question comes from Greg Simpson with BNP Paribas.

A few more clarification questions, if possible. The first is, do you have any guidance on the tax rate for 2022. There were some tax credits in '21. So just do you expect to move up towards the U.K. tax rate or maybe a bit lower? And the second is on the noncore AUMA, which I think was GBP 1.5 billion on the platform and then GBP 2.7 billion off the platform. So can you give any color on the expected pace of runoff of these assets and maybe the revenue contribution? Just trying to think about the headwind there? And then lastly, just to check, does the new platform have any exposure to higher interest rates. I think you do have a kind of a cash management account now. So can you conjure higher revenue margin if U.K. interest rates to move up?

Well, clearly, I'll take the tax rate one. And then I'll ask Mark and I will jump in. Mark, do you want to take the tax rate one then we'll come to Steven.

I'm expecting on a go-forward basis that we'll probably do be a percentage point or 2 below the headline U.K. corporate tax rate.

Okay. In terms of noncore AUMA, as we said, this is predominantly the business that we've sold to Utmost and to ReAssure. It's -- the AUM levels will depend on 2 things. Clearly, the runoff. There's nothing going in the top of that. So it is -- it will be in runoff over time. But it also depends on markets, whether AUM levels stay stable or not. One of the reasons we sold those 2 businesses, that there was no growth in those businesses. What would we expect? I guess, we'd expect kind of a normalized 15%, something like that -- a bit higher than -- certainly higher than our normal attrition, right? About 15% is what we kind of expect. And then you've got to decide what you think markets are going to do. In terms of exposure to higher rates, Steven, on our platform, we can now hold cash on our platform.

Yes, we can hold cash on our platform. But the way our platform works is that we parse the rates that we earn as interest back to customers. We charge a fee for all the assets on our platform. So at this stage, we don't make an explicit interest margin on client assets on our platform.

Our next question comes from Alex Medhurst with Barclays.

Just 2 from me. Just firstly, on the adviser headcount reductions, because of RFPs. Can you give some guidance as to the shape of how you expect Financial Planning revenues to trend when you expect to return to growth and if there's any phasing in H1, H2 this year to come? And then secondly, looking at Slide 11 and the platform market share figures. I'm just interested to get your take on why your market share of net flows was that much lower than peers and why your market share of assets continue to decline in each quarter of FY 2021? When do you expect that trend to reverse? And are there sort of any particular levers that we'd be looking for as this year progresses?

Okay. Obviously, we've got to Steve and then Steven. But just let me share a couple of words first on those, Alex. Financial Planning revenues. Don't forget, we -- our financial -- if you look at our total revenues from our Financial Planning business because also you have to include the manufacturing revenues that we get from our Financial Planning, it's up significantly on last year. We had a 50% increase in our net flows from our Financial Planning business last year. And that growth more than offsets any lower -- a 5% lower headcount in our adviser numbers significantly more so. But Steve, do you want to say any more about that?

Sure. Yes. No, absolutely. So I mean, as we've said, I'm absolutely confident that we'll return to that low to mid-digit growth through retention of our existing advisers and the addition of new advisers. As Paul has alluded to, what we've seen already, though, is that 50% year-on-year growth from our remaining population as we've had our ability to focus and work with them to help them be more productive and get a wider adoption of both our platform and our QI and QC proposition. So I can absolutely see that going and the launch of the WealthSelect enhancements will only drive that further.

And then I'm going to come to Steven, but let me just say again a couple of words on that. Yes, we did like GBP 9.1 billion of gross flows on our platform last year, up I guess, 40-odd percent from the previous year. Our net flows were up 137% on the previous year. So GBP 9.1 billion, GBP 3.5 billion on the platform. And don't forget, so from one -- overall, GBP 1.5 billion to GBP 4 billion for Quilter, but for the platform 133% up. So we've seen a significantly greater increase in net flows proportionally than even gross flows. And at the gross flow level, I think us and another competitor were the 2 top sellers in the whole of the platform market last year. And don’t forget, we only put a new platform in just a week or 2 before working at this time last year. So I don't see that as falling behind. I see that as certainly more than catching up.

