Quilter plc (QLT) Earnings Call Transcript & Summary

Good morning all. Welcome to our interim results presentation. We'll follow the usual format. I'll set up my perspective on business performance, flows and some of our important initiatives, and then Mark will walk you through the financials. I'll then summarize and we'll take Q&A. We've also got the exec team in the room with us today, so I'll draw them into questions as appropriate. Let me start with the key highlights across my three key axes: financial momentum, operational improvement and strategic progress. First, financial momentum. We all know it was a tough market in the first half. Despite that backdrop, there's good momentum in our business, and that's come through in our first half performance. We drove GBP 1.6 billion of net flows to our platform versus GBP 1.8 billion last year and GBP 0.5 billion of flows into our High Net Worth business versus GBP 0.4 billion last year, a creditable performance. And we increased adjusted profit by 9% to GBP 61 million. And that was achieved by delivering a 2 percentage point increase in the operating margin to 20%. The other notable feature in the first half was the return of GBP 350 million to shareholders from the sale of Quilter International. Taken together with our previous buyback, we've now reduced our share count by about 25% since we listed. Next, operational improvement. As you know, we've substantially completed our optimization plans, delivering some GBP 65 million of cost savings against the original target of GBP 50 million. And we're now making good progress with our simplification plans. We've accelerated initiatives wherever we can. We've also agreed to a more straightforward process to help expedite the back-book transfers, which we told you we were targeting at our Capital Markets Day. And last, in terms of strategic progress. I'm delighted that our new platform continues to be well received. In both Q1 and Q2, we were the leading firm for retail advised gross flows across the entire platform industry, according to Fundscape data. To maintain that momentum, you'll recall we talked about targeting 700 IFA firms back at the Capital Markets Day. Well, we've already successfully converted over 10% of those to using Quilter as a platform of choice. We also launched our expanded WealthSelect offering to give customers a choice of investment solutions that can cater for whatever risk appetite they have, with whatever investment style they prefer and all with an ESG overlay. And we continue to make progress on our plans for tomorrow's Quilter, including investment in our mobile app delivery and our hybrid advice plans. So overall, continued good progress notwithstanding the backdrop. Let me now share a few words about each segment, starting with Affluent. As you can see from the charts on the right, we experienced some revenue headwinds principally from lower advice and mortgage and protection revenues. But despite those challenges, we increased profits in this segment by 7% to GBP 47 million, supported by good cost discipline and the benefits of simplification. We reduced year-on-year costs by 6% despite inflationary pressures. More broadly, from a strategic perspective, we've seen the first movements in transferring our adviser back-books onto our platform. We've streamlined the process to make transfers easier for advisers and their clients, and this should allow us to accelerate momentum from here. We've also been pleased with feedback on our enhanced WealthSelect managed portfolio service, which I mentioned earlier. Turning now to High Net Worth. Here, we delivered solid revenue growth and a year-on-year increase in net flows, which we'll come on to shortly. Now we've also continued to invest to drive longer-term growth in this segment. So that means profits are down about GBP 3 million year-on-year. That investment includes growing our team of investment managers. We've added eight investment managers since this time last year. We're also building out our advice capabilities in our Dublin office, and we're recruiting financial planners in the U.K. As we outlined in November, this is the start of being able to offer both financial planning and investment management right across all of our offices. We've seen strong flows into Quilter Cheviot's Managed Portfolio Service, which we relaunched last November, as well as our Climate Assets fund, which has gone through the GBP 400 million AUM milestone during this period. We're intending to launch a more growth-focused version of this fund in the fourth quarter. Now let's get into the detail on flows. This is the usual flow chart that you've seen before. As you can see, total gross and net flows were down somewhat in the first half. But this overall high-level picture doesn't really give you a good feel for the key trends in both our UK Platform and in our High Net Worth business. That's because the overall group figures also include the assets we manage on third-party platforms, including those related to businesses that we've sold, which are obviously in structural outflow and so distort the picture. So today, I want to dig a bit deeper and break out separately the flows for the platform and the High Net Worth business. These are the main flow engines for Quilter and will allow you to more easily make comparisons with our listed peers. I'll start with the platform. As you can see, both net and gross flows for the first quarter were actually marginally ahead of the same period in 2021. But in the second quarter, we saw a step-down in the level of discretionary investment flows. Looking at the trends behind that. While we enjoyed consistent levels of flows into pensions in the second quarter, pressure on discretionary investment reflects a combination of both weaker market sentiment and the squeeze in household incomes. That led to a step-down in gross flows from about GBP 2.3 billion in the first quarter to around GBP 1.9 billion in the second quarter. Basically, people are putting less in their ISAs. But it's worth noting that the lower Q2 gross and net outturn for the platform were still higher than the level we were at before our new platform came onstream. So we're confident that our new platform has definitely moved us to a higher, sustainable level of flows. We're now capturing more flow from our own advisers, and we're also targeting a wider range of IFA firms across the market. We've continued also to improve persistency this year. You may recall that our platform persistency in early 2020 was inflated by some of the transfer and operational problems that other firms were having in the early stages of COVID. So the 93% persistency you see here, up a percentage point on last year, is welcome evidence of continued progress. I'm particularly pleased that we've seen notably fewer clients leaving us to go to other platforms. The feedback we get from IFAs is that they no longer need to do so. Our new platform is so much easier to use and because we now offer such a comprehensive service. Despite that improved persistency, the lower level of gross flows has fed through to lower net flows in Q2. And of course, this is a trend you can see right across the market from last week's Investment Association statistics. So GBP 1.6 billion of platform net inflows for the half versus GBP 1.8 billion in a much better market a year ago is a