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

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

Conducted for ii by Opinium, the survey showed that not saving enough for retirement was the third-biggest worry amongst 26% of respondents.

The cost-of-living crisis is continuing to cause financial concerns among Brits with 41% of respondents identifying finances as the external factor most impacting their mental wellbeing.

With 56% of those aged 41-55 saying they think they will never retire with this figure rising to 67% for women.

The data revealed that women are 14% less likely to have any pension pots than men and they expect £8,000 less in pension income.

To read more on this topic, visit: Gender pension gap set to widen as men have double retirement pot

This is down to a number of factors including that women are more likely than men to spend time outside of the labour market or work part-time to be able to provide childcare for their family.

Data from interactive investor has also shown 28% of women don’t have a pension pot compared to 18% of men, highlighting that the gender pay gap feeds through to a pensions gap, suggesting why some women believe they will never retire.

Rise of ‘living inheritances’

The survey also revealed that a tenth of over 40s said they had given a ‘living inheritance’ in the past three years and 15% had among those aged over 65.

The most common reasons for being given a living inheritance were to see the benefits during a respondent’s own lifetime (40%), helping with either a deposit on a home (28%) or the rising cost of living (32%).

Alice Guy, head of pensions and savings at interactive investor, said: “The Bank of Mum and Dad, and Grandma and Grandad, is alive and well, with many aware of generational inequalities and passing on wealth to help their younger family members build financial resilience.

“Our research shows that, far from being a generational battle, we are all on the same side, with many parents and grandparents making sacrifices to help the next generation and giving generous ‘living inheritances’ to their loved ones.”

This is up from £10,600 this year.

The pension triple lock is based on the highest of total wage inflation between May to June (8.5%), CPI inflation in September (announced in October) and 2.5%.

Alice Guy, head of pensions and savings at Interactive Investor, said: “The triple-lock increase is great news for millions of pensioners, providing a lifeline to many poorer households. One in eight pensioners don’t have any income in addition to the state pension and are completely dependent on the triple lock to help them cover their rising costs.

“Women are particularly likely to rely solely on the state pension, especially if they are on their own. Many have taken time out from the workplace, which makes it harder to build up a workplace pension.

“It’s important to remember that, even with the triple lock, the UK state pension is still one of the lowest in Europe. Many other countries have a state-pension system based on the amount you pay in, rather than a simple flat rate. That means UK pensioners are hugely reliant on workplace pensions to supplement their state-pension income. But not everyone has access to a workplace pension.

“Those who are long-term carers, disabled or simply self-employed often end up with the rough end of the stick when it comes to retirement incomes. Most pensioners actually receive less than the headline rate.”

Older pensioners who retired before April 2016 receive an older-style basic pension, that will only rise to £8,812 next year. Likewise, pensioners who don’t have a full national-insurance record also receive less.

‘Difficult balancing act’

Guy added: “The government has a difficult balancing act ahead, as it weighs up an increasingly expensive state pension bill, with the needs of pensioners. One option would be for the government to consider using longer-term averages, rather than short-term data to determine the triple lock.

“This would reduce the risk of the triple lock being skewed by short-term trends.

“The triple lock has successfully raised the level of the state pension by £3,158 in real terms since 2011.”

The estimated cost of triple lock for 2024/45 projected by the DWP March forecast is £6,899m however calculations by Interactive Investor estimate that it could actually cost £8,815m for 2024/25.

Its calculations based on data including the DWP state pension data and ONS wages data also found that the total state pension bill could be £2bn higher than the current DWP forecast next year.

This is due to higher-than-expected wage and CPI inflation compared to predicted inflation at the time of the DWP forecast in March 2023.

Alice Guy, head of pensions and savings at Interactive Investor, said: “ The DWP March forecast expected the total state pension cost to rise to £135bn in the tax year beginning April 2024.

“But sticky inflation and increasing wages mean that the state pension bill could rise to around £137bn next year, the triple lock estimated to cost around £9bn to the taxpayer based on ii calculations.

“There are no easy solutions as even with the triple lock, the cost-of-living crisis means that an increasing number of pensioners are living in poverty.

“There’s a big time-lag between high inflation and an increase in the state pension, meaning that many poorer pensioners are facing a shortfall and are struggling to make ends meet.”