“I am delighted with our business performance in 2017. We have attracted very high levels of net flows, our business model is proving a huge success in providing what customers want and our normalised profitability has been stable despite significant investment into the business ahead of our listing.
“We have a strong balance sheet, a strong capital and liquidity position and we are financially independent from Old Mutual plc. We have completed our separation activities and we are ready to list as Quilter plc.
“2017 was a great year for our business. 2018 will be a defining one and we are excited about the opportunities ahead.”
Old Mutual Wealth’s vision is to be the UK’s leading wealth manager. It has leading positions in one of the world’s largest wealth markets, and its multi-channel proposition and investment performance are delivering attractive revenue growth.
Having announced that the Multi-Asset and Single Strategy businesses within Old Mutual Global Investors would be developed as separate, distinct businesses, in December 2017, Old Mutual Wealth announced that it had agreed to sell the Single Strategy asset management business (‘Single Strategy’) to the Single Strategy management team and funds managed by TA Associates for an expected total consideration of c. £600 million. Completion of the transaction is subject to various regulatory approvals and it is anticipated to take place in the second half of 2018.
Old Mutual Wealth has further grown its distribution capabilities through the acquisition of Caerus Capital Group, which completed on 1 June 2017, adding about 300 advisers to the network. Throughout 2017, Old Mutual Wealth has continued to acquire advice businesses within Old Mutual Wealth Private Client Advisers, creating ‘hubs’ around the UK, by careful targeting and acquiring of advice businesses that match target customer profiles and Quilter Cheviot’s geographical footprint, where appropriate.
On 15 November 2017, Old Mutual Wealth announced that it was closing its Institutional life business within Heritage to new business.
On 3 March 2016, the UK Financial Conduct Authority (‘FCA’) issued a report detailing the findings of its industry-wide thematic review on the fair treatment of long-standing customers invested in closed-book products sold by the life insurance sector (TR 16/2) (‘Thematic Review’). As part of Old Mutual Wealth’s ongoing work to promote fair customer outcomes, product reviews consistent with the recommendations from the FCA’s thematic feedback and the FCA’s guidance ‘FG16/8 Fair Treatment of long-standing customers in the life insurance sector’ have been conducted. Following these reviews, it has been decided to commence voluntary remediation to customers in certain legacy products within the Heritage book. As part of this, Old Mutual Wealth has decided to cap early encashment charges at 5% for pension customers under 55 going forward, to refund all early encashment charges over 5% on pensions products applied since 1 January 2009 and to refund certain paid-up charges incurred since 1 January 2009.
A provision of £69 million has been made within our 2017 results for the aggregate of these remediation costs, and this has been reported outside of Adjusted Operating Profit, firstly because of the significant and historical nature of the cost, and secondly, because it does not reflect the underlying performance of Old Mutual Wealth during 2017.
Also on 3 March 2016, the FCA announced that it was initiating an investigation into a number of firms, including Old Mutual Wealth Life Assurance Limited (OMWLA), a subsidiary of Old Mutual Wealth, in relation to potential breaches of the FCA’s standards relevant to the matters covered by the Thematic Review. Old Mutual Wealth continues to cooperate and work openly with the FCA in connection with their investigation following the Thematic Review. No provision has been made for any potential fine that may be levied by the FCA.
Reported Adjusted Operating Profit (‘AOP’):
Reported Old Mutual Wealth AOP of £363 million for 2017 was 40% higher than prior year (2016: £260 million), and includes net performance fees of £101 million in 2017 (2016: £26 million). Pre-tax AOP for the Single Strategy business increased to £152 million, up 153% from prior year of £60 million, driven by the unprecedented level of net performance fees of which £84 million was generated in the six months to December 2017. The net performance fees for 2017 are substantially ahead of the previous year and are considered to be at an unusually high level reflecting exceptional performance from a narrow range of funds in favourable market conditions. As announced on 19 December 2017, under the terms of the transaction agreement, Old Mutual Wealth will not benefit from performance fees which may be earned by Single Strategy in 2018.
Normalised operating profit:
Normalised profit adjusts the comparative period ‘operating profit on a standalone basis’ to eliminate the impact of the changes to Heritage fees in 2016, and other normalisation adjustments as presented at the Capital Markets Showcase in November 2017. No adjustments have been made in 2017. This form of presentation is consistent with the analysis presented during the Capital Markets Showcase. The 2017 normalised operating profit of £209 million compared to prior year (2016: £208 million) is particularly pleasing given that, in recent periods, profits have been invested to grow distribution and to prepare the business to operate on a standalone basis. The consistent profit pattern is evidence that the business model is proven and that the business has reached scale ahead of its planned listing.