pleasing result. While we know there is more to be done, as I said earlier, we've been delighted with the market reception to our new platform. We were the leading player for retail advised sales across the entire platform industry in both the first and second quarter, according to Fundscape, and our market share position is clearly heading in the right direction. As the chart shows, relative to our major listed peers, we've shown the most significant improvement in gross market share over the last 3 years. Back at the Capital Markets Day in November, we said we were actively targeting around 700 larger IFA firms who've historically not used us or been very low-volume users of our platform. We've made excellent progress here. Around 80 of those firms have now adopted us as a platform of choice for new investments. We are having in-depth discussions with another 60 firms, and we're in the early stage of engagement with a further 100 firms. So I'm confident that the market share improvement you can see on this slide is set to continue. Turning now to the High Net Worth segment. As I mentioned earlier, you can see that flows have been resilient. Gross flows at GBP 0.6 billion for the second quarter were broadly in line with the quarterly average over the last 3 years. And net flows were essentially flat in the second quarter versus the first quarter and up year-on-year, which I think is an excellent performance given the current market. And that's a great outturn relative to our peers and shows the benefit of our dual distribution approach. Let me now switch gears and turn to adviser numbers and productivity. As you'll remember, we repositioned our adviser force last year to take full advantage of our new platform. Our objectives were to maximize usage of the platform by our own advisers and to ensure that they were better aligned with our products and services. And it's worked. As you can see in the lower chart, we saw a sharp improvement in adviser productivity last year, and that has been sustained into this year despite lower flows across the market. Indeed, flows generated by our advisers in the first half onto our platform and into our solutions were running at a mid-teens rate of opening assets in Affluent and a low teens rate in High Net Worth. Putting that into perspective, net flows from Quilter advisers onto our platform were just under GBP 1 billion in the first half of this year, up 10% on 2021. I'm also pleased to report that as we predicted, adviser attrition has normalized. But adding new advisers has been challenging this year. Our robust vetting of new entrants and the slower pace of regulatory authorization has meant our pipeline of new joiners hasn't fed through as quickly as we'd have liked. And some aggressive consolidation in the market has definitely increased competition for advisers. So what have we done? Well, we've repositioned our offer to compete more strongly, and we continue to support our firms with practice buyout and management buyout funding. We've also launched our adviser retirement plan, where we can acquire and we can now accommodate retiring advisers' client books directly into our national business. We're pleased to see our pipeline of adviser firms wanting to join us continue to grow, and we've added further resources to our recruitment team. Once advisers are in our network, we want to ensure that they feel fully embedded into the Quilter culture and philosophy. So we've launched our Ties That Bind program to underpin this. This program is focused on three core areas. First, we're helping advisers run profitably. We're investing in technology to make it easier for them to engage with clients and with us. Second, we're helping advisers grow sustainably. We're investing in new central power planning and support structures. We're helping them to grow adviser numbers through our Financial Adviser School and by providing recruitment resources. And third, we're helping advisers exit with confidence. As I just mentioned, we've got market-leading practice and management buyout schemes. We've completed 22 such transactions this half alone. And of course, advisers can now sell to our national business, securing the transfer of client ownership and assets with little disruption. With the foundations of our advice business firmly in place, we're now refocusing back on adviser growth. To that end, we've appointed [ Steven Fryette ] back into the business as Managing Director. [ Steven ] was a founder of the business that became Quilter Financial Planning before moving to manage our largest network firm. So he has a unique perspective from both sides of the fence. And I know both Steves are excited about the opportunities they see to accelerate our growth here. Turning now to the assets we manage. Our most important initiative in 2022 to date has been the relaunch of our WealthSelect managed portfolio solution. WealthSelect now incorporates a full range of risk and investment styles, all with ESG overlays. That allows us to accommodate a wider range of investor needs than many of our peers. We provide a choice of 56 portfolios to cover the full spectrum of client appetites, from active to passive, adventurous to conservative, and with responsible and sustainable options. There's a chart in the appendix which shows you the detail. But as I highlight on the chart, performance of our WealthSelect portfolios continues to be extremely good, as is the performance of our Cirilium Passive and Blend ranges. Cirilium Active has an excellent long-term record. But as a more quality, growth-focused proposition, its short-term performance has been more mixed in these markets. So before I hand over to Mark, let me summarize. We all know it's a difficult operating environment. But what differentiates us at times like these is how we respond and the opportunities we seize. So how are we responding? First, I'd emphasize that through our advisers and our investment managers, we're staying close to our customers to help them manage their financial affairs. And in tough markets, our customers really appreciate the value of advice. And that's what makes our adviser-focused model so resilient. And we're investing in our Ties That Bind program to reinforce the relationship between advisers in our network and Quilter. Next, to drive growth, we will keep adding new IFA firms to the platform. This will be the principal source of incremental flow to get us to our 6% target. Meanwhile, we've continued to drive strong flows to our platform despite a difficult market. And in High Net Worth, we'll continue to add investment managers and build out our advice capabilities, which will also support growth inflows. While investing, we'll maintain our resolute focus on costs and accelerate our simplification plans wherever possible. We remain well capitalized, and we continue to believe in the attractiveness of our integrated business model. Finally, I wanted to mention that we are conscious that it's not just us that has to manage through tough times. Our staff had to do so as well. So that's why we've announced a one-off GBP 1,200 payment to all staff who earn GBP 50,000 or less with their August pay. Our colleagues have been phenomenal throughout the ups and downs of the last few years, and so we want to support them also. And with that, let me hand over to Mark to run you through the numbers. Mark.

