Quilter is a vertically integrated wealth manager operating in the UK, the world’s fifth largest wealth market. The business comprises two main segments – one provides trusted financial advice, wealth and asset management, and the other is a multi-channel fund platform (the second largest in the UK) that provides access to a broad range of investment products. We outline how Quilter has modernised and streamlined the business to capitalise on the strong demand for financial advice within the UK.
Reasserting the brand
The launch of Quilter’s new fund platform concluded the final stage of their rebrand following unbundling from Old Mutual in 2018 and listing on the Johannesburg and London stock exchanges. The business, however, has a long pedigree. Its earliest incarnation – William Morris and Sons – can be traced back to 1771, where it consisted of a partnership of stockbrokers formed shortly before the opening of the London Stock Exchange in 1773.
Quilter was formed through a sequence of mergers and acquisitions including the Skandia (European wealth and insurance business) transaction in 2005, that incorporated what became Quilter’s original fund platform. Through a sequence of recent divestments and acquisitions, the business model has been refined. Today they are a fund platform, an advice network and an asset manager combined, with their focus being on gathering investment assets (predominantly from UK-domiciled citizens) to administer, advise and manage.
Multiple client touch points from which to generate revenues
In that they offer both asset and wealth management, Quilter’s vertically integrated service offering affords them the opportunity to earn platform, advice and asset management fees.
Each of these services are charged for independently and investors interact with Quilter via two main distribution channels: Quilter employed advisers (tied) who generate an advice fee or independent financial advisers (IFAs or non-tied). Advisers direct client assets either into Quilter managed investment products (generating an asset management fee) or into third party products and funds. The assets are typically invested into financial products through an investment platform – either Quilter’s (generating a platform fee) or that of a third party.
Encouraging more advisor flows
While the platform fee is the smallest of the abovementioned charges and standalone platform businesses are typically not significant profit contributors, Quilter’s platform is strategically important in creating a valuable asset gathering ecosystem, supporting the broader business. In addition to acting as an access point for an array of investment products, platforms enable the efficient management of an adviser’s clients’ assets – easing the adviser’s administrative burden. A reliable and robust investment platform with broad, efficient functionality can create a loyal adviser base, provided that:
• it has an easily navigable user interface and is integrated with the adviser’s back office;
• it offers transparent, competitive pricing;
• it delivers quality service and technical support to its user base; and
• it hosts a comprehensive investment product offering.
Assets held on UK investment platforms have grown by a compound annual growth of 21% in the 10 years ending 2019. Despite some recent consolidation of UK investment platforms, the industry remains highly competitive, with approximately 30 investment platforms available (several are dated and ripe for disruption).
Quilter’s asset-based fee model supports their goal to grow and increase the productivity of their tied agent force, and to encourage more independent advisers to invest a larger proportion of their advised assets on the Quilter platform (ideally within Quilter managed products). It also results in their profits being linked to the general level of financial markets.
In February 2021, Quilter completed an upgrade of their investment platform (which took more than five years and cost about £500 million) to a highly configurable, market-leading software solution provided by FNZ1. The upgrade positions them well for the continued digitalisation of the wealth management industry and includes certain middle and back-office operations being outsourced to FNZ, thereby reducing operational costs. Prior to this, Quilter’s platform (originally acquired as part of the Skandia acquisition) had a somewhat constrained product range and lacked some required functionality – a factor that impeded asset growth.
In the period leading up to Quilter’s platform migration, advisers may have been somewhat concerned that the pending upgrade might lead to disruptions and this may have adversely impacted client flows. The chart below indicates this, demonstrating that non-tied agents (who have a choice of alternative platforms) gradually contributed a smaller proportion of total gross inflows. The chart also disaggregates the £63 billion of assets on Quilter’s platform at the end of 2020, between agent type and whether assets are managed internally.
The upgrade addressed significant shortcomings in terms of the breadth of investment solutions2 available on the platform. It also enhanced the reporting functionality available, making it easier to meet client needs. Furthermore, the enhanced self-service functionality reduces the number of support interactions required with the adviser base and improves Quilter’s productivity – in turn delivering cost savings.
Quilter charges a competitive fee for the use of the platform and delivers highly regarded support to their adviser base.
1 A global company providing software solutions for the wealth management industry and to which a wide range of administrative asset and wealth management related functions can be outsourced. In 2020, FNZ acquired South African third-party administration firm Silica from Ninety One.
2 Although Quilter’s platform has the functionality to allow for investment in individual shares, this service is not currently offered. Exchange Traded Funds can be purchased.
The holy grail: directing more asset flows in-house
For integrated wealth managers such as Quilter, the wealth management arm can deliver a valuable source of new money flows into its asset management business and thereby an additional revenue stream. IFAs typically direct about 20% of their flows into Quilter solutions, whereas tied agents direct threefold the proportion into Quilter products (Quilter may not incentivise advisers to make use of Quilter-managed products). Through effective product development, good performance track records and ongoing engagement with the adviser force, a larger portion of asset flows can be captured in-house.
Enduring demand for advice
A variety of advisory models exist, ranging from very low-cost, self-service investment propositions to more costly, comprehensive wealth planning services. Compared with asset management, the longevity of wealth management assets is superior and advisers in the UK often earn higher fees than asset managers (who have been subject to acute fee pressure).
Significant resources are currently being directed towards the development of low-cost, simple advised propositions – providing a valuable service to part of the investment community. JP Morgan’s recent acquisition of Nutmeg in the UK is a move in this direction. Despite the headwind to adviser margins that these propositions present, the fundamental service of wealth planning and advice is difficult to cannibalise by technological innovation.
An automated solution will struggle to match the breadth of service and tailored solutions provided by wealth managers and lacks the highly-valued human touch element. Complex tax and pension rules, the shift of financial risk to households, the removal of mandatory annuitisation and the need to mitigate adverse behavioural tendencies, has resulted in a sustained demand for appropriate, timely and personalised financial advice.
Nurturing the adviser channel
Despite this, the number of financial advisers continues to decline (approximately 35 000 advisors currently operate in the UK market, with which Quilter has relationships with 8 000). There are 11 million people with between £50 000 and £5 million of investible wealth – many with financial affairs sufficiently complex to require advice. The chart below demonstrates the split in UK advisers between tied and non-tied by number and revenue generation.
The cost pressures resulting from increased regulatory demands make it difficult for smaller independent financial advisers to survive. While not the primary focus, Quilter’s business model allows for productive IFAs to become tied agents. In addition, Quilter has an adviser training academy to develop quality tied agents. This delivers a pipeline for future asset growth and ensures continuity of advice and retention of assets as older agents retire. It is also a lower risk strategy than buying advisers and integrating them into an established corporate culture. In response to Covid-19, Quilter has developed digital training strategies to assist their adviser force in remotely servicing their clients. They have one of the largest adviser forces in the UK with approximately 1 800 tied agents. This comprehensive national distribution footprint is a competitive advantage that enhances the business’s asset gathering capabilities.
Growing returns to shareholders
Despite revenue headwinds, wealth management remains a resilient business model and one of the more profitable businesses in finance. The recent enhancements to Quilter’s fund platform provides for a more compelling adviser proposition. The ability to manage and source client financial assets, accommodate tied and non-tied advisers, and provide access to a leading, secure fund platform allows Quilter to own all elements of the client investment proposition. It also enables their adviser force to deliver sound client outcomes over the long term. Quilter’s continued initiatives to support and grow their adviser force means the business is well positioned to deliver growing cash returns to shareholders.