Yes, absolutely agree with that. I mean just specific -- question also was touching on our share -- market share of net flows across the industry. Now just how the math works, a market share of net flow will rise with a lag compared to market share in gross flow. We had a period, as you all know, before our new platform came in where we were not getting as big a share as we wanted, but we still had a share of the AUM in the industry and outflows are proportion of AUM when you've got a mature book. So what is happening is that the outflow share is higher than for a period for what our inflow share was, that is turning and you are seeing that and that will be happening. Last year, just specifically our share of net client cash flow in the industry did increase by about 2%, and I expect that will continue. But it will increase. It will take a bit of time to get to the same share as the gross sales share of the industry flows just because of the math works.

Okay. We have a couple of questions on the web. One -- the first one is from Ben Bathurst. He firstly asked about -- thank for the color on the net flows to end of February and ask if we can put some numbers around that against how it was this time last year, which I can pass to Mark, who will answer no.

Nice try, Ben.

Then he asked actually what proportion of Quilter Cheviot's assets are currently in MPS? And can you clarify that the new Quilter Investors offering in MPS will be available to High Net Worth customers where these are 2 separate MPS offerings? And then goes on to ask, does the ESG enabled proposition I mean you're now fully prepared for MiFID II amendments related to ESG likely to apply on advice from this year. Okay. Do you want to take the first one?

I mean we're not going to have a running commentary on net flows or gross flows or whatever on a week-by-week or month-by-month basis. We put out quarterly updates on that. And I don't plan to deviate from that.

Okay. QC assets and MPS. Andy? About 5%. So we've got -- yes, about 5% at the moment. And we obviously, we think that can drive further with our new MPS service. And we're already seeing good flow into that and good take-up of that. So Ben, just so I'm clear, were you saying -- well -- on SG&A, are we now fully MiFID compliant for advice in ESG? I think there's a question.

We are compliant with all the regulations.

Good. Okay. I mean there's another 2 questions from Rahim at Investec. Coming back to the hybrid advice proposition and ask where we're on track to deliver the launch of that in 2022. Despite current market uncertainties, are you seeing any challenges with securing sufficient skills to deliver this given the tightness in the market? And then also, again, for Mark, maybe on this one, can you confirm the level of revenues and costs expected to be incurred in delivering on the TSA with Utmost group and that these will be anticipated as discontinuing and its impact will not be seen in financial '23 and beyond. I think this is how that gets accounted for going forward. So on TSA, at Utmost and hybrid device.

Okay. Hybrid advice, we've said we will pilot it in 2022. That's what we said we've committed to. If we can do a full scale, then clearly, we'll do it. But given where the market uncertainty at the moment, we've said we will certainly pilot that in 2020. It's not a skill thing. As I said, advice is in our DNA, and we've got a lot of advice capability and advice skill. It's making sure that we can reach that wider, quite frankly, part of the market that, at the moment, hasn't really had access or to been able to afford a proper financial advice. That's what we -- that's where the work is. It's not in the -- it's not getting the skills to do this.

Okay. Initially with the TSA with Utmost it sort of a GBP 10 million per annum, which is referenced in the release today, you can see that in there. It clearly is dependent upon the services that we're providing, some expecting that to come down over time. And you'll also see that we have made provisions against the sale in order to decommission systems, et cetera, as that's required, and as that goes into runoff. So it starts at about GBP 10 million. And clearly, that -- we factor all of that out. It's a debit in a credit out and it gets factored in to everything. So it's net neutral from any guidance or anything like that, that we provided on a forward-looking basis.

No web and the telephone. Is anything else in the room? Great. Well, thank you, everybody, for your support. Thank you for those of you who came, that's very good of you. And I look forward to seeing you all face-to-face shortly. And for our shareholders, Mark and I will be down and South back up. We are getting on our planes tonight -- separate planes. Not private ones. And we'll see our U.K. shareholders shortly thereafter. Thank you very much.