Old Mutual Wealth
2016 Preliminary Results
9 March 2017
Significant strategic progress in year of transition
- Funds under management (‘FUM’) up 18% to £123.5 billion (2015: £104.4 billion)
- Pre-tax Adjusted Operating Profit (‘AOP’) down 15% to £260 million (2015: £307 million)
- Underlying AOP, before one-off adjustments, £298 million (2015: £305 million)
- Pre-tax operating margin 32% (2015: 40%)
Paul Feeney, CEO of Old Mutual Wealth, commented:
“In 2016 we continued to transition Old Mutual Wealth into a leading, integrated, advice-led, UK investment and wealth management business. We made a number of acquisitions to grow and consolidate our distribution in the affluent and high net worth markets, we exited a number of non-core operations and continued to build the business for its independent future. We were particularly encouraged by the strong net client inflows, which reflect the increasing value of our wealth solutions for our customers and the attractive benefits of our integrated business model, in what has been a challenging year for the sector as a whole. We believe that Old Mutual Wealth will continue to benefit from the growing demand in the UK for financial advice, investment and wealth management solutions provided in a transparent and increasingly efficient manner.”
Significant strategic progress in year of transition
Old Mutual Wealth’s results for the year ended 31 December 2016 continue to reflect management’s strategic ambition to successfully transition the business from a low margin platform and closed life business in 2012 into a leading, integrated, advice-led, UK investment and wealth management business.
Overall the business has continued to perform well in difficult market conditions, reporting an adjusted operating profit of £260 million (2015: £307 million). Before allowing for the reduction in exit fees in the Heritage business and costs related to managed separation and changes to the executive management team, adjusted operating profit for 2016 would have been £298 million (2015: £305 million). Since the year end Old Mutual Wealth has sold the Italian business, completing the exit of all its European life businesses and recently agreed the transfer of the South African branches to Old Mutual Emerging Markets during 2017. Adjusted operating profit from these businesses amounted to £34 million in 2016.
As Old Mutual Wealth transitions to a standalone listed entity, its costs will increase, reflecting both those previously incurred by Old Mutual plc and incremental costs. The operating margin, which in the future will be reported excluding the one-off costs associated with separation from Old Mutual plc, is expected to decrease in the short term as the business incurs the ongoing costs associated with an independent future. Over the medium term the operating margin should improve from 32% reported in 2016 as Old Mutual Wealth builds scale on an efficient operating base.
Despite a challenging year for the sector where UK net retail sales for the whole of the industry amounted to £4.7 billion, triggered by investor uncertainty particularly in the lead up to, and following, the UK referendum to exit the European Union, Old Mutual Wealth’s net client inflows remained strong. Net client cash flow at £5.2 billion, as a percentage of opening funds under management, excluding the closed book, was 6%, demonstrating the increasing value of its wealth solutions for customers and the attractive benefits of the integrated business model. Old Mutual Wealth targets net client cash flow growth of over 5% of opening funds under management, excluding the closed book of business. Funds under management were £123.5 billion at the end of 2016, up 18% on prior year.
As part of its investment in the future success of the business, Old Mutual Wealth took a number of important measures to focus on customers’ UK and cross-border needs, including expanding its financial advice capability and offering a variety of new investment solutions. The inorganic activity during 2016 has been smaller “in-fill” acquisitions that have supplemented its core organic strategy of growing and consolidating distribution in the affluent and high net worth space. As a result, Old Mutual Wealth has built the second largest advised investment distribution business in the UK from a standing start two years ago. The focus now is one of integration and driving operational leverage. Outside of Old Mutual Wealth Private Client Advisers, where some small acquisitions are expected to be made in 2017, no further inorganic activity is anticipated before separation from Old Mutual plc.
Old Mutual Wealth believes it will benefit from the growing demand in the UK for financial advice, investment and wealth solutions provided in a transparent and increasingly efficient manner. The business is making excellent progress towards becoming a standalone business.
