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Edited Transcript of BRW.L earnings conference call or presentation 27-Nov-19 9:00am GMT

Full Year 2019 Brewin Dolphin Holdings PLC Earnings Presentation

London Nov 28, 2019 (Thomson StreetEvents) -- Edited Transcript of Brewin Dolphin Holdings PLC earnings conference call or presentation Wednesday, November 27, 2019 at 9:00:00am GMT

TEXT version of Transcript


Corporate Participants


* David Richardson Nicol

Brewin Dolphin Holdings PLC - CEO & Executive Director

* Siobhan Geraldine Boylan

Brewin Dolphin Holdings PLC - Finance Director & Director


Conference Call Participants


* Benedict Guy Williams

Liberum Capital Limited, Research Division - Research Analyst

* Benjamin Edward Bathurst

RBC Capital Markets, Research Division - Research Analyst

* Paul McGinnis

Shore Capital Group Ltd., Research Division - Research Analyst




David Richardson Nicol, Brewin Dolphin Holdings PLC - CEO & Executive Director [1]


Well, good morning, everyone. Thank you all for joining us today, and you're all very welcome for our 2019 results presentation. I'm joined by Siobhan Boylan, who I think some of you -- hopefully most of you have met, joined us earlier in the year. This is her first year-end, so please be kind to her. And we're -- I'm also joined by many of my executive colleagues, ExCo colleagues here as well.

So the way we're going to run through this morning is I'll say a few initial remarks. And then I'll hand over to Siobhan who will take you through the results in more detail. And then we'll come back to me, and we'll talk a little bit about an update on the strategy, and then there'll be some time for Q&A at the end. So thank you very much, indeed, for coming.

So this has been a year of continued and successful execution of our strategy. Funds under management now stand at GBP 45 billion as you can see in the chart here. I'm particularly pleased by the robust organic inflows of GBP 1.4 billion. These came from both direct and indirect channels where the investments and innovation that we have made over the last few years are really paying dividends. We remain well positioned in both direct and indirect markets with a strong presence, strong propositions and a broad reach.

We've made 4 strategically important acquisitions. These have added to our scale and have enhanced our proposition. We've expanded our client offering in both direct and indirect channels as well as enhancing our digital availability. Last year, we outlined plans for investments in projects to develop our technology infrastructure. These are now well underway and on track.

Our performance this year has been resilient with adjusted profit before tax of GBP 75 million, as you can see here. Our adjusted diluted earnings per share is 20.5p. And finally, we have announced a full year dividend of 16.4p.

Let me hand over to Siobhan who will take you through the financial results in more detail. Thank you.


Siobhan Geraldine Boylan, Brewin Dolphin Holdings PLC - Finance Director & Director [2]


Thank you, David. It's good to see you all again, and I'm delighted to present the financial results for my first year-end. As David has just mentioned, we've had a good year with total funds up 5% to GBP 45 billion. This has been driven by strong organic discretionary net inflows of GBP 1.4 billion, which represents a 3.7% growth rate. This is a very good result in what has been a tough year for the industry. Our total discretionary funds now stand at GBP 40.1 billion, up 7% from last year.

Our flows performance has translated into robust results. Total income is up 3% to GBP 339.1 million, and I will go into this in more detail shortly. Our total costs are up 5% to GBP 265.7 million driven by disciplined investment into the business, and this has translated into an adjusted PBT of GBP 75 million, down 3% year-on-year. Our total margin was 22.1%, and this reflects the investment that we continue to make to drive future growth into the business. Our adjusted diluted EPS is 20.5p, down 6%, which reflects the lower PBT and also the increased number of shares following the placing we completed in May 2019. We expect to see the returns from this placing in the current year.

The Board has recommended a final dividend of 12p per share, bringing the total to 16.4p for the year. And this represents an 80% payout, which is the top of our target range for a dividend of between 60% to 80%.

