Old Mutual Wealth has attributed more than half of its 15 per cent fall in profits to the change in charging structure on its UK closed book business, Heritage.
Reporting a decline in pre-tax adjusted operating profit from £307m to £260m over the year to 31 December 2016, the group says Heritage profits fell by £26m due to fee restructure, including capping exit fees to 1 per cent on certain products, as well as legal and other costs.
Other reasons given included long-term incentive plans payments of £10m in Intrinsic plus £6m of costs relating to the first full year running Old Mutual Wealth Private Client Advisors.
The reshaping of the executive committee and revisiting governance functions accounted for a further £5m.
Boasting the “unique franchise”, Old Mutual Wealth says it has the right strategic model to tap into the “compelling growth opportunities” of the UK wealth management sector.
IFRS post-tax loss for the division was £4m, compared with a £42m profit last year, which included £102m of platform transformation costs.
The group says: “We saw increased revenues from higher funds under management in our asset management business partially offset by modest revenue margin pressure in UK Platform, Quilter Cheviot and International.
“Higher overall costs in the period were incurred following investment in growth initiatives such as Old Mutual Global Investors (OMGI) desk builds and distribution, the effect of a full year of ownership of Quilter Cheviot as well as from higher operating costs directly associated with the increase in FUM based revenues.”
Old Mutual Wealth reported a 5 per cent increase in gross sales of £21.1bn, while OMGI saw a 19 per cent hike in gross sales, driven by Global Equity Absolute Return and the Cirilium fund range.
OMGI net inflows fell by 31 per cent, from £3.5bn to £2.4bn.
Quilter Cheviot saw “robust” net inflows of £800m, despite investor cautiousness but were 20 per cent lower than the previous year.
UK platform gross sales were 4 per cent higher than last year, of which 16 per cent came from Intrinsic advisers.
The group says: “OMW anticipates continued equity market and currency uncertainty, with the geopolitical landscape increasing in complexity and as the impact of the UK’s exit from the EU is progressed in 2017 and 2018.
It will continue to invest in its distribution and asset management capabilities primarily through organic growth but “minor in-fill” acquisitions will be considered if a suitable fit exists.