Thank you, Paul, and good morning, everyone. As Paul has said, the first half of 2022 had its challenges for a whole bunch of reasons. Obviously, the decline in equity markets and the rise in bond yields had a significant impact on our assets under management and administration that led to some revenue headwinds which, unless equity and bond markets improve, will be felt more in the second half. So I'm going to drill down in a bit more detail than normal to help you understand how we are managing our business to deliver the right outcomes for all our stakeholders. But let me say upfront, there are four messages that I hope you take away from our presentation. One, that the business is in good shape, delivering robust flows and improved persistency. Two, the trend in revenue margin is playing out in line with our expectations. Three, we've got costs under tight control despite inflationary pressures. And lastly, we've got a strong balance sheet following the completion of our capital return program. So let's get started. We think our financial performance during the first half was pretty good given the market environment. Overall, adjusted profit and our operating margin all stack up well against market expectations. We know net flows were below 2021 levels, but the sustainable trend in our flows is on an upward trajectory. And let me walk you through the details. Starting top left, and as Paul mentioned, flows were lower than a year ago in Affluent but up in High Net Worth and came in at GBP 1.4 billion for the half overall. Our average AuMA to the end of June were modestly ahead of last year, and I'll get into the detail behind that in a moment. And top right, you can see revenues were broadly unchanged, with a slightly higher management fee revenue offset by lower other revenue, principally due to lower advice revenues and mortgage-related income. Costs, bottom left, were down 2% to GBP 242 million. By completing our optimization plans and maintaining cost discipline, we largely offset expense increases, and we've also benefited from lower FSCS levies this half. That gave an operating margin of 20%, up 2 percentage points on where we were a year ago. As a result, we delivered a 9% increase in adjusted profit. That translated into adjusted diluted earnings per share of 3.7p, a decline of 5% year-on-year. And that decline was mainly due to a more normal tax rate of 18% in the first half compared to the tax credit in 2021 from a one-off deferred tax benefit. This more than offset the lower share count from the share buyback and share consolidation scheme. Right, so I promised you a little more detail on the evolution of AuMA. And this slide shows it. The detail in gray shows how AuMA evolved over 2021. The bars represent the month-end positions. The gray line shows the rolling average as it built up over last year, and the green shows the same for this year to date. What you can see is that the 2021 AuMA trended up throughout the year. In contrast, in 2022, AuMA started at a high point and has been on a declining trend given the movements across equity and bond indices. From a P&L perspective, what's important is average AuMA because this is what drives revenues. So if you look at the two lines, you can see that in the first half, average AuMA this year has been ahead of the corresponding period of 2021. But as the year has progressed, those lines have been converging. So as you think about modeling revenues for the remainder of the year, bear in mind the market levels will impact how that green line progresses. If markets don't improve, the two lines will converge further, as you can see with the dotted line, making the second half a tougher comparative for revenues. It's worth adding at this point that in July, AuMA was up a bit on end June levels, taking it back above the GBP 100 billion mark again. So if the July trend continues, then we will have a better average AuMA outturn for the second half than what I'm showing here. Now AuMA is only one component of revenues. The other part is margins, where, as you know, there are pressures across the industry. So let's turn to that. I'm pleased that the picture here is totally in line with our expectations. In High Net Worth, the black line, we hold relatively stable margins with just a single basis point decline from the second half of last year. New business is coming on to the book at a broadly similar margin to our existing stock. Next, our investment platform in dark green at the bottom. Here, we see gentle dilution of around 1 basis point a year, in line with our guidance. That reflects the new business being generally priced in the mid-20s. Finally, let me say a few words on the managed assets in our Affluent segment, the lighter green. And you'll have spotted that we have restated revenue margins here. This relates to the restructuring of our WealthSelect range, which Paul mentioned. And you'll remember that I called out the financial impacts of that back at the full year results. Basically, we now earn a fee on an additional approximate GBP 3 billion of assets in our Affluent segment which are in WealthSelect, on the platform, but not managed in Quilter investor funds. Because the management fee margin is modest at 15 to 20 basis points, the inclusion of that additional GBP 3 billion of assets reduces the managed revenue margin we report in the Affluent segment by around 4 to 5 basis points. Clearly, this is just optics without any impact on the business economics. Now let's turn to the cost side of the equation. In the first half of 2022, we reduced our total cost base to GBP 242 million, down GBP 6 million on last year despite inflationary headwinds and investments in growth. And here, you can see that we've continued to manage down base