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Chief Executive Officer’s statement

2020 was a year that presented many challenges but our people have risen to them and have come through stronger with our business better positioned.

Execution

2020 will go down as one of the more demanding years in living memory with an unprecedented level of personal and business turmoil across the world. Our hearts go out to all those whose lives have been forever blighted by the consequences of COVID-19, whether through the passing of loved ones, financial hardship or having to deal with the personal challenges and mental health consequences of isolation during lockdown.

Against this backdrop, I have been nothing but humbled by the dedication, resilience, passion and single-minded focus of all my colleagues across Quilter to deliver against the odds. They have not only met the expectations of all our stakeholders but have risen to the challenge of ensuring that, despite the unprecedented environment, 2020 was business-as-normal when it came to delivering for our customers, executing upon our strategic plans or just being there to support one another.

The four things that characterised Quilter through the crisis were:

  • our focus on the welfare of our colleagues, advisers, customers and charitable partners;
  • a focus on maintaining continuity of customer service at a high level and ensuring operational resilience;
  • our financial resilience, with an unrelenting focus on costs and efficiency, coupled with strong liquidity following the sale of Quilter Life Assurance; and
  • our continued strategic delivery including delivering PTP, implementing our new General Ledger and adviser payments system as well as integrating the advice acquisitions made in 2019.

I am also pleased that our work has been recognised across the industry through the various awards we have won this year. In particular, being named “Company of the Year” in the recent FT Adviser service awards, retaining Quilter Financial Planning’s spot as the UK’s number one financial advice firm and more recently, Quilter Cheviot being awarded wealth manager of the year in the Professional Adviser Wealth Partnership Awards.

2020 was a year that presented many challenges but our people have risen to them and have come through stronger with our business better positioned. The future has arrived early, and we have embraced it.

Strategic delivery

There are three strands to our strategic transformation agenda at Quilter and the more uncertain environment makes our focus on execution even more resolute:

  • we will leverage the transformational power of our new UK Platform to deliver faster growth and productivity;
  • we will make Quilter a simpler business, focused on customer to drive even better customer outcomes; and
  • we will optimise our business by completing the cost reduction plans we set out in March 2019 to drive operational leverage.

I am delighted to report that PTP has been successfully completed with the final migration occurring just after year end in February 2021, during a full UK lockdown. This followed a successful initial migration of c.8% of the total platform assets in February 2020 which demonstrated that our platform technology worked well at scale and proved our ability to undertake a large migration in a safe and controlled manner. Our second migration completed in November 2020, in line with the revised timeline we set out in response to changed circumstances arising from COVID-19. That migration covered the majority (c.70%) of total platform assets and c.2,000 adviser firms. Finally, around 5,000 adviser firms were involved in the last migration in February 2021. In a number of instances, firms in this last migration do not use Quilter as a primary platform and we anticipate that their successful transfer onto our market-leading technology will be a gateway to a stronger business relationship over time.

Each migration followed the same rigorous approach:

  • intense planning and validation of our readiness plans ahead of migration, incorporating a number of dry runs and dress rehearsals;
  • elevated post-migration customer and adviser support in the immediate postmigration period; and
  • incorporating adviser feedback to drive system improvements and embedding lessons learned from each migration into our planning for the next migration.

Successful platform migrations on this scale are rare and they are rare for a reason given their complex organisational, logistical and technological demands. We are pleased to have not only successfully completed this programme safely but to also have embedded the core  competencies for a transformation project of this scale into our core business skillset.

We are delighted to have reached this milestone and our unique combination of flexible product wrappers, sophisticated management of investment solutions and range of tools, all built on robust new technology, delivers an advanced platform experience for the intermediary community. We have already received excellent feedback on day-to-day usability, simplicity of portfolio management as well as our bespoke reporting features. Each of these are designed to make an adviser’s life easier. Our award-winning technical expertise has supported advisers to quickly adapt to fully use the Platform’s capability which, coupled with our commitment to service, delivers a market leading offering.

Turning to Quilter Financial Planning, our focus has been on integrating the acquisitions we made in 2019. Charles Derby was re-branded to Quilter Financial Advisers, our mass affluent National business. The integration of Lighthouse is largely complete with advisers adopting the Quilter Financial Planners proposition, advice standards and technology. The generation of new client leads through our affinity relationships has remained strong despite the inevitable impact of COVID-19.

I appointed Stephen Gazard as Chief Executive Officer of Quilter Financial Planning in June with a view to repositioning the business to drive stronger net flows from a more productive base of advisers. Over the last five years we have built up a strong, hard to replicate, advice business focused on delivering good customer outcomes. Stephen’s focus is straightforward: to take our existing strong franchise and simplify it to deliver cost effective, client focused propositions that deliver good outcomes to our customers. This makes the next stage of Quilter Financial Planning’s evolution a very exciting one. While this will lead to certain advisers who are either not fully aligned with our proposition or who lack sufficient scale or strategic alignment leaving the business in 2021, we will have a simpler, higher growth business delivering quality-assured client outcomes to an even higher level of consistency.