Net Client Cash Flow (‘NCCF’):
NCCF performance for Old Mutual Wealth was strong at £10.9 billion, up 110% on the prior year (2016: £5.2 billion) driven by buoyant market conditions and robust investor confidence. This was 12% of opening Assets under Management/Administration (‘AuMA’), excluding the Heritage assets (which includes the Institutional life business), demonstrating very strong growth, and well ahead of Old Mutual Wealth’s annualised target growth of 5% over the medium term.
Within this, Quilter NCCF was also strong, up 91% to £6.3 billion (2016: £3.3 billion). Excluding the Heritage assets, Quilter NCCF was £7.6 billion and, on this basis, was 9% of opening AuMA.
In total, Quilter integrated flows grew 167% from £1.8 billion in 2016 to £4.8 billion in 2017 (£5.2 billion excluding Heritage outflows). The restricted channel of Intrinsic accounted for £1.2 billion (27%) of UK Platform NCCF in 2017 (2016: £0.9 billion; 32%) and £2.5 billion of NCCF into the Multi-Asset business in 2017, principally into the Cirilium fund range. Integrated net inflows from Intrinsic into Quilter Cheviot amounted to £0.2 billion, over half of which was through Old Mutual Wealth Private Client Advisers.
• Advice and Wealth Management segment:
Pre-tax normalised operating profit for the Advice and Wealth Management segment increased to £82 million, up 39% from prior year of £59 million. This was driven by a significantly increased contribution from the Multi-Asset business as a result of increasing revenues, driven by strong flows generated by other business areas and good investment performance.
The Advice and Wealth Management segment contributed total NCCF, before intra-group eliminations, of £4.4 billion (2016: £1.6 billion). The NCCF for the Multi-Asset business, which is a core part of Old Mutual Wealth’s ongoing proposition and wealth management strategy, was £3.3 billion (2016: £0.8 billion) of these net flows in 2017 driven by robust flows into the Cirilium and WealthSelect fund ranges. Quilter Cheviot’s NCCF was £1.1 billion (2016: £0.8 billion).
• Wealth Platforms segment:
Pre-tax normalised operating profit for the Wealth Platforms segment decreased to £158 million, down 5% from prior year of £166 million. In 2016, the restated profit of £166 million included the adjustment to exclude the Heritage fee restructure charge of £27 million which impacted the segment.
NCCF for the Wealth Platforms segment of £4.3 billion was up 95% from 2016 (£2.2 billion).
UK Platform NCCF was up 61% to £4.5 billion (2016: £2.8 billion) due to strong flows into pension propositions as customers continue to consolidate existing pensions. As a result, sales into the pension propositions accounted for 61% of total UK Platform sales. Transfers by customers from their defined benefit pensions into defined contribution schemes accounted for gross sales of £1.8 billion in 2017, representing 20% of gross platform sales and 6% of total gross sales.
Net Heritage outflows were primarily due to expected Institutional business outflows.
International net flows more than doubled to £1.4 billion (2016: £0.5 billion) with strong net flows from Latin America, the Middle East, UK and Europe.
The Old Mutual Wealth reported operating margin was higher than prior year at 36%, driven by higher net performance fees more than offsetting the impact of increased expenses. Including Single Strategy, but excluding net performance fees, the operating margin is unchanged at 29%.
On a standalone basis, the Quilter operating margin declined to 29% compared to 32% in 2016 principally as a result of the increase in operational costs and investment in business initiatives ahead of listing.
The increasing proportion of revenues from advice fees, which are largely matched by costs of advisers and investment in the advice model itself, has contributed to the reduction in operating margin.
Revenue and revenue margin:
Old Mutual Wealth’s reported revenues increased by 21% to £1.0 billion due to higher average AuMA, driven by positive market performance and strong NCCF and net performance fees. On the same basis, the revenue margin decreased by 4bps during the year from 64bps to 60bps.
On a standalone basis, Quilter revenues increased by 13% to £728 million comprised of net management fee revenue of £591 million and other revenues of £137 million.
The net management fee consists of revenue generated from AuMA, fixed fee revenue and policyholder tax contributions, netted off by trail commissions payable. Other revenue represents revenue not directly linked to AuMA (i.e. early encashment charges, risk results and adviser fees). The revenue margin for the standalone Quilter business reduced from 59bps in 2016 to 56bps in 2017.
Managed Separation and Board developments:
Old Mutual Wealth has a strong balance sheet, strong capital and liquidity positions, is financially independent from Old Mutual plc, and believes that it is ready to list.