costs as a percentage of revenues. That's the hard work bit, and that's the driver behind our expected operating margin expansion. The cost of revenue-generating staff as a percentage of revenues has moved up modestly, reflecting the short -- reflecting the sort of investment that Paul mentioned earlier. We've accrued variable compensation at a similar level to last year, and the uplift in other variable costs reflect more normal levels of operational expenditure after the pandemic as well as a tick-up in development spend within the business and a full period of FNZ platform costs after the migrations last year. Finally, we've benefited from a reduction in FSCS levies this year, resulting from the industry-wide levy surplus that was carried forward from last year. The waterfall on the right-hand side summarizes the main changes year-on-year. Cost push came from inflation as well as more normalized levels of investment. And lower FSCS levies and our management actions more than offset these, leading to reduced overall costs. When it comes to thinking about second half costs, please bear in mind that, as Paul has mentioned, we are making a one-off cost of living payment of around GBP 4 million to staff in August. In addition, we'll also have the full half impact of inflationary salary increases. Overall, I'd expect a run rate higher than simply double in the first half expenses, excluding FSCS, and then adding that GBP 16 million back on. And by way of guidance, we think the current consensus for costs in the mid-GBP 480 million is sensible assuming stable markets. But this could be higher if markets improve, which would push up both revenues and variable staff compensation. Now let me turn to the strength of our balance sheet, starting with the major movements in solvency ratio, which are all straightforward. We began the year with a ratio of 275%. The capital return program had reduced the ratio by 56 percentage points. Below-the-line transformation costs were a 3 percentage point drag, while profits added 5 percentage points. The interim dividend reduces the ratio by 2 percentage points, bringing us to the 219% you see here. I should also say that we continue to evaluate options around our Tier 2 bond, which, as you can see, contributes 35% of our Solvency II capital. As you know, it has a call date early next year. As the bond markets have become more turbulent since our full year results, it makes the decision a little more complex. Regardless of the decision we make, we expect higher interest costs in 2023 and beyond. It's also worth flagging here that we have completed our review of the Lighthouse British Steel Pension Scheme transfers. We have reduced our outstanding provision at the end of the period to GBP 2 million, reflecting investigation expenses still to be paid. A claim under the Lighthouse professional indemnity insurance has been agreed. So in total, the net cost of the remediation program to us has been around GBP 12 million. Next, let me touch on the cash position at the bottom. You'll recall that we ended 2021 with GBP 756 million in cash. Completion of the Quilter Life Assurance buyback cost GBP 28 million. The B share issue and redemption cost GBP 328 million, and the final dividend cost GBP 62 million, of which around GBP 25 million was part of the Quilter International capital return. Remittances from subsidiaries totaled GBP 107 million. And so we are left with just under GBP 390 million of cash in the bank at the end of June. We've earmarked around GBP 120 million for the interim dividend and our business simplification and investment plans, which leaves the remaining cash balance broadly in line with our risk appetite. The Board has decided to leave the interim dividend unchanged on last year. Given the lower earnings after the higher tax charge, this represents a broadly unchanged payout ratio of around 53%. We expect to continue to move up our targeted payout range at the full year. The extent of that will be determined by the overall profit outturn for the year as well as the market and business conditions prevailing at the time. You'll be familiar with this slide. It's the targets we set out at our Capital Markets Day last year. The only caveat I'll flag is around our operating margin targets. As you know, we are targeting a 25% operating margin in 2023 and 30% by 2025. I very much believe that achieving an operating margin in excess of 30% is absolutely the right place for a business like ours. You'll recall that when I set those targets at the Capital Markets Day, I did say three things were required to achieve them. First, we had to achieve net flows broadly in line with our targets. Second, we expected equity market growth of around 5% per annum. And third, we had to achieve our business simplification plans. Now our flows are slightly off the pace, and we almost certainly won't hit the 6% flow target this year. I'm not unduly worried about the impact of that on our operating margin targets. And our simplification plans are very much on track. However, so far this year, markets are clearly not helping at all. So if we don't see a market improvement later this year and into 2023, it may well have some impact on the timing of our target operating margin delivery. But those targets remain at levels that this business should be more than capable of achieving. So in summary, I'm pleased with the financial performance of the company so far in 2022. The business is in good shape, and we are pleased with the first half profit outturn. We are on top of and managing everything that is in our control. The trend in revenue margins is broadly as anticipated, costs are well controlled and our balance sheet remains in good shape. And with that, let me hand back to Paul.

