Quilter is an unusual business on the JSE as it is entirely focused on the UK wealth management market.
It was listed on the JSE as a result of the managed separation of Old Mutual. Quilter was previously known as Old Mutual Wealth UK and before that, Skandia UK. It is quite an easy business for South African investors to understand, because its core business is a platform, what we would call a linked investment service provider, similar to Glacier by Sanlam or Momentum Wealth.
The other part of its business involves wealth management products, covering the affluent market with funds of funds and model portfolios, and the high net worth market with bespoke share portfolios.
John-Paul Crutchley, Quilter’s head of investor relations, says the company still has more than half its share register in South Africa. “We recognise that local investors will appreciate the ability to trade locally and so we will continue to maintain a JSE listing,” he says.
The current corporate structure, he says, is the ongoing business of Quilter. There are no noncore operations — and it does not expect to make any further significant disposals. Crutchley says the business is now principally UK-focused except for a high net worth operation in Dublin and Jersey in the Channel Islands to service wealthy clients.
He says Quilter has no intention of broadening that right now because it sees considerable opportunity in the UK wealth market. Not only is the market relatively fragmented — which makes it easier to win market share — but the fundamentals that underpin the market (the need to take personal responsibility to save for retirement) are very much intact.
A notable feature of Quilter’s results for the six months to June has been a substantial widening of the operating margin from 24% to 29%. Crutchley says the firm has been focused on improving its operating margin through its Optimisation and Simplification programmes.
“This has removed cost duplication and aligned the cost base to the size and shape of the group we now are, rather than where we were — part of Old Mutual, a global FTSE 100 company, which we were before listing.”
Quilter’s total net revenue increased by 5% to £329m — which was combined with what it calls strong expense discipline
Quilter is nonetheless still a top three player in both the investment platform and wealth management business, while its competitors often specialise in one or the other — for instance, AJ Bell in platforms and St James’s Place and Rathbones in wealth management.
Quilter says the high net worth unit, which trades as Quilter Cheviot, offers a more bespoke, higher-service model for clients who wish to pay for it. Broadly speaking, Crutchley says affluent clients start from about £75,000 of investible assets and go up to about £500,000.
High net worth tends to start at £250,000 so there is some overlap as some of the more prosperous affluent clients don’t necessarily need or want the bespoke service. Quilter CEO Steven Levin says discretionary fund management consolidation is probably easier to execute than platform consolidation, which is why there has been more activity in that space — Brewin Dolphin with the Royal Bank of Canada, as well as Rathbones and Investec Wealth.
He says Quilter is looking for bolt-on acquisitions but not necessarily for a big-bang merger in view of the hybrid nature of the business as a platform and a wealth manager. Levin reckons platform consolidation is much harder to execute in practice because of the complexity of systems and data migration.
“This is why when platforms have been acquired, they haven’t generally been consolidated. Though some competitors are now looking at this.”
Quilter’s total net revenue increased by 5% to £329m — which was combined with what it calls strong expense discipline. There was a third consecutive decline in first-half costs. Affluent segment revenues increased by 6% to £206m as there were higher average assets under management and administration and net inflows. High net worth revenues increased by 4% to £112m as it also had a higher average asset base. There was an increase in expenses as there has been planned investment in the business.
Productivity has improved as gross sales per Quilter adviser increased from an annualised £2.7m to £3.2m. But there has been some culling at the margins of the client-facing staff, as the number of restricted (tied) financial planners fell from 1,511 to 1,437 and the number of discretionary investment managers from 178 to 175.
Overall, this is a well-managed and well-positioned business offering local investors a dependable rand hedge ... even if the market rating is markedly richer than the local wealth management outfits.
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