During 2017, Tim Tookey was appointed as Chief Financial Officer and Rosie Harris, George Reid and Jon Little joined the Board as Independent Non-Executive Directors. On joining, Rosie was appointed Chair of the Board Risk Committee. George Reid has been appointed Chair of the Board Audit Committee, and Moira Kilcoyne, who was appointed to the Board at the end of 2016, has been appointed Chair of the Board IT Committee.
UK Platform Transformation:
The contracts with IFDS related to the UK Platform Transformation came to an end by mutual agreement effective as of 2 May 2017. At the same time, Old Mutual Wealth announced that it had contracted with FNZ to deliver its UK Platform Transformation Programme. Old Mutual Wealth currently anticipates spend of c. £75 million in 2018 with the balance arising in 2019. The project remains on time and within budget and excellent progress has been made with all key deliverables to date being within the planned timelines.
During 2017 Old Mutual Wealth continued its responsible business activity focusing on three long-term priorities: building greater financial capability; enabling more secure financial futures; and promoting sustainable and responsible investment. The first long-term priority tackles both the financial capability and the financial advice gap and both issues are strongly aligned with the long term success of Old Mutual Wealth. The financial education efforts bore fruit in 2017 with the launch of KickStart Money, a collaborative initiative, co-chaired by Old Mutual Wealth, involving 20 of the UK’s leading savings and investment firms. Over three years, KickStart Money will aim to reach 20,000 children aged 7 to 11 with financial education programmes that help them to develop healthy attitudes and behaviours around money. Research has shown that these begin to form from aged 7 onwards, so early intervention is critical. KickStart Money is engaging with MPs and policy makers to call for financial education to be embedded into the primary school curriculum. To tackle the financial advice gap in the UK, Old Mutual Wealth operates a not-for-profit Financial Adviser School (FAS) that gives people the necessary skills and qualifications to launch into their new career as a financial adviser. FAS also helps to match students with roles in advice firms looking to bring in new talent. By the end of 2017, FAS had helped 111 people to start careers in financial planning.
Gender pay gap:
Old Mutual Wealth has today published its gender pay gap report and has committed to four priorities that it believes will help foster an inclusive culture that attracts the best talent.Find the report here.
The gender pay gap measures the difference in the average hourly pay between men and women in an organisation. It is not the same as equal pay which is about ensuring that people performing roles of equal value receive equal pay. Old Mutual Wealth’s pay and bonus rewards are applied consistently and fairly across all employees.
Old Mutual Wealth’s mean gender pay gap is 39% and its median gender pay gap is 35%. Old Mutual Wealth’s mean bonus pay gap is 80%, and its median bonus pay gap is 49%. Women are under-represented in senior leadership roles in Old Mutual Wealth and across the investment industry as a whole, and this is reflected in Old Mutual Wealth’s gender pay figures. The main driver behind Old Mutual Wealth’s figures is the lower number of women than men in senior and revenue generating roles, which attract higher salaries and are more heavily weighted to bonuses, and a greater proportion of women working part-time. These can be distorting factors when looking at hourly pay rates and overall Old Mutual Wealth is confident that men and women in the business are paid equally for similar roles.
Old Mutual Wealth believes that the savings and investment industry will be stronger, and deliver greater benefits to customers and society at large if it creates a more diverse and inclusive culture. It is action that counts and it will take a long term commitment to change the make-up of the workforce.
Old Mutual Wealth is committed to creating a more diverse and inclusive business and wants to create more gender diversity in senior positions and wants everyone to be able to build and progress their career at Old Mutual Wealth.
There are a number of studies and thematic reviews currently underway by the UK regulators. These include the FCA’s Asset Management Review, the findings of which were published on 28 June 2017, and the Investment Platforms Market Study, the terms of reference for which were announced on 17 July 2017 and more recently, in February 2018, the Discussion Paper considering “Effective competition in non-workplace pensions”. The FCA also published its “Approach to Customers” in November 2017, informed by the Financial Lives Survey, the results of which were published last October. Old Mutual Wealth is very supportive of the FCA’s work in these important areas, and believes the outcomes of these will serve to increase the confidence and credibility of the wealth management industry in this country, ensuring that it provides fair outcomes for all customers, whatever stage in life they are at.
Delivering good customer outcomes:
A dedicated Retail Customer Solutions function was established during 2017 to focus specifically on those ‘end-to-end’ customers whom Old Mutual Wealth serves through its model of financial advice, investment solutions and platform services. The objective of this team is to further improve customer orientation in Old Mutual Wealth’s proposition. In addition, the team will actively analyse industry trends to enable Old Mutual Wealth to create stronger integrated propositions.