Total assets under management and advice fell by just 1% overall, from £500bn to £494bn, with growth in interactive investor and its Adviser platform partially offsetting outflows.

Net operating revenue fell by 4% year-on-year to £1.4bn as a result of both outflows and “adverse markets”, according to the company, while adjusted operating profit was 5% lower at £249m. The business’s cost-to-income ratio remained unchanged at 82%.

Investments arm

Adjusted operating profit in the investments arm of the business shrunk by 62% in 2023 compared with the previous year, by £80m to £50m. This was the result of 17% less revenue, but Abrdn said this was “party offset” by an 11% reduction in costs.

Gross flows in 2023 fell by 15.2% from £59.3bn to £50.3bn, which Abrdn said was owing to the uncertain market environment and its impact on investor sentiment.

Performance of mandates also suffered, with 42% of products outperforming their benchmarks over three years to the end of 2023, compared to 65% to the end of 2022. The firm said this reflected a “challenging period for active managers” and said its equity funds were particularly hard hit, owing to AUM bias towards Asia and emerging markets as well as its quality-growth investing style.

The investments arm of Abrdn’s business has suffered lacklustre performance over recent years and has subsequently been undergoing a “transformation plan”, with the firm announcing 500 redundancies amid stubborn outflows earlier this year. The company has also been merging or closing some of its funds and investment companies to stem outflows, including folding GARS into its Diversified Assets suite of products in July 2023.

See also: Abrdn confirms 500 redundancies in cost-cutting ‘transformation plan’ amid £12.4bn outflows

CEO Stephen Bird aims to reduce business costs by at least £150m by the end of 2025 compared with last year, with 80% of these savings coming from the investments business alone. Implementation costs are expected to reach £150m and will largely take place throughout the course of this year, with the group’s adjusted operating profit expected to be £60m lower by the end of this year.

Interactive Investor and Adviser

However, Interactive Investor, which Abrdn acquired in 2022, saw its net operating revenue increase by 43% from £201m to £287m, with adjusted operating profit ticking up 58% in 2023 to £114m, compared to £72m in 2022. Net customer growth increased by 4% while net flows stood at £2.9bn.

Meanwhile, its Adviser platform experienced a 21% rise in net operating revenue to £224m from £185m in 2022, due to higher income from Treasuries. Adjusted operating profit also increase by 37% to £118m, although inflows – including into its model portfolio service – dropped by 12%.

Commenting on the group’s overall results, CEO Bird said: “We have continued with our determination to build a modern investment company that is capable of thriving in a changing marketplace. In January of 2024, we took the next step in that process, announcing a £150m cost transformation programme to accelerate the delivery of a more sustainable cost base that can support appropriate long-term profitability. The need to continue applying downward pressure on costs was underlined by another challenging year.

“Throughout 2023, the ‘higher for longer’ rate environment across developed economies put sustained pressure on most asset classes, and while the market now expects a reversal over 2024, there is no doubt that we have felt the effects in our Investments business. The upside is the impact higher rates have had on income in Adviser and ii, underscoring the benefits of our diversified business model, which delivers through the economic cycle.”

He added: “When we embarked on our transformation journey back in 2021, not many would have foreseen the level of global economic and geopolitical turmoil we have since experienced. That has inevitably hindered our progress, and directly impacted performance.

“Nonetheless, we have moved at pace to evolve the business and create a model that is better suited to the modern investment landscape, better aligned to the products and services clients will want in the coming years and better positioned for future growth.”

This article was written for our sister title Portfolio Adviser

To garner a five Crown rating, funds must be in the top 10% of portfolios on alpha, volatility and consistently strong performance.

Growth funds populated this top 10% of the IA universe historically, but a more hostile market environment has allowed value funds to thrive in recent years, according to Charles Younes, deputy chief investment officer at FE Investments.

“Resilience has emerged as a key driver of financial markets in 2023,” he said. “Value and cyclical managers tend to excel in such an environment because their portfolios are often composed of companies that thrive during periods of economic expansion.”

In the latest rebalance, 19 funds were awarded five Crowns, with those in the IA Sterling Strategic Bond sector being the biggest winners. Over a quarter (28.6%) of the 77 funds in the sector now have the highest rating.

See also: VCT take-up jumps by a third to 25,800 investors

Younes said: “In continuously challenging conditions for fixed income markets, active bond managers have shown their capacity to protect from downside by decreasing their interest rate sensitivity.”

Following shortly behind was the IA Japan sector, which has 15 of its 65 funds (23.1%) boasting a 5 Crown rating. Two new funds investing in Japanese equities were awarded the top score after making significant returns since the last rebalance six months ago, during which time the sector is up 21%.

As value funds shouldered their way to the top, many growth funds had their five Crown ratings removed in January’s rebalance.

All six of the top rated Carvetian Capital funds lost their titles in the latest rebalance, meaning the firm no longer has any five Crown portfolios.

Similarly, Quilter Investors lost three of its top rated funds and abrdn had two deratings, leaving them with 10 and two full Crown portfolios respectively.