So let me go into our net inflows performance in more detail. Total funds grew by 5% to GBP 45 billion as at the 30th of September 2019 driven by strong total net flows of GBP 1.3 billion, total investment performance of GBP 600 million, and the inclusion of the acquired funds from Epoch of GBP 300 million, which completed in August.

Discretionary net funding flows of GBP 1.4 billion represents a growth rate of 3.7%, which is a strong result considering market conditions and we're broadly balanced across our channels and propositions with a strong result from our direct business. The benefits from our advice-led propositions are coming through. Flows in the fourth quarter of 2019 were GBP 300 million and were driven largely by MPS and gaining momentum in our 1762 business. Gross discretionary inflows of -- in 2019 were GBP 2.8 billion, with 43% now coming from direct business. This proportion was 34% in 2018. Gross discretionary outflows reduced to GBP 1.2 billion, and internal transfers were negative GBP 200 million. Last year was positive as we saw significant one-off internal transfers from the advisory service into discretionary services.

Net new funds into the direct discretionary business of GBP 500 million represents a significant increase in the growth of this business. Inflows from advice-led wealth management services accounted for over 50% of total private client inflows, with 21% of private client funds now using this service. Flows from 1762 are starting to gain momentum as it builds recognition.

In the intermediaries business, lower gross inflows of GBP 900 million were in line with subdued client activity seen across the industry. Outflows of GBP 500 million remained stable and broadly in line with prior year.

Finally, MPS had another outstanding year, and funds grew by 27% to GBP 3.8 billion, and this reflects the continuing demand for this service.

Turning to revenues. Total income has increased by 3% to GBP 339.1 million. Direct discretionary income grew by 3% to GBP 217.5 million driven by direct discretionary funds growth of 3%, with much of this growth coming from direct private clients. Income from our indirect discretionary business grew by 7% to GBP 76.8 million and remains resilient in light of the recognized industry slowdown in the intermediary sector. MPS income grew strongly to GBP 9.1 million with the business continuing to attract new inflows from a range of platforms.

Financial planning income increased by 12% to GBP 27.5 million, reflecting the continued growth of our advice-led wealth management service, a key element of group strategy.

Within other income, advisory income fell as expected, in line with the lower advisory funds. This was partly offset by the fee income from Mathieson Consulting, our newly acquired expert witness report writing service. This generated total income of GBP 0.5 million in the period and is performing well with good demand for these services.

The effective direct fee margin remained stable at around 70 bps and reflects the changing business mix as the proportion of integrated service increases. This revenue mix is expected to continue to change over time as financial planning income together with 1762 becomes larger.

The intermediary revenue margin reduced to 70.5 bps driven by tiering across our pricing bands as our business and client funds grow. Scale increasing the accounts were competitively priced with 39% of intermediaries funds being from IFAs that each have more than GBP 50 million of funds with us.

Before I look at costs, I thought it would be worth going into our financial planning business in a bit more detail. This is an area we've been investing both organically and inorganically. We believe this is one of our key differentiators which we've been developing across several years, and this is integral to our business. Financial planning works side by side with our investment management business, and the 2 areas complement each other.

A number of the acquisitions we've made over the last year or so have financial planning capability. Our income has been growing over the last 4 years. And you can see that our quarterly income has more than doubled in that time from GBP 3.5 million per quarter to GBP 7.8 million per quarter. This is a highly repeatable and sticky business. Demand continues to grow and we've seen an increase in the number of clients both on an integrated basis and also financial planning clients only. In 2019, over 50% of our new direct private client inflows are in an integrated service.

Turning now to costs. As we said during this year, we've continued to invest in a disciplined way for future growth. Total operating costs were 5% higher as expected to GBP 265.7 million driven by investment spend into a number of key growth and infrastructure initiatives.

The increase in staff costs of 8% to GBP 226.7 million (sic) [GBP 126.7 million] reflects the acquisitions we've made in the year, increased headcount in the 1762 office and our financial planning business and salary inflation. In addition, we've increased headcount, some of which is temporary, to manage the infrastructure projects for our new client management system and the replacement of our custody and settlement system.