In line with these plans to simplify our business and better align our resources to our principal customer groupings, we will transfer Quilter Private Client Advisers into Quilter Cheviot later this year. Combining these businesses will allow us to deliver a seamless proposition encompassing advice and bespoke investment management. Where desired, this will ensure integrated delivery of good client outcomes while helping us maximise the growth potential within our higher net worth proposition.

I am also pleased to announce that, subject to regulatory approval, Steven Levin will be taking on an additional role as CEO of Quilter Investors while maintaining his existing responsibilities for the Quilter Investment Platform. As we seek to drive growth and efficiency across Quilter, we believe it makes sense to bring these two parts of our organisation closer together. I have tasked

Steven with simplifying the client experience and ensuring a seamless approach to customer pricing and proposition development to further drive and deliver good customer outcomes.

We have also simplified and broadened the Quilter Investors product range through fund consolidation and new product launches, including our new multi-asset income suite and Cirilium Blend proposition. Both of these new investment propositions have significant assets under management and are performing well versus peers.

Our Optimisation programme continues to progress in line with plan. There are three strands to Optimisation:

  • driving closer integration of capabilities across Quilter;
  • rationalising technology and discretionary spend processes; and
  • driving efficiency as interdependencies are streamlined.

Our net Optimisation run-rate savings increased by £22 million from the end 2019 level, to total run-rate savings of £46 million to date and are ahead of where we expected to be at this point. While we delayed some staff restructuring activities at the outset of the COVID-19 situation, good progress on the overall programme has been maintained. Notably, we took completion of our new London property in August and exited all three of our legacy London sites in 2020. Although COVID-19 lockdowns have limited our ability to make the most of our new space, I am excited by the opportunities to collaborate that it will provide once we are able to return to the office.

I was pleased with consistent gross sales of £5.7 billion onto the Quilter Investment Platform in the period.

Operational delivery

Delivering good customer outcomes through a trusted advice relationship is central to the Quilter business model. The Quilter Investment Platform is at the heart of our business, providing the investment ‘wrappers’ and other functionality to meet both our clients’ and their advisers’ needs, while our investment solutions provide the intellectual capability to deliver the outcomes our clients seek. Confidence in our proposition is demonstrated through both the continued attraction of our solutions to independent financial advisers and the resilience of our integrated flows.

We experienced substantial improvement in net flows year-on-year even though gross client cash flows into the business were around 11% lower at £10.9 billion. NCCF increased to £1.6 billion versus £0.3 billion in 2019. This reflected improved persistency in client assets across each of Quilter Cheviot, Quilter International and the Quilter Investment Platform. Across the Group, overall levels of client retention improved to 92% versus 88% (90% excluding the impact of the specific team departure in Quilter Cheviot) in 2019. The overall level of Defined Benefit (“DB”) to Defined Contribution (“DC”) flows were broadly stable on 2019 and we welcomed the FCA announcement on plans to reform the DB transfer market which will help promote better, industry-wide, customer outcomes. I am pleased to note that our existing approach was already consistent with the FCA’s announcement.

Overall AuMA increased by c.7% over the course of the year with a closing balance of £117.8 billion at 31 December 2020 compared with £110.4 billion at 31 December 2019. Average AuMA, the principal driver of net management fee revenue, of £107.9 billion for the year, was modestly above the 2019 level of £105.7 billion.

I was pleased with the consistent gross sales of £5.7 billion onto the Quilter Investment Platform in the period with the increase in NCCF from £0.9 billion in 2019 to £1.5 billion in 2020 while undertaking two major client asset migrations during the year. This consistency provides a solid foundation from which our new platform will be able to drive stronger flows given the wider range of products we can offer and assets we can hold.

Quilter International experienced modestly lower gross and net flows versus the prior year and the Board continues to engage in a strategic review to consider how best to drive improved value to our shareholders from this business. We will update on this in due course.

Over the course of the year, we recruited 137 Restricted Financial Planners, bringing our total to 1,842 net of departures. Limited net organic growth was a function of the external environment coupled with increased focus on individual adviser productivity. We expect further departures during 2021 as we reposition Quilter Financial Planning to drive better flow momentum while delivering good customer outcomes. The pipeline of firms seeking to join our network remains strong. We have continued to add to the Quilter Cheviot investment team and our Investment

Manager headcount increased to 169 at the end of 2020 from 167 in December 2019 and a low of 155 at the end of December 2018. We expect to continue to selectively add to our Investment Manager headcount which will support growth in assets under management over time.