This article was written for our sister title Portfolio Adviser

Speculation that the business could see its workforce shrink by some 10% was first published by Sky News yesterday afternoon, with a source telling its city editor Mark Kleinman that 500 of 5,000 employees could lose their jobs.

Now, CEO Stephen Bird has confirmed that Abrdn is targeting an annualised cost reduction of at least £150m by the end of 2025, with 80% of these savings being made in the Investments part of the business. The target does not include any previously-confirmed divestments, but does include the “removal of management layers” which will “increase spans of control” for employees. This will be across group functions and support services.

Abrdn added that the front office of its investment arm will “see a modest adjustment”, although it stressed that the firm’s focus “remains on delivering excellent client service” and “strongly competitive performance” to its clients.

The firm will make further “efficiencies” in outsourcing and technology capabilities, with Abrdn stressing that “a bulk” of the savings will be not be made across staff costs.

It was also confirmed yesterday that Abrdn’s ABS managers Scott Duggal and Janaka Nanayakkara are due to depart the firm, as the fund moves to a new team.

See also: What does 2024 hold in store for the wealth management industry?

CEO Stephen Bird said: “Market conditions have remained challenging for our mix of business, and this is reflected in our year-end AUMA, flow numbers, and margins. The board and I are committed to taking these significant cost actions now to restore our core investments business to a more acceptable level of profitability.

“Although our business model benefits from the diversification that comes from operating three businesses, we will not rest until all of them are contributing strongly to group profitability, as Adviser and Interactive Investor have done in 2023.”

He added the transformation plan will deliver a “step change” in the firm’s cost-to-income ratio.

“We exceeded our £75m cost reduction target for 2023 for Investments, but we recognise more needs to be done. After a root and branch review, we are now re-engineering and simplifying our business model to remove at least £150m of costs – mostly from group functions and support services.

“The programme will largely be implemented in 2024, completing in 2025. These changes will allow us to continue our focus on building a growth business.”

A saving of £60m expected by the end of 2024, while the remaining £90m is due to be slashed next year.

Outflows

The redundancies follow outflows of £12.5bn for the Investments arm of the business during H2 last year, with assets under management and advice standing at £366.7bn. This represents small reduction from £367.6bn at the end of H1 2023, with losses partially offset by positive investment performance.

Abrdn said investor sentiment suffered due to “high inflation and geopolitical uncertainty”, which “continued the trend to cash and de-risking of client portfolios”.

“The industry saw continued net outflows in H2 across global active mutual funds. The changing dynamics and challenges within traditional asset management are well known and we continue to reshape our business to take account of these factors.”

Elsewhere, the institutional and retail wealth part of Abrdn suffered gross outflows of £11.2bn in H2, but net outflows of £8.3bn which the firm said was driven by negative sentiment towards equities and fixed income. The arm also suffered £6.7bn gross outflows in H1, with assets now standing at £211.2bn.

See also: Why investors need to take outlooks with a pinch of salt

Interactive Investor saw an inflow of £1.4bn in H2 2023 with assets at £61.7bn, while the Personal Wealth arm saw saw outflows of £300m. Assets here now stand at £4.3bn.

Overall, Abrdn’s AUMA is £494.9bn as at 31 December 2023, which includes a £6.9bn reduction due to “corporate actions”, including the disposal of its discretionary fund management arm – which contributed £6.1bn in AUM, and its £4.1bn US private equity business. It also acquired healthcare fund management business Tekla for £2.3bn, and four closed-end funds from Macquarie for £700m.

H2 2023 net outflows of £12.4bn represented 3% of the business’s opening AUMA. Net outflows excluding liquidity amounted to £9.5bn.

Abrdn has been hampered by lacklustre performance for some time, having been relegated from the FTSE 100 to the FTSE 250 index twice in 2023. In its H1 2023 results published in August last year, profits for Abrdn’s investment arm fell by 66% and fund flows plummeted 83% year-on-year.

Credit ratings issuer Moody’s downgraded Abrdn’s long-term issuer rating from Baa1 to A3 due to “idiosyncratic weaknesses in its profile” as well as “industry-wide headwinds.

CEO Stephen Bird has been streamlining the business’s product range and services in a bid to improve profitability, announcing a strategic review in July last year. The operation involved the launch of Abrdn’s Multi-Asset Investment Solutions franchise, which aimed to simplify the company’s product suite, improve performance and clarify performance objectives. This included folding the once-behemoth GARS fund into the firm’s Diversified Assets suite of funds, as well as closing three “other “liability-aware” absolute return funds.

Abrdn has also proposed merging several of its investment trusts over recent months, either with other internal investment companies, or with portfolios outside of Abrdn’s management. These include merging Abrdn Smaller Companies Investment Trust and Shires Income; the winding up of Abrdn China Investment Company into Fidelity China Special Situations; and folding Abrdn Property Income Trust into Custodian Property Income Reit.

This article was written for our sister title Portfolio Adviser

Glaister holds over 13 years of experience in the industry, and joined LGT Wealth Management following its acquisition of Abrdn Capital in 2023. She had spent three years with Abrdn as senior investment manager. Before, Glaister gained experience with Tilney Investment Managers, which is now part of Evelyn Partners, and Redmayne-Bentley.