Thank you, Mark. Right, before we go to questions, let me summarize our key priorities. First, our principal focus is always on looking after our customers and advisers. And by doing that, we'll drive revenue growth. We'll continue to increase flows across our business and aim to manage more of those flows over time. Second, we will maintain strict cost discipline and deliver our business simplification plans. Third, we will drive operating leverage and improve our operating margin. And finally, we'll move up our dividend payout range and deliver strong returns to shareholders. Clearly, despite the backdrop, we've been busy. There's significant value still to come from Quilter, and we're really focused on delivering it. Right, with that, let's open up for questions. Over to the operator.

[Operator Instructions] And our first question comes from the line of Andrew Sinclair at Bank of America.

Three questions from me, please. First couple on financial advisers and then one on margins. So firstly, headcount, down a little bit again. I realize it's been a tough backdrop, but there are still some peers who are growing. Just really wondered if you can give us some context of when you think you can get back to growth. And what sort of growth do you think is achievable over the medium term? And also as well, if you can just give us the breakdown into, if possible, gross recruitment and attrition numbers. That's a long question one. Second question was just on the Financial Adviser School. Just wondered if you can tell us how many students are in it at the moment and how many graduated in H1. And the final question was just on margins. I totally understand that markets are going to make things very difficult at the moment. But I just really wondered, if you think about the 2023 and 2025 targets differently, when you look out to 2025 targets, are there some levers that you can pull a bit harder if markets still remain depressed that, I mean, you can feel a bit more confident in those targets than perhaps 2023, which will clearly be more influenced by markets?

Okay. Thank you, Andy. Well, I'm going to take the first question then hand over to Steve Gazard, who runs our Quilter Financial Planning for us. Steve, I think you can also take the question on FAS in terms of how many graduate we're expecting. Then I'll open on the margins question and hand over to Mark. Andy, the RFP result isn't where Steve and I would like it to be. And quite frankly, I'm not happy about the figure we're presenting. We've been open about having a shakeout of our restricted planners who needed to leave the business over the last 18 months. And quite frankly, a few of those were still making their way out of the numbers in this half. However, the result of the initiatives we've taken and put in place is now an adviser force where we are all more strategically aligned. It's a stable adviser force. Productivity has improved substantially, as you've seen, and has been maintained even in these markets. And if you look at the result of that, we delivered GBP 1 billion of net flow onto our platform from our own advisers this half, which is up 10% on the last half. So there's no doubt that the pain we went through to strategically align our adviser force has worked and is working. I'm also heartened to see the pipeline that we've got which is coming through and also recruitment into our adviser school, which I'm sure Steve will talk about now. So we've got a great proposition, a relevant and compelling one for advisers. From what I'm looking at now, it could take to the end of the year, 6 months to see net adviser growth not only stabilize but start getting back to growth. But certainly, what we've done is working. Let me -- Steve, do you want to...