Total headcount was up 7% to just over 1,800 people before acquisitions. The acquisitions of Mathieson, Aylwin and Epoch added 54 people in the year, and the acquisition of Investec's Irish business has added a further 50 people from the end of October. We expect to add about a further 25 to 30 headcount predominantly in the front office where we see specific growth opportunities. We expect the increase in staff costs to be circa 10% year-on-year, of which half is from M&A and half the impact of the heads in 2019 and the expected growth in 2020.

The increase in nonstaff costs of 4% to GBP 80.8 million reflects a full year of 1762 property costs; the impact of the higher FSCS levy, which was experienced across the industry; and an increase in infrastructure costs. Underlying nonstaff costs have been controlled with a BAU increase of only GBP 0.5 million.

I'd now like to look at the cash flow. Total cash was GBP 229.2 million at the end of September. This reflects the total cash raised in the placing in May of GBP 58.4 million.

Our business continues to be highly cash generative. Capital expenditure of GBP 15.3 million was significantly higher than last year. In total, we've invested GBP 5 million in our client management system, GBP 6 million in the custody and settlement system, and GBP 4 million in 1762 and the increased office network in the south of England. We expect to invest a further GBP 30 million in 2020 on these infrastructure upgrades. 2/3 of this is expected to be in the custody and settlement system in line with what we told you this year, and the remainder will be between property and the client management system. This is expected to be capitalized as a software intangible asset on the balance sheet.

Total investment in M&A was GBP 12.7 million. We completed the Investec acquisition on the 31st of October. And we've shown here on a pro forma basis that the cash balance after completion was GBP 199.4 million, and this includes the cash balances from Investec.

Looking at the balance sheet. Our net assets increased to GBP 337.7 million. Within this, the intangibles have increased by GBP 31.5 million to GBP 117.2 million as a result of the acquisitions in the year and the software that is to be capitalized on the balance sheet. In addition, pension scheme surplus has also increased by GBP 6 million to GBP 17.4 million driven by updates to the mortality tables. Both of these items are deducted net of deferred tax from net assets to form our regulatory capital resources.

Our total regulatory capital resources were up to GBP 216 million and represent 291% of the FCA capital requirements. On a pro forma basis, after the acquisition of Investec's Irish business and the impact of the introduction of IFRS 16 on retained reserves of GBP 6.6 million, regulatory capital resources are GBP 176.5 million, and this represents 235% of the FCA requirements. The capital we hold is available for investment and is there to enable our future investment into our business and growth opportunities, some of which will be capitalized.

Looking at regulatory capital. This sets out the capital resources at the 30th of September and shows the FCA requirements of 291%. As just explained, it sets out the adjustments on a pro forma basis of the acquisition of Investec's Irish business and the impact of IFRS 16 and shows that capital after these adjustments is 235% of the FCA capital requirements. As I previously explained, we expect to capitalize around GBP 30 million on the balance sheet. Our capital available and the future-expected retained earnings will ensure that we retain a strong balance sheet for the financial flexibility for future growth.

To provide a brief update on the Irish acquisition, this completed on the 31st of October. We've made very good progress and retained all key staff and have secured synergy benefits we expected. Work is now underway to migrate the clients, and we've held workshops and client events. Morale is high in the business, and there's been good engagement. Integration is progressing well with a number of work streams focused on migration and our growth plans. We are very positive about the opportunity in Ireland.

Before I update on the KPIs, I want to recap on 4 areas of specific guidance. On OpEx, we expect total headcount to reflect the full year of acquisitions made in 2019. Increased headcount, including acquisitions, is expected to be around 75 heads higher with expected staff increases to be around 10%, of which half is M&A and half BAU.

For CapEx, we have 2 big projects: the client management system and the custody and settlement system, and 2020 is the main year of investment. Between these projects and our property portfolio, we expect CapEx to be in the region of GBP 30 million. There will be a small CapEx expend in 2021.