Delivering good customer outcomes
During H1 2016 the business announced the implementation of a 1% cap on UK Heritage pension exit charges for customers aged over 55 years and the restructuring of the UK Heritage pension product fees. This has improved outcomes for customers and provides increased choice for customers through improved access to market-wide pension investments, following the UK Government pension reforms introduced in 2015. In H2 2016, the FCA announced that exit charges across the pensions industry will be capped at 1% from 31 March 2017.
To support its focus on delivering best in class customer service, Old Mutual Wealth introduced a ‘Magical Moments’ programme. As part of this initiative, staff helped raise over £25,000 to support a customer’s son’s medical treatment bills. In recognition of this initiative, Old Mutual Wealth’s Customer Strategy team picked up both ‘Team of the Year – Customers at the Heart’ and a silver award in the ‘Financial Services – Banking and Investment’ sector at the 2016 UK Customer Experience Awards.
Old Mutual Wealth continues to be recognised for performance and service. Recognition came from far and wide in 2016 with more than 60 awards received by the businesses. OMGI gained 26 awards during the year and Old Mutual International also had a successful 2016, picking up 14 awards at the International Life Adviser Awards alone. In addition, Old Mutual Wealth was named as one of the top 25% of performers in Europe’s leading customer service benchmarking survey by Bright Index.
During 2016, 65% of the £5.2 billion of net flows were through external partners illustrating the benefits of Old Mutual Wealth’s business model.
The multi-channel strategy continued to deliver positive returns as a result of business integration.
In 2016, Old Mutual Wealth commenced a programme of activity to operate as a standalone business in the future. To ensure the organisation is fit for purpose as a listed standalone entity, the Executive Committee and the Board of Directors have been re-shaped and strengthened and governance has been enhanced during the course of 2016. Glyn Jones was appointed as an independent Non-Executive Chairman and Moira Kilcoyne, George Reid, Tim Tookey and Cathy Turner were appointed as independent Non-Executive Directors of the Board. As announced, Rosie Harris will join the Board as an independent Non-Executive Director in April 2017.
Following the growth of the business and the subsequent acquisitions made in the period, Old Mutual Wealth is implementing a revised operating model to drive increased efficiency and collaboration and seek to offset some of the expected incremental costs associated with being a standalone business.
Building awareness of Old Mutual Wealth and Old Mutual Global Investors continued in 2016. Quilter Cheviot also commenced its brand building activities by sponsoring BBC CountryFile Live. Old Mutual Wealth embarked on a Principal Partnership with England Rugby in 2015. The sponsorship began in 2016. The partnership includes sponsorship of the Men's Autumn Internationals at Twickenham, the Women's Autumn Internationals and a development programme for children aged 7-13 called Kids First.
Old Mutual Wealth’s commitment to boosting young people’s financial awareness goes from strength to strength. A new partnership with MyBnk has enabled the launch of a financial education programme in secondary schools across the Southampton region, which reached around 3,000 young people. Old Mutual Wealth also continues to work with Young Enterprise to deliver the Your Horizon programme which engages with students aged 18-24 from deprived areas to help them raise their aspirations and develop their employability skills. In addition, OMGI worked closely with LEAP, and Intrinsic supported the Dallagio Foundation.
UK Platform transformation
Old Mutual Wealth is continuing with the UK platform transformation. The business gave guidance at the October 2016 Capital Markets Day as to timing and cost. Costs to 31 December 2016 amount to £279 million, which have been expensed and which reflect the benefit of a £30 million receivable from suppliers. Whilst progress continues to be made, this remains a complex project, and there are certain pressures which, potentially, could increase timescales and costs. Old Mutual Wealth is in active negotiations on these areas to reduce delivery and cost risk and to ensure it achieves the best outcome for the business. At this point, because of commercial confidentiality and the ongoing negotiations, it would be inappropriate to disclose further details. Old Mutual Wealth expect to be able to update the market by the time of the Old Mutual plc AGM in May 2017.
A robust platform that meets customer needs is vital for Old Mutual Wealth’s future and the business continues to invest in the existing platform to maintain high levels of service and resilience.
Pension sales in the UK Platform have performed well and were up 22% at £3.6 billion (2015: £3.0 billion) as flexible drawdown continues to meet investors’ needs following the 2015 pension reforms.