Yes, of course.

Add some color?

Yes, of course. I mean adviser numbers are ultimately a combination of recruitment and retention. So if I deal with those kind of in separation. So from a recruitment perspective, we are seeing positive results with the numbers of advisers engaged with us in active, meaningful conversations. That's up about 50% on this time last year. And our pipeline applications is up circa 25% as a result. However, as Paul kind of alluded to, we continue to focus on the robust vetting. And this, combined with regulatory authorization and delays across the market, mean that pipeline is taking longer to land than we would have hoped. But I am pleased with the numbers that I now see feeding through on a month-by-month basis. And as a result, we've added 75 planners so far this year. From a retention perspective, as Paul said, I'm equally heartened to see that not only our attrition levels are nearly 50% favorable to this time last year, but, more importantly, they're actually returned to those levels we experienced pre our business alignment work. So that's circa around 10% on an annual basis. Interestingly, what we've seen is a meaningful chunk of the losses this year have been -- outside of those actually terminated by us, have been retiring advisers. And as Paul mentioned, we, therefore, added our national retirement plan. and As a result, we -- since we've launched that, we are capturing an increasing number of those opportunities, meaning that, yes, we do lose the headline adviser number but, importantly, retaining both the clients and the assets. So that's definitely working for me as far as I'm concerned. So solid foundations in place, launched into the next stage. And again, as Paul has alluded to, we've appointed [ Steve Fryette ] back into the business to drive that accelerated growth agenda with me. With regards to Financial Adviser School, 30 graduated in the first half of the year. We have over 50 currently in the school, in the current cohorts. I'd expect around 70% to 80% of those to graduate out before the end of the year and add to that population of advisers being authorized.

And then just -- before we jump on, sorry, just the 75 that you were saying that you added this year in terms of gross recruitment, does that include the 30 grads or not?

Yes, it does.

Okay. So margins. I think your question, Andy, was our '25 targets. Can we -- given the market conditions, can we go harder? I think one thing you've seen in the first half of this year is that we have gone harder. We've had a -- we've brought forward quite a bit of our simplification initiatives. I'll give you an example. We had planned to exit -- now we had 2 major buildings in Southampton as a result of running 2 platforms, quite frankly, for several years -- or building 1 platform and running another one. And we had planned to consolidate those into one building. And that was supposed to happen next year. We've done it this year. And we completed that about 6 weeks ago, which has given us a -- that will give us a good cost run rate benefit going forward. So we're looking at all of those things. But Mark, do you want to add some color to that?

You've already added some of the color, I think, Paul. But Andy, look, I've always said to achieve the targets we set out at the Capital Markets Day, you need to believe in three things, and I outlined some of those in the presentation. So the NCCF growth, it's the ability to achieve the simplification plans, and it's market levels also providing some support along the way. And really, it's the market level component given the reliance that our revenue base has on average assets under management, which are driven by market indices that actually sort of has probably the biggest impact. So should market conditions stay difficult, tight, lower indices like they are at the moment, then clearly we will look at accelerating simplification things, which is what we've done in the first half. We'll look at making other cost reduction initiatives, which you can also see from the slide we made, in the first half. But there is a limit in the ability and capacity to do that forever. So frankly, we would obviously be looking at it if we're going to be in tougher markets for a longer period, and that is what we're looking at, at the moment in any event. But there does become a point at which it's very difficult to go any further.

Our next question comes from the line of Greg Simpson at BNP Paribas Exane.

A few questions from my side. The first one would be -- I think you mentioned there's 80 firms or so that have agreed to be -- to use Quilter as their primary platform on the IFA side and the pipeline more. Have you been seeing that come through in this period in terms of flows? Or is it something you expected to build in H2? The reason I ask is in H1 flows on the platform on -- from the IFA side were down year-on-year and quite limited in Q2 versus a more robust outcome on the restricted adviser side. That was the first question. Second one is, could you remind us of the different drivers of other income? How much is mortgage related? And how much is -- in particular is market linked directly in terms of how we should think about that evolution. And then the third one is, with -- what is the kind of run rate you're at in terms of the GBP 45 million of simplification savings? I think that was the target out to 2024, but where are we at today? And have those been accelerated? And how are you thinking about next year with the benefit of that versus maybe more inflation?