The impact of acquisitions in 2019 has been small, so we have a full year impact for Epoch and Investec in particular. As we've already guided, the impact on PBT is expected to be approximately GBP 7 million.

Finally, with the introduction of IFRS 16, we've changed accounting for operating leases. Previously, we've treated these as an operating lease expense, whereas now we've had to recognize them on the balance sheet, which will mean a depreciation charge and a finance cost of a lease liability. Given the profile of our property portfolio, this means there's a small net reduction to the P&L of around GBP 1 million. To remind you, there is no change in cash flows, mainly in accounting recognition.

Finally, you've been asking for a refresh of KPIs by which I think you mean targets. We've completed an exercise to review and refresh the KPIs and targets after completing our medium-term plans. We've ensured that these metrics and targets are those we use in the business and also examined and considered if there should be any further ones added. We've set out here an updated set of KPIs and categorized them by our strategic priorities. We've removed 2 KPIs, discretionary service yield and average client portfolio, as they are output metrics and not targets. We've clarified the dividend as it was previously just 1p per share, and added the payout ratio which we've used for a number of years, and we don't anticipate changing this.

The rest are the same, and the targets remain unchanged. We'll continue to report our progress against these, and we're confident on these metrics and targets.

And with that, I'll hand you back to David.


David Richardson Nicol, Brewin Dolphin Holdings PLC - CEO & Executive Director [3]


Thank you, Siobhan. As you can hear, we've had a very busy but productive year, and I think we're making great progress against our strategy. What I'd like to do now is recap on the strategy and talk a little bit in more detail about that.

So let me recap for -- the opportunity for this business and why we operate in a fundamentally attractive market. I've talked before about the increased onus on individuals to take more responsibility for planning their future needs. The demand for advice is growing driven by recognition that life is more complex and most of us will live longer than those before us.

You can see the growth in demand for advice in the chart on the right. Between 2017 and 2018, there was a significant increase year-on-year in the number of people who are taking regulated financial advice. Yet a number of those who have not taken advice, but may need it, has increased even more dramatically. We are seeing growth in demand for broad financial advice across all segments: mass market, mass affluent and high net worth. There remains a considerable opportunity for a firm such as ours to take advantage of this growth in demand.

So how are we making the most of this opportunity? Well, we're making numerous innovations. We are, first and foremost, a people business focused on relationships. In our direct business, our growth initiatives are advice-led whether this is investment management, financial planning or our integrated service.

Our integrated services where investment managers and financial planners work together to give the broadest set of advice. As Siobhan has already highlighted, our integrated wealth management service is an area of strong growth for us, and 52% of new private client inflows are into this.

We have developed an extensive in-house financial planning footprint across our network in U.K. and Ireland. 25% of our offices are now led by individuals with a financial planning background, and this is a significant advance on the situation just a few years ago. This has taken time but gives us a competitive advantage. With the recent acquisitions, we now have over 100 financial planners supported by over 100 paraplanners and assistants. We also have 22 employees enrolled in our own academy, and we established the academy 2 years ago. We believe it is essential to continue to develop the skills that we need to support our continued growth.

At the heart of the business, however, a good, high-quality investment advice is still a critical part of our offering and continues to be at the heart of our strategy. Good advice leads to good client outcomes.

We have relationships with 500 professional services firms, having launched a professional services proposition 2 years ago. And we are seeing introductions and a strong flow of business across the firm. We are also providing people with access to a wider range of services by developing what we refer to internally as a spectrum of yes.

On the indirect side, we have strong relationships with 1,700 IFA firms, a nationwide sales team working with them backed up by high-quality investment service. Under the branding Powered by, we have developed an innovative way of offering third-party access to our intellectual capital to better run their investments, and I'll say more about that in a minute.

We have also added 2 new models to MPS in September that sit in a more cautious end of the risk spectrum. The investments we have made are enabling us to take advantage of the many opportunities we see in what is a growing market for our services.