Ian Gibson, managing partner in Evelyn Partners’ Leeds office, said: “I’m delighted to welcome Lauren to our Leeds investment management team. Lauren is a former colleague, and I am looking forward to working with her again as we continue with our growth plans in the region over the course of 2024. I know that Lauren’s extensive, senior investment management will be a great asset for our business and clients.”

To read more on this topic, visit: Professional services firm makes fifth acquisition of the year

Glaister specialises in investments for private clients and serves as a trustee for the Leeds Hospitals Charity, where she sits on the finance & performance and audit & risk committees.

“I am thrilled to be joining the Evelyn Partners team in Leeds, I know many of them well and feel it will be an excellent and important move in my career,” Glaister said. “The investment proposition offered is second to none and along with my new colleagues I believe we have a real opportunity to further the superior growth already achieved.”

In December 2023, Evelyn Partners acquired Hardwood Hutton marking its fifth acquisition of the year. The group holds £55.6bn assets under management as of the end of September 2023.

This article first appeared on our sister publication Portfolio Adviser.

They are seeking views as part of the joint Advice Guidance Boundary Review on the proposals to help people make more informed investment and pension decisions.

The three proposals include:

• Further clarifying when firms can give consumers support without giving regulated financial advice.

• An innovative new approach allowing firms to provide support tailored to groups of people in similar circumstances.

• A new form of simplified advice that makes it easier for firms to provide affordable personal recommendations to clients with more straightforward needs and smaller sums to invest.

Bim Afolami economic secretary to the treasury, said: “ The gap between holistic financial advice that is unaffordable for many, and guidance that is free to access but not personal to the consumer, is simply too vast.

“This so-called ‘advice gap’ is excluding people with modest investments, who are looking for support that doesn’t break the bank.

“This just isn’t good enough – we have long needed a middle ground that is affordable and accessible. The policy paper that the government and the FCA have published today will explore how we can achieve exactly that.”

Progressive Change

Ben Hampton, chief executive of Wealth Wizards (part of the Royal London Group), feels this is different to previous attempts to solve the puzzle of the advice gap calling the pace of change ‘progressive’.

He said: “This is the start of new era of how people make financial decisions. We will need to digest the detail however the ability to be more personalised and opinionated outside of regulated financial advice will reshape customer behaviour. The real winners are going to be those who can coherently connect the new and different types of support that will become available.”

Positive Industry Support

Alastair Black, head of savings policy at abrdn, said the firm were pleased to see the government and regulator addressing both sides of the advice gap.

Black stated that the firm will support its adviser business partners in developing the proposals and maximising their chance of success.

He said: “We were also pleased to see the Government mention the need for the simplified advice regime to avoid having to take into account consumer’s wider financial circumstances (allowing the advice to be targeted). If effective, this will maximise the chance of advice firms keeping costs for their clients down and growing capacity which benefits all.”

To read more on this topic, visit: 35% of employees worried they won’t be able to afford to retire

Black also pointed out that the long-term goal needs to focus on a commercially viable simplified advice regime to help people in retirement.

He added: “This is where the greatest need is. It doesn’t look like these proposals address that but they feel like a step in the right direction.”

Further Opportunities For Advisers

Andrew Tully, technical services director at Nucleus, suggested that the proposals could encourage millions to save and as their needs become more complex it will create further opportunities for advisers.

He said: “Planning is a key part of how confident someone is about their financial prospects in retirement. Giving more people the chance to access the support they need to make their money work harder is a step in the right direction. We are big supporters of advice and know just how much it can help people achieve good outcomes.

“We believe we should be looking at the advice gap from a different angle and focussing on how we address the planning gap. Having a detailed plan in place leads to significantly higher retirement confidence, so if we can get more people to engage with the planning process, then regulated financial advice, if required, can naturally follow.”

Concerted Effort Needed

Jenny Davidson, commerical proposition director at Quilter, has highlighted that a concerted effort is needed between industry and regulators to really drive change and give firms reassurance through clear advice/guidance boundaries.

As well as a need for regulatory frameworks to be set up specifically for lighter forms of advice or enhanced forms of guidance.

She said: “There is space for more sensible product guidance that is not based on personal information but utilises data on how the majority of people use certain financial products.

“The FCA’s commitment to explore the idea of ‘people like you’ nudges for non-advised savers is a good idea that could be critical to helping people avoid the kinds of choices that could be catastrophic for their later life finances.

“However, forms of ‘personalised guidance’, which has been previously suggested but are not in the FCA’s paper, would likely be a step too far and risk consumers misunderstanding what they are receiving, and a lack of clarity as to who is responsible for the decision.”

Davidson said that the financial advice and wealth management sector needs to work with the FCA to really shape what an effective and commercially viable model of simplified advice looks like.

She added: “While we firmly stand behind the existing distinction between advice and guidance, we welcome a broader scope to better meet the escalating demand for accurate and educational help for consumers.

“We want to work to optimise the use of product guidance and advice, but without blurring the crucial distinction between the two.”