Okay. Thanks, Greg. Clearly, I'm going to bring Steven Levin in a moment on the IFA flows on the platform. I'll just say that we're really delighted with how much progress we're making. We're getting advisers, new advisers, on our platform. 80 in the first half of the 700 we've been targeting, 60 in active discussions and another 100 that we've opened discussions with. And clearly, they don't give you all the business on day one. So getting them -- the first thing is to get them on and get them using you as a platform of choice. But Steven, do you want to add some color on that?

Yes. So Greg, we didn't actually say that they -- we're primary for all of them. We said we're a platform of choice, which means we're the top 2 or 3. For some we are primary. For some, we will build up to that. What advisers do, what adviser firms on -- and obviously, our goal is to be primary platform for all of these firms and many, many more. But what advisers do is they have to go through a process. We are talking about larger firms here. So these have got panels, vetting processes, internal things that they go through before they pick a panel, and that takes time. So we've been doing that. Some of those 80 that started using us from January, actually we've already started seeing meaningful flow, and there's some good flow from that, that's in our numbers already. Others that have adopted us and made their decisions only in May or June, we wouldn't have seen much flow from them yet because they will be coming through later. Also, what practically has to happen, and just so you understand how these lead times work, is once in the platform -- once an adviser firm, sorry, has adopted us, that would be sort of a decision of the management, whoever controls the panel, of which platforms they use in that firm. Then you've got to go out and train all the advisers in that firm, which could be a small firm of 5 advisers, could be 50 advisers. And that takes a little bit of time. And from then, you start seeing the pipeline of flow. Advisers also first, obviously, focus on new business. And so we see new business flow coming to us. And then later, we would focus on trying to get them to move books once they build confidence in our platform as well. So that's how we see it.

Okay. And the next question, I think, Greg, was on, other income drivers and how the other income line breaks down. Mark, do you want to...

Yes. So look, other income is predominantly made up of revenue earned within -- from advice fees. There's a small component of it in the first half, now that interest rates have started rising, that is related to revenue that gets generated from interest on its -- on cash deposits. And that's principally in Quilter Cheviot and in the group. There's about sort of GBP 4 million to GBP 5 million of the total coming through from that. But the rest of it is all pretty much predominantly QFP or -- and PCA. So anything on the advice side revenue. Within that, it roughly breaks down -- and this percentage movement does move. But about 50% of it is in recurring fees, which is obviously market linked, and it's going to go up and down as markets rise and fall. About 15% of it is fixed. And about 35% of it is variable coming through from initial chart fees and charges made. And within that -- the initial component, mortgage and protection income within that is a significant component of it because most of that is transactional. You don't get any recurring on it and it all comes through as initial. So hopefully, that provides you with a little bit of flavor on that. And then I think the third question was on simplification.

On the GBP 45 million run rate and where we are today.

So where we are today, we have -- we've got a benefit of GBP 5 million coming through in the first half, which is part of the slide. We have got the GBP 12 million on it overall. GBP 7 million of it was optimization, GBP 5 million simplification. And that GBP 5 million translates into an annualized run rate of about GBP 12 million to GBP 13 million.

Thank you. Our next question comes from the line of Enrico Bolzoni of JPMorgan.

One partially asked and answered already but just slightly rephrasing it. Of the 80 new firm that you onboarded, could you quantify in terms of gross flows how much they contributed or how much you expect them to contribute? And also just -- I think you mentioned, I just couldn't hear well. When you say primary, so a platform of choice, do you mean what -- the main platform used or 1 of the 2 or 3 platform used by the IFA firms? So that's my first question. My second question, well, you mentioned that now, basically, due to restructuring, it is much easier for advisers to sell the business to you. Can you just give us a bit of a practical example of what was not possible before and what instead is possible now? Just trying to understand in practical terms how that could help. And then finally, another question. I mean I appreciate that we're now mid-August. Clearly, there's been a nice rebound in markets over the last month or so. Have you seen any change in investor behavior? Or are people still on the cautious side in terms of contribution to ISA and to their pension?

Okay. Thank you, Enrico. So the question, of the 80 firms, can we break down what their flows -- the gross flows are or what they're expected? And basically, when we talk about platform of choice, I think -- do we mean primary or secondary? So Steven, do you want to start on that?

Yes. So we have said that these firms have represented about 10% of our gross flows from the IFA channel this year from these 80 firms. So that, I think, gives you an indication of the size of them. In terms of -- our objective is to be the primary platform, which means you get the largest market share -- share of wallet from that adviser firm. These 80 firms we're talking about, though, just to be clear, they are firms that were not really using us in the past at all. You don't go from not being used by an adviser firm to being their platform of choice. That wouldn't be a sort of a natural decision of an adviser. They want to -- we first get on to their panel. Most adviser firms would have a panel of 2 or 3 core platforms that they use. So we haven't been on that list at all. We've got onto that list with those 80 firms. So that means we'll be in the sort of the 2 or 3 that they are primarily using. And then our objective is to get to the #1 spot in there. And that will take time as they get more familiar with us, but that's how it practically works.