WealthSelect, the managed portfolio service launched in February 2014, surpassed £3 billion of assets under management by its third anniversary and continues to receive good asset flows.
Overall, UK Platform AOP of £27 million was 18% lower (2015: £33 million) due to the impact of the decision to remove the minimum investor charge and drawdown charge, the FCA sunset clause and competitive industry margin pressures.NCCF of £2.8 billion was broadly in line with prior year (2015: £2.7 billion). Gross sales of £6.4 billion were 4% higher (2015: £6.2 billion). FUM of £41.4 billion was up 20% (2015: £34.5 billion).
Consistent with wider industry trends, 2016 saw tax changes favour pension contributions rather than ISAs, and as a consequence ISA sales were down 12% at £1.1 billion (2015: £1.3 billion).
Old Mutual International
Old Mutual International AOP of £52 million was marginally higher than the prior year (2015: £50 million) and offshore FUM of £18.9 billion was up 18% (2015: £16.0 billion). International offshore net inflows of £0.7 billion were in line with prior year (2015: £0.7 billion). Economic conditions and changes to regulation adversely affected net flows in the Middle East, Singapore and Hong Kong, while European sales were lower following last year’s UK pension reforms which made international pension transfers less attractive for some UK expatriates. Old Mutual Wealth has been able to maintain the level of NCCF by having a geographically diversified business. The lower sales in Latin America and Asia, which were strong in 2015, were offset by strong sales in the UK and South Africa regions (up 57% and 22% respectively on prior year sales).
The acquisition of AAM Advisory, a leading expatriate adviser business in Singapore, completed in March 2016, adding 31 advisers. The newly launched Old Mutual Compass Portfolio range, which combines the best in class capabilities from Old Mutual Global Investors (OMGI) and Quilter Cheviot, designed specifically for International customers, generated net inflows of £0.3 billion in 2016, and traction is expected to build in 2017.
Old Mutual Wealth continues to invest in distribution, recognising the importance of sound financial advice in securing good customer outcomes. It recently announced the acquisition of Caerus, one of the UK’s leading primarily restricted financial planning firms (subject to obtaining the necessary approvals), which enhances the opportunity for Old Mutual Wealth to grow its distribution capability. Caerus has over 300 advisers, including 150 restricted financial planners and more than £4 billion of assets under advice. The acquisition complements the existing UK distribution footprint. The business is committed to improving the strength and sustainability of the financial advice industry and improving customer access to advice. Before taking into account the Caerus acquisition, Intrinsic restricted financial planners have increased by 193 since 2015 to 1,423 (31 December 2015: 1,230), including 38 advisers in Old Mutual Wealth Private Client Advisers (‘OMWPCA’), making Intrinsic the second largest restricted advisory business in the UK.
OMWPCA, which started in January 2016, now has £1 billion of assets under advice. OMWPCA’s advisory capabilities and coverage was enhanced during 2016 through numerous small-scale acquisitions. These included the acquisition of DQS Financial Management and Beaumont Robinson.
The commitment to quality advice is supported by Old Mutual Wealth’s investment in its Financial Adviser School (‘FAS’), where the first cohort of candidates will graduate in April 2017.
In February 2017, FAS secured recognition as a Trusted Partner with The London Institute of Banking & Finance (formerly ifs University College). Achieving recognition sees FAS formally acknowledged as a leading provider of financial adviser training in the UK. FAS was one of the first businesses to receive Trusted Partner status from The London Institute of Banking & Finance.
Old Mutual Global Investors
Despite challenging market conditions, OMGI’s AOP of £79 million was up 11% (2015: £71 million) driven by strong revenue growth. Costs also increased year on year reflecting investment in desk builds and increasing variable compensation as funds under management increase. NCCF of £2.4 billion was down 31% (2015: £3.5 billion), gross sales of £12.1 billion were up 19% (2015: £10.2 billion) and FUM of £31.4 billion was up 27% (2015: £24.7 billion.)
Investment performance is a key part of delivering good customer outcomes. OMGI delivered strong investment performance in 2016. As at 31 December 2016, 74% of all funds were above target over 3 years on an AUM-weighted basis, compared to 66% at December 2015. Single manager funds continue to perform well, with 69% of funds ahead of their target. 60% of the multi-asset fund ranges are above their target.