Our investment propositions continued to deliver good investment performance for clients. The medium and long-term performance at Quilter Cheviot continued to outperform relevant ARC benchmarks, remaining mainly first or second quartile, to the end of December 2020.

Quilter Investors’ multi-asset solutions performance was also good, with performance on the biggest range, Cirilium Active, improving markedly to deliver second quartile outcome on a one-year view across all five active portfolios, with its longer-term performance also strong. Wealth Select continues to perform strongly over one, three and five years and we broadened access to this range by adding it to our restricted adviser panel. Cirilium Blend has performed satisfactorily since launch, remaining mostly second quartile. A notable milestone was reached with the Cirilium Passive range passing through the £2 billion AuM mark, making it Quilter Investors’ third largest solution.

I was delighted to recruit Bambos Hambi as Chief Investment Officer of Quilter Investors in November from Aberdeen Standard Investments (“ASI”). At ASI, Bambos was Head of Multi-Manager Strategies and led one of the biggest fund selection teams in the UK. Bambos has a strong reputation for his down-to-earth, patient long-term investment approach – he will be a strong cultural fit with Quilter.

£168m
adjusted profit before tax

Business performance

I am very satisfied with our adjusted profit before tax for 2020 of £168 million, down 8% on 2019, given the broader market environment experienced during the year. Lower total net fee revenue of £682 million (2019: £712 million) reflected a decline in revenue margins as a result of the mix shift in Quilter Investors and Quilter International, as well as the planned repricing on the Quilter Investment Platform. Our overall revenue out-turn for the year has been better than we anticipated at the time of our Interim Results as a result of stronger market levels during the second half of the year. This, together with our commitment to cost discipline, has supported the profit out-turn.

In 2020 we focused strongly on cost management to protect the overall P&L from volatility in the external environment. A year ago, ahead of COVID-19 impacting markets, we were expecting a 2020 cost out-turn of around £560 million. After the sharp decline in markets at the end of March, we set a revised target of £530 million with our first quarter 2020 trading update with the intention of reducing expenditure by c.£30 million. We outperformed against this target and delivered tactical reductions in expenditure of c.£40 million versus our plan through lower variable compensation costs, reduced marketing and development spend and other short-term initiatives. As a result, full year operating expenses came in well below our revised target with a year-on-year decline of £16 million to £514 million (2019: £530 million). This was achieved despite absorbing a full year of costs from the Quilter Financial Planning acquisitions made during 2019, which added £12 million of costs including restructuring spend, as well as a £7 million higher charge for the 2020 FSCS levy and other regulatory costs. We also accommodated costs stranded from the sale of Quilter Life Assurance, and property dual-running costs in relation to the new London premises. Separately, there was a cost drag of £5 million relative to our expectations in respect of COVID-19 related expenses from support arrangements, costs of additional equipment required to enable staff to work from home and the impact of deferring certain planned redundancies until later in the year.

The decline in our operating margin for the full year was limited to a percentage point to 25% (2019: 26%, excluding Quilter Life Assurance) representing a significantly better out-turn than the 21% achieved in the first half of the year. Given more robust market levels and a better revenue outlook, the majority of the c.£40 million of tactical cost savings achieved in 2020 are expected to return to the expense line in 2021. As these savings contributed to an improvement in the operating margin of around six percentage points, underlying year-on-year progress into 2021 should be considered against a base excluding the benefit of these essentially one-time savings.

Our IFRS profit after tax from continuing operations was £89 million, compared to a loss of £21 million in 2019. The difference between this measure and our Adjusted Profit is largely due to non-cash amortisation of intangible assets, our Business Transformation expenses and changes in the impact that policyholder tax positions can have on the Group’s results. Business Transformation costs will remain in 2021, reflecting the final expenditure on PTP and further expenses incurred as part of our Optimisation initiatives.

Adjusted earnings per share of 8.5 pence compared with 8.6 pence from Quilter’s continuing operations in 2019. On an IFRS basis, we delivered basic EPS from continuing operations of 5.1 pence versus a loss of 1.1 pence per share for the comparable period of 2019 on the same basis. Period-end shares declined by 6.2% or 118.3 million as a result of our share buyback programme.

Finally, the provision made in respect of certain DB pension transfers for former BSPS members is unchanged since the interim results. We continue to work and co-operate with the FCA and the skilled person who has been appointed in relation to this matter, and their work is described in more detail elsewhere in this report. Whilst the relevant advice pre-dated our acquisition of Lighthouse, we have ensured that Lighthouse has responded to the situation consistent with our values.