Okay. And the next one, Steve Gazard. Steve, it's easier to sell the business to us now than before. Can you -- then we can know what was not possible before and what's possible now. Maybe give some examples...

Yes.

Without names.

Absolutely. So we've long supported our practice buyout and management buyout schemes where we have helped other network firms acquire businesses, both internally and externally, and that continues to do so. The new piece for us is the launch of our national retirement plan. The key difference there is that advisers retiring can now sell to our own Quilter Financial Advisors business, whereby we can directly look after the clients, look after the assets and drive that forward, allowing the advisers to retire off with little disruption. And that was a new launch this year.

And the third question related to July/August. Yes, we have seen, we've seen a good rebound in markets in July and the first 9 or 10 days of August, which has been very welcome. And that's stock markets, obviously, we're talking about there. But it certainly helps our assets under management and helps our revenues and everything. Look, it's too early to say, Enrico, with this. Obviously, the retail investor will lag a bit the market rebound. It's also July and August, so everyone's on holiday. So I would expect -- if there is a rebound, I'd expect to see it from September onwards really rather than in the summer months. And it also depends on how -- whether this is a proper rebound or whether it's a, and none of us know about it, whether it's a temporary thing.

Our next question comes from the line of James Allen at Liberum.

Two questions from me if I can. First one is just around the hybrid advice proposition. You've held your cards pretty close to your chest on this. I was just wondering whether you can provide any more color on this now, kind of rough launch date, pilot testing feedback, similarities or differences versus the advice proposition being proposed by Hargreaves. And then secondly, just on the WealthSelect relaunch. So from my understanding, there was about an extra GBP 1 billion of AuMA expected to move into Quilter Investors this year with around a GBP 2 billion impact next year as part of the relaunch. What was the benefit of that in the Quilter Investors inflows in the first half as part of that relaunch? And what should we expect for the full year?

Okay. Thanks, James. I'm going to bring in Steven Levin in a moment on hybrid. But hybrid advice proposition, we're making good progress with our hybrid advice proposition. It's basically going to enable us to, quite frankly, address a more mass affluent market and a younger market. And one of the attractions of Lighthouse that we bought was that we have 30-odd affiliates with contracts to provide advice to almost 6 million people in this country which, quite frankly, is almost impossible to get to face-to-face, certainly economically face-to-face. So that's going to provide a lot of the lead generation and access for a new hybrid advice proposition which we are launching. Clearly, we are keeping it under wraps. And we're keeping under wraps for the very simple reason that -- although our competitors are also going along the same lines and just as they're keeping it under wraps. So Chris is keeping it under wraps over at HL. We're coming from different positions. He's coming from a D2C position into hybrid advice. We're coming from an advice platform into hybrid. And I hate the term hybrid advice, by the way. Hybrid. What's in a hybrid at all? I mean, we've got to come up with a different term, and we will come up with a different term. But you know what we mean. So we're not going to unpack it today because we do believe it's a competitive USP that we're launching. We expect to launch actually in early 2023. We're going to get this right and do it right and launch it with impact. I've probably taken all your color there Steve.

Yes. No.

Do you want to -- yes? Okay. WealthSelect launch. Look, one of the things that Mark said is in the first half of this year, with our relaunch proposition and now all of our -- an ESG proposition, it's enabled us, and we've taken the opportunity, to take a -- wrap a fee on all of the assets within WealthSelect, not just the assets which are actually -- not just the Quilter Investors funds. And that's brought GBP 3 billion of assets into -- within WealthSelect; if you like, within the charging function of WealthSelect. So it's added another 15 to 20 basis points on GBP 3 billion of assets. And Mark was saying whilst in terms of how it looks, it looks like, therefore, the average margin in Q1 has gone down. The reality is the revenue has gone up because we're now getting that revenue on GBP 3 billion of assets. And clearly now, we've only just launched. And the performance since we launched, which is 3 months ago, has been very good, excellent for a second quartile (sic) quarter-type performance of those portfolios. It's a pretty good time to launch ESG-responsible and sustainable portfolios given what had happened to that market up to that point. And it will build from here. But again, Steven or Mark, do you want to -- either of you want to add to that? Have I stolen your -- okay.

Yes.

So James, those are your answers.

Okay. Our next question come from the line of Ben Bathurst of RBC.