Let's look at the progress we have made on our strategic objectives. We focus our approach through 4 strategic areas: providing more choice for more clients, developing our client experience and proposition, maintaining a proud culture and building a platform for growth. Now let me take each of these in turn.

Firstly, providing more choice for more clients. This time last year, our 1762 from Brewin Dolphin was in setup phase. We are now fully up and running. The team has grown from 17 staff at launch to 44 with the hiring of a number of high-quality professionals and fund flows are gaining momentum. As I said last year, we are using this proposition to explore new service ideas, the aim being that a number of the services developed here will be suitable for the rest of the core business. This year, we've introduced new charging models, our core and conviction portfolios and a liquidity management service, and there's much more to come.

On the indirect side, during the year, we signed agreements with 3 different organizations to provide our Powered by solutions, namely Guinness Asset Management, Fairstone and Eden Park. Our partnership with Guinness is focused on their multi-asset strategy, which is distributed outside of the U.K. to a predominantly expat target market with whom the Brewin Dolphin brand really resonates. This is providing us with access to opportunities we'd not normally capture with our existing distribution capabilities without the need for additional resources. In terms of both Fairstone and Eden Park, our Powered by solutions are being utilized as part of their respective central investment propositions, which are available to all our existing advisers and those that are being acquired as part of their consolidation programs. These are other ways of monetizing the quality of thinking in our in-house research teams. I'll come back to WealthPilot in a moment.

BPS, our own advice service with an investment requirement of just GBP 2,000 now has over 5,000 accounts and circa GBP 200 million of funds. We see the proposition as a useful adjacency for clients who already have an advice service and they want to supplement this with access to simpler, low-cost investments. A good example of this might be where our clients are investing on behalf of their grandchildren in (inaudible).

Turning now to developing our client experience and proposition. During the year, clients have benefited from improvements to our MyBrewin client portal, including the release of MyBrewin app for phones and tablets. 30% of our DFM business is now registered, and 90% of those clients log in at least fortnightly. We recognize that people increasingly want to use a range of channels for different aspects of the relationship with us. Our clients see technology and a physical office network as complementary parts of an integrated client experience.

Another very good example of this trend is WealthPilot. This year, we appointed Focus Solutions as our technology provider for WealthPilot, we have been working with to develop an online platform for the service. We've already received the part of the technology solution that we'll use by our advisers, which is now in test. And once launched in the first half of next year, it will create capacity to scale up this service, which has been getting very positive feedback from the clients who are already using it.

In terms of building a platform for growth, we announced last year a significant investment program in our technology infrastructure that Siobhan just referred to, including the replacement of our client management system and our core custody and settlement system. These 2 system upgrades are key components of the strategic investment the group is making to develop its services and client proposition. The new systems will enable us to enhance the experience we provide for our clients and our own people and improve the efficiency of our business. Development is now well underway on both projects.

The delivery of Client Engage, our new client management system, is a complex project which has required considerable investment over the last 2 years. It will provide us with a single integrated system for the whole client life cycle and will enable our wealth advisers to become more efficient in their handling of client relationships and client information. The technical build is now coming to an end, and we'll shortly be moving into training, and we expect delivery next spring.

Our culture is important to us at Brewin Dolphin, and we work hard to maintain it. We've continued our focus on the training and development of our people this year, of which our client relationship training and Cranfield MBA are just a couple of the highlights. We made increased commitments on diversity and inclusion, and we are particularly pleased to have risen to #6 overall for FTSE 250 companies in the recently announced Hampton-Alexander review for 2019. This is up from #27 last year.

Our annual employee survey gives a snapshot of the strength of our culture. Last year, our engagement store -- score was 83%. This year has risen to 87%, above the benchmark for the financial services industry of 77%. Our corporate responsibility program goes from strength to strength, with increased contributions of time and money from across the firm.