Culture

Creating an inclusive and diverse culture where all colleagues feel they can be themselves has always been a core tenet of our cultural agenda. As much as this subject is important to all of us at Quilter, events elsewhere in 2020 really laid bare how much still needs to be done. The death of George Floyd in the US and subsequent protests in May emphasised the importance of decisive action and my own communication on the topic acted as a catalyst for colleagues opening up and demonstrated to me that, as an organisation, we had further work to do. In response, we created two new pan-Quilter employee networks for cultural diversity and LGBT+, to complement our existing gender equality network. We also launched an enhanced suite of family-friendly policies, appointed a new Head of Inclusion and Wellbeing, significantly enhanced our diversity data, implemented a diverse shortlist requirement for our most senior management roles and have begun to speak openly on these issues both internally and externally. In 2021 we will report our ethnic diversity data for the first time and set future targets. I was also pleased with our progress on the proportion of women in our senior management, meeting our target of 35% by the end of 2020. We have more room to improve and have reset our target to reach a minimum of 38% by the end of 2023. It is a priority for us to build on our progress in 2021 and I am confident that we will do so.

We monitor colleague engagement on a quarterly basis. This is an established process at Quilter that has been in place since prior to our Listing. We purposefully stepped up our communication over the period of lockdown with my Executive Committee and I sending weekly updates to colleagues across the organisation and encouraging feedback to help foster a greater spirit of involvement. I am delighted that our regular ‘Peakon’ engagement scores across the organisation remain at a consistently high level. We have a deep commitment to acting and investing responsibly and in 2020 we made excellent progress towards embedding environmental, social and governance (“ESG”) factors throughout our business. Climate change is undoubtedly the most significant challenge the world faces and tackling it is a responsibility of everyone. In 2020 we formalised our climate change strategy with the objective to reduce Quilter’s contribution to climate change and support the transition to a low carbon economy. To achieve this ambition, we have developed a framework which is helping us to reduce our direct carbon footprint, embed climate considerations in our investment management and stewardship activity, offer clients climate-focused investment solutions and align with the Task Force on Climate-related

Financial Disclosure. I am pleased with our progress on incorporating ESG considerations into our entire value chain. We are embedding ESG into our standard advice process to help clients invest according to their ESG preferences, and we are embedding ESG even more deeply into our standard investment management processes, both within our multi-asset investment solutions and our discretionary wealth management business. We celebrated the 10-year anniversary of our Climate Assets Fund which has benefited from increasing investor interest in ESG funds. To provide clients and advisers with greater transparency, in 2020 we incorporated ESG ratings for third-party funds available on our UK platform. Upon this solid foundation we will enhance our approach to responsible investment even further in 2021.

Outlook

Markets globally entered 2021 on an optimistic note and recent COVID-19 vaccine related news has been positive, with roll-out plans progressing well in the UK. Although the full economic impact of the pandemic is only just beginning to be experienced, in terms of broader social challenges, I am optimistic that the worst may be behind us. Quilter remains well positioned in an industry with secular long-term growth prospects. Completing the migration of assets onto our new UK platform in February 2021 was a watershed moment for the Group, not just because this has been a key area of focus internally and externally over the last five years but, more importantly, because the new Platform will strengthen the cohesion between our different UK business capabilities and will be a catalyst for faster growth in the future.

We are optimistic that flow momentum will continue to improve in 2021. Boosting accessibility to our Wealth Select range by including it in our restricted proposition in Quilter Financial Planning will improve asset retention and integrated flows. While this may have an adverse impact on the revenue margin in Quilter Investors, these actions should be accretive to assets under management and administration which drive revenue generation.

We remain focused on controlling costs through both our Optimisation programme and other management initiatives and expect the 2021 cost out-turn to be around £560 million, assuming broadly stable markets. We need to ensure Quilter is fit for the future and so our Optimisation plans remain on track to deliver planned savings of £50 million by end 2021. Our work on

Optimisation has also identified additional cost savings of £15 million which we intend to realise by mid-2022. To achieve this, the Group expects to incur additional Business Transformation expense of £16 million.

2020 has been an intense year with significant progress on strategic execution coupled with strong operational performance. Since we Listed, our focus has been on transformation. Our focus is now on execution, leveraging the strengths and capabilities of the modern integrated wealth manager that we have built. Now that Quilter is much closer to being the finished article, I look forward to the business reaching its full potential in 2021 and beyond.

Paul Feeney

Paul Feeney

Chief Executive Officer

Glyn Jones, Chairman’s statement

While 2020 was a year that was both unpredictable in nature and uniquely challenging in scope, the role of your Board is to steward your company so it is resilient in challenging times and able to deliver the performance you expect in good times. 2020 certainly fell into the former category.

Read Glyn's Statement View our Governance report
Glynn Jones