Above benchmark investment performance in OMGI funds (primarily the Old Mutual Global Equity Absolute Return, Old Mutual UK Specialist Equity and Old Mutual UK Dynamic Equity funds) generated additional net performance-related fees of £26 million, broadly in line with the amount earned in 2015 of £25 million.
Old Mutual Wealth is committed to further diversifying the range of funds managed by OMGI across sectors and within single strategy, multi-asset and absolute return funds. During 2016, the Fixed Income and Absolute Return Government Bond investment teams were strengthened. Good progress continued to be made on the evolution of the multi-asset portfolio range. OMGI launched the Old Mutual UK Specialist Equity fund (UCITs), the Old Mutual Gold and Silver fund and the Old Mutual Style Premia Absolute Return fund in 2016.
Quilter Cheviot AOP was £46 million, £12 million higher than that recorded for the ten months in 2015.
In line with wider industry trends and reduced investor activity in the discretionary asset management market, NCCF of £0.8 billion was down 20% on the prior year (2015: £1.0 billion). This was a robust achievement in difficult market conditions caused by investor cautiousness particularly around the time of the UK’s EU referendum. FUM of £20.7 billion was up 16% (2015: £17.8 billion).
Old Mutual Wealth is investing in Quilter Cheviot and has signed a share purchase agreement to acquire Attivo Investment Management, the discretionary investment management arm of Attivo Group Limited. The transaction has received regulatory approval and is expected to complete by the end of Q1 2017, at which point the £300 million of assets under management will transfer to Quilter Cheviot, with clients integrating immediately into Quilter Cheviot’s existing infrastructure.
UK Heritage net outflows of £1.0 billion were lower than the prior year (2015: £1.1 billion of net outflows).
The previously announced restructuring of the Heritage fees has reduced profit by £26 million in 2016, including legal and other costs in the second half of 2016 (£21 million at H1 2016).
Old Mutual Wealth Highlights
1 Pre-tax AOP, adding back one off costs associated with Heritage fee restructuring charges and Managed Separation.
2 Operating margin is pre-tax AOP divided by net revenue, where net revenue includes gross performance fees.
3 2015 revenue margin has been restated to be consistent with the 2016 basis of calculation.
4 Invest & Grow includes Old Mutual Global Investors, Quilter Cheviot, UK Platform, Old Mutual International and UK Other
5 Includes profit from Intrinsic, series 6 pensions, institutional platform assets, protection products and service companies.
6 Manage for Value includes UK Heritage, Europe Open (Italy) and Europe Heritage (all divested).
7 Includes Italy (sold 9 January 2017) and France and Luxembourg (sold in February 2015).
8 Includes Switzerland (sold 30 September 2015).
9 OSIE for 2016 includes the one-off costs incurred to prepare the business for separation from Old Mutual Group of £7m.
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Notes to Editors:
Old Mutual Wealth
It has an adviser and customer offering spanning:
- Financial advice delivered by the Intrinsic network in the UK and AAM Advisory in Singapore
- Platform based wealth management and protection products delivered by Old Mutual Wealth in the UK and Old Mutual International globally
- Asset management solutions delivered by Old Mutual Global Investors
- Discretionary investment management delivered by Quilter Cheviot.
Old Mutual Wealth oversees £123.5 billion in customer investments (as at 31 December 2016).
Old Mutual Wealth is part of Old Mutual plc a FTSE 100 group that provides life assurance, asset management, banking and general insurance. Old Mutual is trusted by more than 19.4 million customers across the world and has a total of £394.9 billion assets under management (as at 31 December 2016).
This press release is for journalists only and should not be relied upon by financial advisers or customers.
Please remember that past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up and investors may not get back any of the amount originally invested. Exchange rate changes may cause the value of overseas investments to rise or fall.
This communication is issued by Old Mutual Wealth Management Limited, a Private Limited Company (Company Number 0604270), Old Mutual House Portland Terrace Southampton Hampshire SO14 7EJ.