In terms of ESG, we enable our clients to invest responsibly by providing portfolios that take their ethical investment preferences into account. This year, we have enhanced the technology that we use to do this. We've also initiated a group-wide review sponsored by our Board and managed by our executive committee of how the group will address and respond to ESG more broadly. We actively engage with a number of third-party agencies who produce independent ESG ratings, and we are very pleased to receive an MSCI ESG rating of AA in November of this year. And we're also top quartile ranked from -- with sustained analytics. Whilst we have a lot to be proud of, we aren't complacent. And we regard our culture as an important differentiator for our business.

Let me now turn to how we've been building a platform for growth. As we discussed earlier, on M&A, we have successfully completed 4 strategic acquisitions in 2019, and all are performing in line with expectations. Siobhan has already discussed our acquisition in Ireland. In addition, we acquired Aylwin, an advice-led firm, which we've combined into our new Winchester office, and that's going very well. We acquired Epoch, a Bath-based advice-led firm in the summer, and this significantly added to our capabilities in the west of England. Earlier in the year, we acquired Mathieson Consulting, a specialist expert witness firm based in Birmingham. And this is enhancing, and will enhance in the future, our professional services proposition.

In April, we announced that we had appointed Avaloq to replace our core custody and settlement system. The project is well underway, and we expect the system to go live towards the end of 2020. And finally, in May this year, we announced we were moving our London headquarters in 2022. And this is a necessary step as we anticipate a requirement for more space than we currently have available. The new building will enhance the experience for our clients and our employees.

Let me turn to our focus for the coming year. On the left of this chart are enhancements that clients will see directly. We will build on momentum in 1762 by further enhancing that proposition. We'll complete the integration of the acquisitions we have made in the last year and ensure, as Siobhan said, that the benefits will be delivered. We'll continue to enhance WealthPilot, and we'll continue to make improvements to our digital capability. We'll obviously continue to develop our ESG-related client propositions. And overall, we will continue to grow organically across the whole core business.

On the right are some of the initiatives that will enhance the performance of the business. We'll continue to deliver leadership and management training and build on this year's successful client relationship training, and this will enhance our capabilities across the firm. We continue to work on diversity and inclusion to ensure the widest pool of talent is attracted and developed within our business. Our Client Engage client management system will be implemented in the spring. And Avaloq will be delivered towards the end of 2020. And building on our corporate responsibility achievements, we will continue to enhance our overall corporate approach to ESG.

Let me conclude by bringing all this together. This is a strong set of results. I'd like to thank my executive team who are here today, the finance team and everyone across the whole firm who's worked hard to deliver them. We have exceptionally strong client relationships. We see the value of these in both growing discretionary funds and the very high client retention rates we have. We have a broader footprint than ever with new offices being added through both acquisition and organic growth.

Our business mix is as diversified and broad as it's ever been. The resilience this provides is evident in the balance of growth between both direct and indirect parts of our business. And finally, we've continued to grow both organically and inorganically, with 4 acquisitions completed and continued net inflows in uncertain and challenging market conditions. Our focus and innovation is making a significant impact on our clients in the business.

To conclude, our business is about being able to say yes to more clients across the country, ensuring that we help clients through these difficult and uncertain times, ensuring that we give them all the advice that they need to get the right outcomes for them and their families. I'm extremely confident about the outlook for our business based on the disciplined execution of our growth strategy.

Thank you very much for listening, and now we can take some questions. Thank you. Maybe you could say -- if you've got a question, if you could say who you are, that would be very helpful.


Questions and Answers


Benjamin Edward Bathurst, RBC Capital Markets, Research Division - Research Analyst [1]


It's Ben Bathurst from RBC. Firstly, we've had a couple of your peers attribute slightly weaker flows over the last 3 months or so to investment management departures. I just wondered in light of the fact on Slide 10, you've pointed to growth in front office personnel next year. Is that something we should be sort of considerate of in terms of our flow forecast for next year in a positive sense for you?

And then just thinking about your income profile. On Slide 29, you split out the fee commission and FP income. I just wondered if you could comment on how that mix might change from next year as we sort of factor in the acquisitions you've made over the course of 2019.


David Richardson Nicol, Brewin Dolphin Holdings PLC - CEO & Executive Director [2]


Maybe Siobhan can...


Siobhan Geraldine Boylan, Brewin Dolphin Holdings PLC - Finance Director & Director [3]


Yes. So in terms of the flows and the headcount that you've seen, we continue to see good growth across our direct and indirect channel. We don't necessarily look at it from a kind of a headcount driving that, but we look at it from a case of the wider proposition that we have and the geographical coverage. So that's what looks -- what we look at when we look at our flows growth.

In terms of the income profile, we would expect over time to see that FP income tick up, particularly if you include things like Epoch in that. So it will move up slightly, but obviously the commissions and other income will continue to reduce as a percentage.


Paul McGinnis, Shore Capital Group Ltd., Research Division - Research Analyst [4]


Paul McGinnis from Shore Capital. Three questions, please. Just to clarify, the dividend policy, you restated it at 60% to 80%. Obviously, it's at the top end of that this year, and to just establish, is that a progressive policy? Just, for example, say markets are down next year and therefore earnings are down, you wouldn't cut it just to stay at the 80% band, you would be prepared to go above that. That's question one.

Question two, is there a natural cap on the size that financial planning can get to within a business such as your own without starting to interfere with the relationships with third-party intermediaries?

And then final one, I noticed just on the capital slide, there's still surplus capital of GBP 28 million pro forma above and beyond, well, the initial acquisition cost. So with that, and that's also above and beyond your 150% self-imposed buffer. I'm just wondering therefore, did you need to raise GBP 60 million in the summer on the basis, there's still sort of GBP 30 million surplus, even above and beyond that.


David Richardson Nicol, Brewin Dolphin Holdings PLC - CEO & Executive Director [5]


I'll answer the middle question. Maybe Siobhan can do dividend and the capital question.


Siobhan Geraldine Boylan, Brewin Dolphin Holdings PLC - Finance Director & Director [6]


Yes. So in terms of the dividend, we would continue to seek to grow the dividend. We've got that range of 60% to 80%. We are at the top of this year. I would expect it to continue to grow over time, but perhaps the payout ratio will come down slightly. I think if you look at the last few years, we've been around the mid-70s mark. So we would expect to continue to grow it but at a lower rate.

The -- from the capital surplus perspective, you point to the GBP 28 million. There are 2 things there. We are continuing to generate retained reserves. We said at the time when we did the raise that we had invested a total of about GBP 70 million over the last -- in terms of the M&A. So Epoch was 20 -- around GBP 20 million, and you've got the Investec around EUR 44 million. And then we had 8 WP and WealthPilot. So there's a total of investment of about GBP 70 million, we raised GBP 60 million.

Part of what we will invest next year, we'll also capitalize on to the balance sheet. So that doesn't count for capital. So we think we've got a -- from -- with the retained reserves and our -- what we've got at the moment flexibility within our balance sheet, 150% is what we've said we would have, but you would want to make sure that we were not just at 150%.


David Richardson Nicol, Brewin Dolphin Holdings PLC - CEO & Executive Director [7]


So could you remind me the third -- second question again? Sorry.


Paul McGinnis, Shore Capital Group Ltd., Research Division - Research Analyst [8]


Just whether there's a natural cap on the size of financial planning.


David Richardson Nicol, Brewin Dolphin Holdings PLC - CEO & Executive Director [9]


Okay. We don't -- I think increasingly, you will hear us talking about integrated -- talking about advice more generally. If you look at what we're doing in 1762 and if you look at some of the inflows we're seeing this year, we're trying to give the broadest advice, which is all aspects of investment advice, advice on pensions, inheritance tax and all the other things that we give as advice. And in fact, we have historically split financial planning out, which we have. But I don't -- we don't see it as a challenge to our intermediary business. It sits very comfortably alongside us. I mean it may happen in the future, I don't know, but we certainly aren't seeing it at the moment. Really what it is, is our direct clients are leading -- are seeing the need for the broader set of advice we can possibly give them. So...


Unidentified Analyst, [10]


I'm [Nicolas Silca, FinCap]. You mentioned a slowdown in the intermediary sector, but it seems like 7% growth is still quite commendable. Where do you sort of envisage that going in the future?


David Richardson Nicol, Brewin Dolphin Holdings PLC - CEO & Executive Director [11]


We've got a very broad coverage across the whole country, and we deal with 70 IFAs. We've got a presence from Aberdeen to Truro. So we can cover the whole country, and we'll be there to service. I think we've got a good service model. We're quite comfortable that we'll continue to be able to grow this business. I mean clearly, there's lots of competition and obviously, it depends on the IFAs, underlying clients themselves, intermediaries underlying clients themselves, so in terms of what they're doing. But we're well positioned to take advantage of the opportunities there.

I mean there's still -- I think going back to my first slide in the strategy update, there's still -- the demand for advice in the U.K. is only going to grow in its broadest sense, and I -- and we are well positioned to take advantage of that, whether it be direct business or supporting our adviser firms or indeed the professional services firms we deal with. We're well positioned, and this is what we do. We are completely dedicated to wealth management in its broadest sense. We're not a bank, we're not a fund management house, we're not a subsidiary of a big group where -- this is what we do. So I think we are well positioned to adjust and take advantage of the opportunities as they arrive.

So if -- I'm not going to predict the percentage for next year. We're comfortable with our projections overall. But we are -- we think the mix actually now between direct MPS, indirect and all the other things we're doing is pretty good. So we'll just keep going in all of those fronts.


Benedict Guy Williams, Liberum Capital Limited, Research Division - Research Analyst [12]


Ben from Liberum. So we've seen significant staff growth in 2019. You're talking about another 25 sort of organic hires in 2020, mostly front office. And when I look at the target of funds under management for CF30, were you to achieve that, your profitability would be in a totally different place. What are the steps? Now obviously, I'm thinking about the CMS. What are the steps you're taking to enhance efficiency, such as you can make steps in that direction?


David Richardson Nicol, Brewin Dolphin Holdings PLC - CEO & Executive Director [13]


Well, I think we have invested -- we are and have invested a lot of money into the technology platforms. And we will get more efficiency, both the support side of the business as well as giving our client-facing staff more time to spend with clients. Well, I'm not going to say exactly what that percentage change will be per head, but we expect our people to be more efficient.

I mean there is always a cap where there's a limit to how many clients and how much funds and how many interactions a people-related business can have, but we think there's more to go there. But we have to give -- I mean, Charlie Ferry and the rest of executive colleagues are here today. We have to give better tools, which is what we're investing in, to our client-facing staff. And we'll do that over the next 18 months, and then we'll continue to invest at a lower level going forward.

We're going to have to -- we're not going to stand still. And also, we will give better tools to our clients as well to interact with us. So MyBrewin, the WealthPilot, we've -- there's a lot more we can do with MyBrewin over time, making paperless initiatives and all sorts of things like that, that we haven't really talked much about. But there's more to come that will ultimately make us more efficient.

But this is a people business. So it means that there will always be strong relationships between people and clients, and we are very comfortable that the profitability of the firm will go up over time. But we need to continue to invest in it. It's not going to roll. We can't call it increased revenue straight to the bottom line.

Any other questions? If there's not -- I know Nick, Robin and Charlie are here and Grant and Richard Buxton. So if there's any -- if anybody wants to hang back at the end, we can talk a bit more about any of this. Okay. So thank you very much for coming. Thank you.


Siobhan Geraldine Boylan, Brewin Dolphin Holdings PLC - Finance Director & Director [14]


Thank you.